Global Business Environment - all the notes you will need PDF

Preview

Summary

GBEGlobalisationDefining globalisation Trend towards a more integrated and interdependent global economic system, which results in more international integrated governance  Globalization of markets – merging of distinct and separate national markets into a single market place  Globalisation of pro...

Description

GBE Globalisation Defining globalisation -

Trend towards a more integrated and interdependent global economic system, which results in more international integrated governance  Globalization of markets – merging of distinct and separate national markets into a single market place  Globalisation of production – sourcing of goods from around thw world to get better prices etc.

4 pillars of globalisation    

Capital Trade People Information

Global governance International institutions were set up in order to police the global system. Main goal is to ensure that everything runs smoothly > The ideal of global governance is a process of cooperative leadership that brings together national governments, multilateral public agencies, and civil society to achieve commonly accepted goals E.G. o o o o o  

IMF – Maintain order in the international monetary system World bank – promotes economic development WTO – governs international trade through agreements and dispute resolution UN – Promotes international peace and security north Atlantic treaty organisation signed on 4th April 1949 An intergovernmental military alliance between 29 North American and European countries

HOW – what is driving globalisation  Technology  Declining trade and investment barriers WHY  After WW11 countries realised better to work together  Profits  Manage, regulate & police the global market-place

 Promote trade & investment using multinational treaties to govern the global business system  Foster economic development WHEN  15th + 16th century  Before WW11  1980s to now

Supporters vs critics Support -

Greater prosperity Balances power Losses only occur due to the governments in ability to manage the imoacts of globalisation properly

Critics -

Loss of culture Rich and poor do not equally share the benefits Loss of sovereignty

Global relations Definition of power -

Power I sthe ability of an actor on the international stage to use tangible and intagivle resources and assets in such a way as to turn the outcome of international events in one’s favour

Hard or soft power?  Hard – military, sanctions  Smart – payment, diplomacy, Trade/ aid  Soft- Outreach, cultural ties

Realist model

•

Sovereign states are the main actors and must be strong.

• The world is an anarchic place, where constant struggle for power goes on between states, each of which pursues its own national interests •

Revolutions are dangerous

•

Order in the world can only be based on balance of power between states

• War is a natural phenomenon, an often-necessary evil, “continuation of politics by other means” (von Clausewitz) •

International trade should serve national power

Idealist model • Conflicts between nations can be resolved peacefully; mutual interests between them make cooperation possible •

A prosperous society is more important than a powerful state

•

Human rights and freedoms must be respected everywhere

•

The spread of liberal democracy leads to world peace

•

The global market economy binds nations together, making wars less likely

•

International law must be obeyed by all states

• International institutions, such as the UN and International Monetary Fund, can be effective instruments of peace and cooperation •

Disarmament is necessary and possible

POLITICAL ECONOMY Democracies vs totalitarianism Democracy – political system in which government is exercised by the people either directly or through elected individuals  Connected with individualism Totalitarianism Form of government where 1 person or group has complete control over the 3 systems in political economy     EG

Opposition is forbidden No free or fair elections Media is censored Basic civil liberties are denied

-

Communist Theocratic Tribal Right wing

Collectivism vs individualism Collectivism – Stresses the primacy of collective goals over individual goals; the needs of society as a whole are generally viewed as being more important than individual freedoms.  Associated with commuinism and socialsism Individualism – suggests that individuals should have freedom over their political and economic pursuits. Economic system Three types Market economy » Supply and demand determine which goods and services are produced in which quantities » Private ownerships is the dominant company’s legal form » the role of the government is to encourage free and fair competition between private producers » encourages entrepreneurship » individualism Command economy    

Price, quantity, customers, production- decided and oplanned bt the state All businesses are state owned Communist countries collectivivist

Mixed economy  includes both of the other systems  Government controls healthcare, schools etc

Legal system 3 types of legal systems  Common laq – based on precedent and formed through experience and logic  Civil law – based on a very detailed set of lawys set into code  Theocratic law – based on religion

Political economy and economic development Defining development Economic development is measured through  Gross national income  Purchasing power parity (PPP)

Broader concepts of development    

Economics Climate Institutions Culture

How to measure development Amartya sen – “development should be asses not by how much income there is but by the capabilities and opportunities people have – education, health, employment”

Human development index = Longevity (1/3) + Knowledge (1/3) + standard of living (1/3) -

Countries dived into low, medium or high

Market economies require a well-functioning legal system and political system to sustain economic growth Differences in culture In 1904 max weber suggested it was a protestant work ethic that was the driving force of capitalism.

