INTERNATIONAL BUSINESS
TRADE-CHAPTER 1 SUMMARY
WHAT IS INTERNATIONAL BUSINESS?
Globalization
- The shift towards a more
interdependent and integrated
global economy; creates greater
opportunities for international
business.
International Business
- Encompasses a full range of cross-
border exchanges of goods, services,
or resources between 2 or more
nations.
National Business
- Encompasses a full range of cross-
border exchanges of goods, services,
or resources within the
country/nation.
Strategic Management
- Body of knowledge that answers
questions about the development
and implementation of good
strategies and is mainly concerned
with the determinants of firm
performance.
Strategy
- Central, integrated, and externally
oriented concept of how an
organization will achieve its
performance objectives.
SWOT
- A strategic management that helps
an organization take stocks of its
internal characteristics to formulate
an action plan that builds on what it
does while working around
weaknesses and assess external
environmental condition that favor
or threatens the organization’s
strategy.
Entrepreneurship
- Recognition of opportunities and the
use of or creation of resources to
implement innovative ideas for
thoughtfully planned ventures.
Entrepreneur
- Person who engages in
entrepreneurship.
Intrapreneurship
- A form of entrepreneurship that
takes place in a business that is
already in existence.
Intrapreneur
- Person within an established
business who takes direct
responsibility for turning assertive
risk taking and innovation.
INTERESTED PARTIES IN INTERNATIONAL
BUSINESS
Stakeholder
- Individual or organization whose
interests may be affected as the
result of what another
individual/organization (E.g
 employees, managers, businesses - Advantages due to the choice of
government, and NGOs) foreign markets and can include
better access to raw materials, less
Stakeholder Analysis
costly labor, key suppliers, key
- Technique used to identify and to customers, energy, and natural
assess the importance of key resources.
individuals, groups, or institutions
INTERNATIONAL FORMS OF
that may significantly influence the
success of an activity, project, or GOVERNMENT
business. Government
FORMS THAT INTERNATIONAL - A body of people that sets and and
BUSINESSES TAKE administers public policy and
exercises executive, political, and
Business
sovereign power through customs,
- Person/organization engaged in institutions and laws within a state,
commerce with the aim of achieving country, or other political unit.
a profit.
Nongovernmental Organizations (NGOs)
3 Part Mission Statements
- Any non-profit, voluntary citizen’s
- Social & Environmental group that is organized on a local,
- Product national, or international level.
- Economic
THE GLOBALIZATION DEBATE
Importer
- Emphasizes 2 theories:
- Person/organization that sells  “We live in a Flat World.”
products and services from other  We live in a Multi-domestic
countries. World, Not a Flat World.”
Exporter
- Person/organization that sells
products and services from the
home country.
Foreign Direct Investment
- Investment of foreign assets into
domestic structures, equipment, and
organizations.
Location Advantage
TOM FRIEDMAN (THE WORLD IS FLAT)
Tom Friedman
– Columnist for the New York
Times.
– Famous for Coverage of Arab-
Israeli Conflict
– Author of bestseller book “The
Lexus and the Olive Tree”
Flat World View
- A metaphor for viewing the world as
a level playing field in terms of
commerce, where all competitors
have an equal opportunity.
3 Phases of Globalization
 Globalization 1.0 (1492-1800)
- Countries
- Muscles (Energy consumption)
 Globalization 2.0 (1800-2000)
- Multinational Corporations
 Globalization 3.0 (2000 to present)
- Driven by empowered
individuals from countries
outside US/Europe.
Friedman’s Definition of Flatness
 “The net result of this convergence
was the creation of a global, Web-
enabled playing field that allows for
multiple forms of collaboration – the
sharing of knowledge and work – in
real time, without regard to
geography, distance, or, in the near
future, even language. No, not
everyone has access yet to this
platform, this playing field but it is
open today to more people in more
places on more days in more ways
than anything like it ever before in
the history of the world. This is what
I mean when I say the world has
been flattened.”
The Ten Flatteners
 End of Cold War
 Beginning of “Viral Marketing”
 Invention of Workflow Software and
Supporting Systems
 Rise of Open-source Software
Movement
 Outsourcing of work by
Multinational Corporations to low-
wage workers in India and China.
 Off shoring of important operations
by MNCs
 Rise of complex, international supply
chains for many products and
services.
 Insourcing
 In-forming
Viral Marketing
- Distribution of free software and
services to create a platform for
selling other things.
- E.g.
 Mosaic and Netscape
Navigator
 Free downloads (iTunes)
 Free distribution
(Radiohead album)
 Ads on Google Search
Workflow Software
- Efficient flow of documents or
tasks from one employee to
another.
Open-Source Software
- A set of principles about how to
write software in which source
code is available to others for
the purpose of improving it.
- Pioneers: Eric Raymond, Richard
In-forming
Stallman, Linus Torvalds (Linux)
Outsourcing
- Subcontracting a process, such
Multidomestic View
as product design or
manufacturing, to a 3rd party
company.
- E.g. In 2004, Wyeth Pharma
transferred it entire clinical
testing operation to Accenture
Ltd.
Off Shoring
CAGE Framework
- Relocation of business processes
from 1 country to another.
- E.g.
 Assembly of product
 American call centers in
India
 Disk drive manufactured
by Seagate in Singapore.
 Sony LCD TVs
manufactured in Korea.
Complex Supply Chains
- System of organizations, people,
technology, activities,
information, and resources in
moving a product/service from
supplier to customer.
Insourcing
- Penetration of large firms by
other firms that provide services
and logistical support in the firm.
- E.g. UPS and Dell Computers
- Rise of search engine portals
- E.g Google ; Yahoo
- A metaphor for viewing the
world’s markets as being more
different than similar, such that
the playing fields differs in
respective markets; if the world
is flat, international business
would be easy.
- Analytical framework used to
understand country and regional
culture, administration,
geography, and economics.
 Culture – people’s norms,
common beliefs, and
practices.
 Administration –
historical governmental
ties.
 Geography – differences
in time zones, access to
ocean ports, shared
borders, topography, and
climate.
 Economics – economic
distance refers to
 differences in
demographic, and
socioeconomic
conditions.
ETHICS AND INTERNATIONAL BUSINESS
Ethics
- A branch of philosophy that
seeks virtue and morality,
addressing questions about
“right” and “wrong” behavior for
people in a variety of settings;
the standards of behavior that
tell how human beings ought to
act.
Business Ethics
- Branch of ethics that examines
various kinds of business
activities and asks, “is this
business conduct ethically right
or wrong?”
GLOBALIZATION THEORIES
Globalization
- Sharing of culture, money, and
products between countries
because of international trade,
advanced communication, and
advanced transportation.
- Social awareness of each other’s
cultures
- Economic Interdependence
Theories
World Systems Theory
- Emphasizes the importance of
the world as a “unit” rather than
looking at individual countries.
- Flexible and fluid method and
often criticized for focusing on
the Core countries.
- 3 Regions:
 Core (Western Europe and US) -
strong central gov’t, economically
diversified, industrialized and
relatively independent.
 Periphery (Latin America and Africa)
- relatively weak gov’t and depend on
a specific type of economic activity
such as extraction of raw materials
and presence of inequality of the
people living in these countries.
- Influenced by Core Countries
which lessens their potential to
improve and develop
independently.
 Semi-Periphery Countries (India and
Brazil)
- In between core and periphery
and often not dominant in
international trade but
diversified and developed
economy.
Modernization Theory
- All countries follow a similar path
of development from traditional
to modern society.
- With guidance and help,
traditional countries can improve
into modern countries.
- Adaptation of traditional
countries to new and improved
technology.
Perspectives on Globalization - From the perspective of a firm or
“company-based”
Hyperglobalist
Classical Country-Based Theories
- Legitimate process
- New Age of Human History  Mercantilism
- Countries’ economies become - States that a country’s wealth is
interdependent. determined by its holdings of gold
and silver.
Skeptical
- Trade surplus (Ex > Im)- value of
- Critical of globalization exports is greater than the value of
- Considers international imports.
processes as regionalized rather - Trade Deficit (Im > Ex)- value of
than globalized. imports is greater than the value of
- National borders are very exports.
important. - Perfectionism- practice of imposing
restrictions on imports and
Transformationalist
protecting domestic industry.
- National governments are  Absolute Advantage
changing. - Ability of a country to produce a
- World order is changing and its good more efficiently than another
patterns. nation.

CHAPTER 2: INTERNATIONAL TRADE  Comparative Advantage

& FOREIGN DIRECT INVESTMENT - Situation in which country cannot
produce a product more efficiently
than another country.
Trade - It produces that product better and
more efficiently than it does another
- A means for entities to benefit from. good.
International Trade  Heckscher-Ohlin Theory (Factor
Proportions Theory)
- The concept of exchange between - Countries would gain comparative
people or entities in two different advantage if they produced and
countries. exported goods that required
2 Different International Trade Theories resources or great supply and
cheaper productions costs; in
 Classical contrast, countries that would
- From the perspective of a country or import goods that required
“country-based” resources that were in short supply
 Modern
 in their country but were in higher
demand.