How did Calvinism create capitalism? Catholics (you are saved anyway) Protestants you have to earn it

Confucianism Sometimes viewed as a philosophy sometimes a religion. Core values emphasize the importance of attaining salvation through right actions.  A way of living not a religion  Not associated to afterlife  Teaches loyalty, reciprocal obligations, honesty

How to compare cultures? Geert Hofstede’s 6 dimensions model. According to this model each culture can be evaluated and compared on the following on a scale of 1 to 100  Individualism vs collectivism This refers to the strength of the ties that people have to others within their community. A high IDV score indicates weak interpersonal connection among those who are not part of a core "family." Here, people take less responsibility for others' actions and outcomes. In a collectivist society, however, people are supposed to be loyal to the group to which they belong, and, in exchange, the group will defend their interests. The group itself is normally larger, and people take responsibility for one another's well-being. Power distance – how the less powerful perceive the power share This refers to the degree of inequality that exists – and is accepted – between people with and without power. A high PDI score indicates that a society accepts an unequal, hierarchical distribution of power, and that people understand "their place" in the system. A low PDI score means that power is shared and is widely dispersed, and that society members do not accept situations where power is distributed unequally.

 Femininity (caring, modesty etc) vs masculinity (heroism, assertiveness etc) This refers to the distribution of roles between men and women. In masculine societies, the roles of men and women overlap less, and men are expected to behave assertively. Demonstrating your success, and being strong and fast, are seen as positive characteristics. In feminine societies, however, there is a great deal of overlap between male and female roles, and modesty is perceived as a virtue. Greater importance is placed on good relationships with your direct supervisors, or working with people who cooperate well with one another. The gap between men's and women's values is largest in Japan and Austria, with MAS scores of 95 and 79 respectively. In both countries, men score highly for exhibiting "tough," masculine values and behaviors, but, in fact, women also score relatively highly for having masculine values, though on average lower than men. Application: As we've highlighted, Japan has the highest MAS score of 95, whereas Sweden has the lowest measured value of five. Therefore, if you open an office in Japan, you should recognize you are operating in a hierarchical, deferential and traditionally patriarchal society. Long hours are the norm, and this, in turn, can make it harder for female team members to gain advancement, due to family commitments.

At the same time, Japan is a culture where all children (male and female) learn the value of competition and winning as part of a team from a young age. Therefore, female team members are just as likely to display these notionally masculine traits as their male colleagues.

By comparison, Sweden is a very feminine society, according to Hofstede's model. Here, people focus on managing through discussion, consensus, compromise, and negotiation.  Uncertainty avoidance This dimension describes how well people can cope with anxiety. In societies that score highly for Uncertainty Avoidance, people attempt to make life as predictable and controllable as possible. If they find that they can't control their own lives, they may be tempted to stop trying. These people may refer to "mañana," or put their fate "in the hands of God." People in low UAI-scoring countries are more relaxed, open or inclusive. Bear in mind that avoiding uncertainty is not necessarily the same as avoiding risk. Hofstede argues that you may find people in high-scoring countries who are prepared to engage in risky behavior, precisely because it reduces ambiguities, or in order to avoid failure. Application: In Hofstede's model, Greece tops the UAI scale with 100, while Singapore scores the lowest with eight. Therefore, during a meeting in Greece, you might be keen to generate discussion, because you recognize that there's a cultural tendency for team members to make the safest, most conservative decisions, despite any emotional outbursts. Your aim is to encourage them to become more open to different ideas and approaches, but it may be helpful to provide a relatively limited, structured set of options or solutions.  Long term vs short term orientation This dimension was originally described as "Pragmatic Versus Normative (PRA)." It refers to the time horizon people in a society display. Countries with a long-term orientation tend to be pragmatic, modest, and more thrifty. In short-term oriented countries, people tend to place more emphasis on principles, consistency and truth, and are typically religious and nationalistic. Application: The U.S. has a short-term orientation. This is reflected in the importance of short-term gains and quick results (profit and loss statements are quarterly, for example). It is also reflected in the country's strong sense of nationalism and social standards.  Indulgence vs restraint Hofstede's sixth dimension, discovered and described together with Michael Minkov, is also relatively new, and is therefore accompanied by less data. Countries with a high IVR score allow or encourage relatively free gratification of people's own drives and emotions, such as enjoying life and having fun. In a society with a low IVR score, there is more emphasis on suppressing gratification and more regulation of people's conduct and behavior, and there are stricter social norms. Content Team, M., 2021. Hofstede's Cultural Dimensions: – Understanding Different Countries. [online] Mindtools.com. Available at: [Accessed 7 December 2021]. Ethics in international business

Ethics – accepted principals of right or wrong that govern the conduct of a person, organisation etc.. Business ethics – the accepted principals of right or wrong governing the conduct of business Ethical strategy – business strategy that does not violate those ethical principles

Ethical Dilemmas situation in which none of the alternatives seems ethically acceptable

Straw men theories  Either deny the value of business ethics or apply it in an unsatisfactory way. The friedman doctrine  The only social responsibility of businesses is to increase profits as long as it complies with the law Cultural relativism~ Ethics is a product of culture in which one is inserted and firms shoul adopt the ethics of the culture in terms of the culture in which they operate ~ Righteous Moralist A multinationals home country standards are the appropriate ones for companies to follow in foreign countries Naïve Immoralist Actions are ethically justified if everyone else is doing the same