Leontief Paradox
- A paradox identified by Wassily W.
Leontief; states that the reverse of
the factor proportions theory exists
in some countries.
- E.g. Even though a country may be
abundant in capital, it may still
import more capital-intensive goods.
Modern Firm-Based Theories
Intra-industry Trade – trade between 2
countries of goods purchased in the same
industry.
 Country Similarity
- A theory explains that countries with
the most similarities in factors such
as incomes, consumer habits,
market preferences, stage of
technology, communications,
degree of industrialization, and
others will be more likely to engage
in trade between countries and
intra-industry trade will be common.
 Product Life Cycle
- States that a product cycle has 3
distinct states: New Product,
Maturing Product, and Standardized
Product.
 Global Strategic Rivalry
- Focuses on multinational companies
and their efforts to gain a
comparative advantage against
other global firms in their industry.
- Barriers to Entry- Obstacles and
restrictions that a new firm may
encounter when trying to enter an
industry/market.
 Porter’s National Competitive
Advantage
- States that a nation’s or firm’s
competitiveness in an industry
depends on the capacity of the
industry and firm to innovate and
upgrade.
- Identifies 4 key determinants of
national competitiveness:
a. Local Market Resources and
Capabilities
b. Local Market Demand
Conditions
c. Local Suppliers and
Complementary Industries
d. Local Firm Characteristics
Political and legal factors that impact
International Trade:
 Firms must abide by the local rules
and regulations of the countries in
which they operate.
 Several issues pointed out by a
company regarding a prospective
country’s government in assessing
possible risks:
- Stability of the government
- Democratic or dictatorship
- Possible changes in the
business rules (when new
admin comes into power)
- Concentration of Power
(hands of a few or
constitution)
- Degree of Involvement of the
government in the private
sector.
- Presence of a well-
established legal
 environment both to enforce
and challenge them.
- Transparency of the
government in the decision-
making process.
Different Political Systems
 Anarchism- Individuals should
control political activities and public
activities.
 Totalitarianism- Every aspect of an
individual’s life should be controlled
and dictated by a strong central
government.
 Pluralism- Asserts both public and
private groups are important in a
well-functioning political system.
 Democracy- Most common form of
government around the world.
Economic Systems
 Capitalism- An economic system in
which the means of production are
owned and controlled privately.
 Planned Economy- An economic
system in which the government or
state directs and controls the
economy, including the means and
decision making for production.
Legal Systems
 Civil Law- Based on a detailed set of
laws that constitute a code and
focus on how the law is applied to
the facts.
 Common Law- Based on traditions
and precedence.
 Religious Law- Known as “theocratic
law” and based on religious
guidelines; Islamic Law (Sharia).
Factors which lead to Government
Intervention in Trade
 Protect jobs or specific
industries.
 National Security
 Protect new and young
industries.
 Preserve access to local
consumer.
 Limit the influence of American
culture on local markets.
Means of Government Intervention in
Trade (How governments intervene?)
 Tariffs
 Subsidies
 Import quotas & VER.
 Currency controls
 Local content requirements
 Antidumping rules
 Export financing
 Free-trade zones
 Administrative policies
Foreign Direct Investment
Portfolio Investment- Investment in a
company’s stocks, bonds, or assets but not
for controlling or directing the firm’s
operations or management.
FDI- Acquisition of foreign assets with the
intent to control and manage them.
Inward FDI- Investment into a country by a
company from another company.
Outward FDI- Investment made by a Reason/s that governments encourage FDI
domestic company into companies in other
 Create jobs
countries.
 Expand local technical knowledge
Factors that influence a company decision  Increase overall economic standards
to invest
Government restrictions in FDI
 Cost
 Ownership restrictions
 Logistics
 Tax rates and sanctions
 Market
 Natural resources How the government encourage FDI?
 Know-how
 Financial Incentives
 Customers and competition
 Infrastructure
 Policy
 Administrative processes and
 Ease
regulatory environment
 Culture
 Invest in Education
 Impact
 Political, economic, and legal
 Expatriation of Funds
stability
 Exit
Forms of FDI
CHAPTER 3: CULTURE AND BUSINESS
 Horizontal- A company is trying to
open a new market. Culture & Business
 Vertical- A company invests
 Impacts global business.
internationally to provide input to its
 Protocols- A list of do’s and don’ts
core operations-usually “home
by country.
country”.
o Backward- Acting as a  Business is not the same
supplier. everywhere.
o Forward- Acting as a Culture VS. Personality
distributor.
 Culture- The beliefs, values,
FDI Strategies mindsets, and practices of a specific
 Greenfield FDI- a strategy which a group of people.
company builds new facilities from  Personality- A person’s identity and
scratch. unique physical, mental, emotional,
 Brownfield FDI- a strategy in which a and social characteristics.
company or government purchases
or leases existing production
facilities to launch a new production
activity.
What is Culture?
 It is really the collective
programming of our minds from
birth.
 It is constantly evolving.
 Cross-cultural understanding-
Requires that we orient our mindset
and our expectations to interpret
the gestures, attitudes, and
statements of the people we
encounter.
 Value- Defined as something that we
prefer over something else.
Kinds of Culture
 National Culture- Defined by its
geographic and political boundaries
and includes even regional cultures
within a nation.
(e.g. British and Dutch were
well-known for establishing large
gov’t bureaucracies in the countries
they controlled. ; US is a great
example of diverse and distinct
cultures all living within the same
physical boundaries.)
 Subcultures- Many groups are
defined by ethnicity, gender,
generation, religion, or other
characteristics with cultures that
are unique to them. (e.g. ASEAN)
 Organizational Culture- Simple
aspects such as how people dress,
how they perceive and value
employees, or how they make
decisions as a group or by manager
alone.
Key Methods used to Describe Cultures.
 The study of cross-cultural analysis
incorporates the fields of
anthropology, sociology, psychology,
and communication; enable us to
compare and contrast cultures more
objectively.
1. Geert Hofstede – Value
Dimensions
2. Edward T. Hall – Context, space,
and time
Hofstede and Values
 Values- These are broad preferences
for one state of affairs over others,
and they are mostly unconscious.
1. Power Distance – Refers to how
openly a society or culture
accepts or does not accept
differences between people, as
in hierarchies in the workplace,
in politics and so on.
(e.g. High Power Distance –
Japan, Mexico, Philippines; Low
Power Distance – Austria &
Denmark)
2. Individualism – Refers to
people’s tendency to take care
of themselves and their
immediate circle of family and
friends.
3. Masculinity – How society views
traits that are considered
masculine or feminine.
(e.g. Masculine:
assertiveness, materialism
and less concern for others;
Feminine: concern for all,
emphasis on the quality of
life and relationships)
 4. Uncertainty Avoidance – Refers
how much uncertainty a society
or culture is willing to accept,
risk propensity of people from a
specific culture.
(e.g. High UA: Japan and
France; Low UA: Denmark,
Singapore and Australia)
5. Long-term Orientation or Short-
term orientation – Resulted in
the efforts to understand the
difference in thinking between
the East & West.
a. Long-term Orientation-
Values persistence,
perseverance, thriftiness,
and having a sense of shame;
Japanese CEO is likely to
apologize or take the blame
for a faulty product or
process.
b. Short-term Orientation-
Values tradition only to the
extent of fulfilling social
obligations or providing gifts
or favors.
Other Factors determining a Culture.
Edward T. Hall: Context, Space, and Time
1. Context- How a message is
communicated; people tend to
be more indirect and to expect
the person they are
communicating with to decode
the implicit part of their
message.
a. High Context – Body
language is important and
sometimes more important
than the actual words
spoken.
b. Low Context – Tends to be
explicit and direct to their
communications; “Don’t beat
around the bush.”
2. Space- Refers to everything from
how close people stand to one
another, to how people might
mark their territory or
boundaries in the workplace and
in other settings; how close it
too close depends on where you
are from.
a. Proxemics- Refers to the
study of physical space and
people.
3. Time
a. Polychronic cultures- “many
times”, people can do several
things at the same time; time
is nice, but people and
relationships matter more.
b. Monochronic cultures- “one
time”, people tend to do one
task at a time; time is a
means of imposing order.
 Communication
a. Verbal Language- Language
barrier between cultures.
b. Body Language- Being able to
read and understand this can
significantly increase your
chances of understanding and
being understood.
 Ethnocentrism- A view that a
person’s own culture is central and
other cultures are measured in
relation to it; can create a false
 sense of superiority of 1 culture the
others.
Culture’s impact on Local Business
Practices
 The pace of business,
 Business Protocol- physical and
verbal meeting and interaction,
 Decision-making and negotiating,
 Managing employees and projects,
 Propensity for risk-taking, and
 Marketing, sales, and distribution
Understanding the Objectives
 How people communicate
 How culture impacts how people
view time and deadlines
 How people are likely to ask
questions or highlight problems
 How people respond to
management and authority
 How people perceived verbal and
physical communications
 How people make decisions
Global Business Ethics
Ethics- A branch of Philosophy that seeks to
address questions about morality-that is
about concepts such as good and bad, right
& wrong, justice, and virtue.