International trade theory Theories that explain trade Classical country-based theories 1. Mercantilism  Oldest theory 16th cent.  Countries want exports > imports because the payments are made in gold (basically they wanted to grow their wealth as much as possible by exporting more than importing )  Not financially sustainable to sell less than we import from the rest of the world

2. Absolute advantage – Adam smith  Countries differ in their ability to produce goods

 Countries should specialize in goods in which they have an absolute advantage and then trade those goods for goods produced by other countries  Not zero sum but win-win

3. Comparative advantages – David Ricardo  Relative advantages – we must consider the opportunity costs of production  A county should specialize in the goods it produces most efficiently and buy the goods it provides less efficiently 4. Hecksher-odin theory The Heckscher-Ohlin model is an economic theory that proposes that countries export what they can most efficiently and plentifully produce. Also referred to as the H-O model or 2x2x2 model, it's used to evaluate trade and, more specifically, the equilibrium of trade between two countries that have varying specialties and natural resources.  Comparative advantages take into account not only effiecny issues but also other productive factors (labour, land)  One should make exports that make intensive use of those factors that re locally abundant and import goods that make intensive use of factors that are locally scarce Modern firm theories 1. New trade theory – krugman~  Trade can increase the variety of goods available and decrease the average cost of those goods because of economies of scale – unit cost reduction associated with a large scale of outputs  If you are a small country you have to sell internationally to exploit economies of scale  Problems - Protectionism - Potential competition – only a small amount of big businesses would be able to follow this recommendation

2.  -

-

Porter’s diamond – the competitive advantage of nations (cluster) Explains why some industries become competitive in particular locations Firm strategy, structure and rivalry These elements include how companies are created, organised and managed and the nature of domestic rivalry – the idea is that if you can compete at home than you can compete anywhere Strong association between vigorous domestic rivalry and creation and persistence of competitive advantage in an industry Factor endowments – production factors Natural factors provide an initial advantage that is extended by investments in advanced factors such as communications, governance, infrastructure Demand conditions in a county

-

Influence the developments of capabilities Sophisticated and demanding customers Related and supporting industries Suppliers industries and related ones that are internationally competitive – competitive clusters

The political economy of international trade Free trade -

When governments do not interfere to influence imports or exports

Political economy of trade Reasons for governments to intervene in trade 1. Political arguments Governments should intervene in trade to defend the interests of certain groups within a nation (normally producers) often at the expense of other groups (usually consumers). The following issues are particularly important:    

Protecting jobs and industries National security Protecting consumers Protecting human rights

2. Economic arguments  Infant industry argument – an industry can be protected until it can be developed and be viable and competitive internationally  Strategic trade policy – where there may be potential 1st mover advantages governments can help countries get this advantages or help to fight barriers How to intervene and affect trade?  Tariffs – taxes levied on imports  Subsidies to help domestic producers  Quotas – restrains on quantity o Voluntary export restraint – quota on trade imposed by the exporting government typically at the request of the importing country government o Import quotas o Tariff rate quota – hybrid between a quota and a tarfii, where a lower quota is applied to the units within the tariffs  Local content requirement o Demands that some specific fraction of a good to be produced locally  Administrative trade policies – bureaucratic rules designed to make imports more difficult – car safety requirements are different between EU and US  Anti-dumping policies o Dumping – selling goods in a foreign market below their production cost or at below the “fair” market value

Foreign direct investment Definition -

When a firm invests directly to produce or market in a foreign country

2 types:  Greenfield investment: wholly new operation o Riskier and takes longer o Creates more jobs  Brownfield: mergers & Acquisitions – the business already exists and 1 firm buys ashare (sometimes all of them) form a foreign company o More common o Quicker to execute o Easier and less risk o The idea is to increase the efficiency of the business by transferring capital technology and management skills 2 forms:  Horizonal – you move out all the departments  Vertical – you only move part of your company Alternatives to FDI 1. Exporting 2. Licensing – granting a foreign identify the right to produce and sell the firms product in return for a royalty fee on every unit sold Which of the three options to use? Advantages  FDI favoured over exporting when o High transpiration cost o Trade barriers are high  FDI favoured over licensing when o Firms wants to control their know-how o Firms want control over operations and business strategy o The firms capabilities are not amenable to licence o Advantages of licensing  No capital expenditure  Constant revenues Conclusion FDI should only be used when licensing is not an option and licensing should only be used when exporting is not an option Regional economic Integration Countries are agreeing to integrate themselves at various degrees, especially on trade.

Economic Integration – agreement between countries that always start with trade by reducing tariffs and other barriers to free flow of goods and services and factors of production Levels of integration  Free trade area – all barriers to trade of goods and services are removed between members but members determine their own trade policies regarding non members  Customs union – eliminate trade barriers between member countries and adopts a common external trade policy (usually a step towards further integration)  Common markets- no trade barriers  Economic union – all the above plus a common currency, harmonization of tax rates and a common monetary and fiscal policy  Political Union – independent states are combin...