Field of Ethics- Involves systemizing,
defending, and recommending concepts of
right and wrong behavior.
1. Metaethics- Where our ethical
principles come from.
2. Normative Ethics- Articulating the
good habits that we should acquire.
3. Applied Ethics- Examining specific
controversial issues.
Where do values originate?
 Families, education and thinking,
and society.
 Generally accepted within a specific
culture.
 Some behaviors are universally
accepted.
 A professional is influenced by
values, social programming, and
experiences from childhood.
 Ethics is not a religion, but values
are based on religious teachings.
 Culture impacts how local values
influence global business ethics.
Areas impacted by global perceptions on
ethical, moral, and socially responsible
behavior are:
1. Ethics and management
Human Resources:
“discrimination”, “employers
being guardians”
Marketing: Consumer may
boycott products;
pharmaceutical and tobacco
companies.
2. Ethics and corruption
Corruption – giving or obtaining
advantage through means which
are illegitimate, immoral, and/or
inconsistent with one duty or the
rights of others.
-Culturally accepted business
ethics are not always the ethical
choice.
-Paying bribes in the form of
grease payments.
3. Corporate social responsibility
- Defined as the corporate
conscience, citizenship, social
 performance, or sustainable
responsible business and is a
form of corporate self-
regulation integrated into a
business model. It goes
beyond philanthropy and
compliance and addresses
how the company manages
and how they build
relationships with the
internal and external
environment.
CHAPTER 4: World Economies
Classifying World Economies
• When evaluating a country, a
manager is assessing the country’s
income and the purchasing power of
its people; the legal, regulatory, and
commercial infrastructure, including
communication, transportation, and
energy; and the overall
sophistication of the business
environment.
Statistics used in classification:
• GDP (Gross Domestic Product) – the
value of all the goods and services
produced by a country in a single
year.
• Per capita GDP – the value of the
GDP divided by the population of
the country.
• GDP per person – the value of the
GDP adjusted for purchasing power.
• Purchasing power parity (PPP) – an
economic theory that adjusts the
exchange rate between countries to
ensure that a good is purchased for
the same price in the same currency.
• Human development index (HDI) – a
summary composite index that
measures a country’s average
achievements in three basic aspects
of human development: health,
knowledge, and a decent standard
of living.
• Gender-related development index
(GDI) – measures achievement in
the same basic capabilities as the
HDI does but takes note of
inequality in achievement between
women and men.
• Human poverty index (HPI) – an
index that uses indicators of the
most basic dimensions of
deprivation: a short life, lack of basic
education, and lack of access to
public and private resources.
Why does all this matter to global
business?
• The richest countries may not
always have big local markets, or in
contrast, the poorest countries may
have the largest local market as
determined by the size of the local
population.
• The goal of any successful
businessperson is to monitor the
changing markets and spot
opportunities and trends ahead of
his or her peers.
World Economies Classification
1. Highest: Developed World
 2. Middle: Emerging Markets • Developing the local commercial
3. Lowest: Developing World infrastructure and reducing trade
barriers attract foreign businesses.
Understanding the developed world
• Educating the population equally
• Also known as advanced economies,
and creating a healthy domestic
these countries are characterized as
workforce that is both skilled and
post-industrial with high per capita
relatively cheap is another incentive
incomes, competitive industries,
for global business investment.
transparent legal and regulatory
environments, and well-developed • First-mover advantage – the benefit
commercial infrastructures. that a company gains by entering
into a market first or introducing a
• Developed world countries: USA,
new product or service before its
Germany, and Japan.
competitors.
• Countries that rank lower on various
Emerging Markets
classifications including GDP and the
HDI • An evolving definition that is
currently viewed as a country that
• These countries tend to have
can be defined as a society
economies focused on one or more
transitioning from a centrally
key industries and tend to have poor
managed economy to a free market-
commercial infrastructure.
oriented-economy with increasing
• The local business environment economic freedom.
tends not to be transparent, and
• Gradual integration within the global
there is usually a weak competitive
marketplace.
industry.
• An expanding middle class and
Developing Economies and Regions:
improving standards of living, social
The Middle East – UAE stability, and tolerance.

Africa - Nigeria • Increase in cooperation with

multilateral institutions.
How do developing countries become
emerging markets? Key Emerging Markets

• Countries that seek to implement Asia: China and India

transparency in the government as
Europe: Russia
well as in political and economic
institutions help inspire business Africa: South Africa
confidence in their countries.
Latin America: Brazil