Chapter 1: Globalization

Definition
Globalization is the shift toward a more integrated and interdependent world economy.
The world is moving away from self-contained national economies toward an interdependent,
integrated global economic system.
Globalization of Markets
Merging national maket into one huge marketplace
There is the “global market”
⮚ falling trade barriers make it easier to sell globally (delete the barriers such as Tax
between countries)
⮚ consumers’ tastes and preferences are converging on some global norm
⮚ firms promote the trend by offering the same basic products worldwide
Firms from all size can join
Globalization of Production
Firms source goods and services from locations around the globe to capitalize on national
differences in the cost and quality of factors of production like land, labor, energy, and capital
Companies can
⮚ lower their overall cost structure
⮚ improve the quality or functionality of their product offering
For example, China have low cost of production, so Apple, Nike,etc have their factories in
this country
Global institutions
Global institutions help manage, regulate, and police the global marketplace and promote the
establishment of multinational treaties to govern the global business system.
 The World Trade Organization (like its predecessor GATT)
- polices the world trading system
- makes sure that nation-states adhere to the rules laid down in trade treaties
- promotes lower barriers to trade and investment
- 159 members in 2013
 The International Monetary Fund (IMF) (1944)
o Bretton Woods, 44 nations
o maintains order in the international monetary system
 o lender of last resort for countries in crisis/turmoil (cho vay phương sách cuối
khi đất nc rơi vào khủng hoảng  bước đường cùng á)
o Argentina, Indonesia, Mexico, Russia, South Korea, Thailand, Turkey, Ireland,
and Greece  nhg đất nc từng đc cho mượn
 The World Bank (1944) ¬ promotes economic development via low interest loans
for infrastructure projects VN có thể mượn này để xây metro 😊))
 The United Nations (1945)
o maintains international peace and security
o develops friendly relations among nations
o cooperates in solving international problems and in promoting respect for
human rights
o is a center for harmonizing the actions of nations
 The G20 (1999) ¬ forum through which major nations tried to launch a coordinated
policy response to the 2008-2009 global financial crisis

❖ What Does Globalization Mean For Firms?

Lower barriers to trade and investment mean firms can
 view the world, rather than a single country, as their market
 base production in the optimal location for that activity
But, firms may also find their home markets under attack by foreign firms
Technological change means
⮚ lower transportation costs ¬ help create global markets and allow firms to disperse
production to economical, geographically separate locations
⮚ low cost information processing and communication ¬ firms can create and manage
globally dispersed production
⮚ low cost global communications networks ¬ help create an electronic global marketplace
⮚ global communication networks and global media ¬ create a worldwide culture and a
global consumer product market
Multinational enterprise (MNE) - any business that has productive activities in two or more
countries
⮚ Since the 1960s ¬ the number of non-U.S. multinationals has risen ¬ the number of mini-
multinationals has risen
Changing demographics of the global economy
1. Changing world output and world trade picture
Chia đều cho các nước, tránh tình trạng dominant của 1 nc
2. Changing foreign direct investment picture  kiểu ngta sẽ đầu tư vào nhìu nc hơn là
nhg nước phát triển mạnh
 3. Changing nature of the multinational enterprise  non-US multinationals 
minimultinationals (trỗi dậy của doanh nghiệp nhỏ)
4. Changing world order

Chapter 2: National differences in Political,

econ, and legal systems
Political
Political economy of a nation - how the political, economic, and legal systems of a country are
interdependent
⮚ they interact and influence each other
⮚ they affect the level of economic well-being in the nation
Political system - the system of government in a nation
Assessed according to
⮚ the degree to which the country emphasizes collectivism (tập thể)  equated with
socialists as opposed to individualism (cá nhân)
⮚ the degree to which the country is democratic or totalitarian
In the early 20th century, socialism split into
1. Communism – socialism can only be achieved through violent revolution and totalitarian
dictatorship in retreat worldwide by mid-1990s  cộng sản
2. Social democrats – socialism is achieved through democratic means
⮚ retreating as many countries move toward free-market economies
⮚ state-owned enterprises have been privatized
Individualism -> individual should have freedom in his own econ and political pursuits ->
implies democratic political systems and free market economies.
Democracy: political system in which government is by he people, exercised either directly or
through elected representatives
 related to individualism
 citizens make their own decision
Totalitarianism: gov in which one person or political party exercises absolute control over all
spheres of human life and prohibits opposing political parties. (chủ nghĩa toàn trị)
Economic System
There are three types of economic systems
 1. Market economy - all productive activities are privately owned, and production is
determined by the interaction of supply and demand
⮚ government encourages free and fair competition between private producers
2. Command economies - government plans the goods and services that a country
produces, the quantity that is produced, and the prices as which they are sold
⮚ all businesses are state-owned, and governments allocate resources for “the good
of society”
⮚ because there is little incentive to control costs and be efficient, command
economies tend to stagnate
3. Mixed economies - certain sectors of the economy are left to private ownership and free
market mechanisms while other sectors have significant state ownership and government
planning
⮚ governments tend to own firms that are considered important to national security
Legal System
Legal system - the rules or laws that regulate behavior along with the processes by which the
laws are enforced and through which redress for grievances is obtained
⮚ the system in a country is influenced by the prevailing political system
Legal systems are important for business because they
⮚ define how business transactions are executed
⮚ identify the rights and obligations of parties involved in business transactions
There are three types of legal systems
1. Common law - based on tradition, precedent, and custom
2. Civic law - based on detailed set of laws organized into codes
3. Theocratic law - law is based on religious teachings
How Are Contracts Enforced In Different Legal Systems?
Contract - document that specifies the conditions under which an exchange is to occur and
details the rights and obligations of the parties involved
Contract law is the body of law that governs contract enforcement
⮚ under a common law system, contracts tend to be very detailed with all contingencies
spelled out
⮚ under a civil law system, contracts tend to be much shorter and less specific because
many issues are already covered in the civil code.
- Corruption: tham nhũng
Chapter 3: Differences in economic develop
Determines a country’s development
-Gross national income (GNI) per person  total annual income received by
residents of a nation. -> Japan, Sweden, US have high GNI >< China has low ->
misleading when not consider the diff. in cost of living -> adjust GNI using PPP
(Purchasing power parity)
- Human Development Index (HDI) based on life expectancy, educational
attainment, incomes sufficient
- Innovation and entrepreneurship increase econ activity -> more markets -> boost
econ growth rates  but it require market economy
 There is a strong relationship between econ freedom and econ growth

Chapter 4: Differences in Culture

Culture - a system of values and norms that are shared among a group of people and that when
taken together constitute a design for living where
⮚ values are abstract ideas about what a group believes to be good, right, and desirable
⮚ norms are the social rules and guidelines that prescribe appropriate behavior in
particular situations
⮚ Society: people who share common set of values and norms
What Are Values And Norms?
Values provide the context within which a society’s norms are established and justified and form
the bedrock of a culture (nền tảng)
Norms include
⮚ folkways - the routine conventions of everyday life
⮚ mores - norms that are seen as central to the functioning of a society and to its social
life
Determinants include: religion , political and econ philosophies, education, language, social
structure
Social Structure
Social structure - a society’s basic social organization
Consider:
- The degree to which the basic unit of social organization is the individual, as
opposed to the group  individual
 - The degree to which a society is stratified into classes or castes  stratification
Social Stratification
 Social categories -> social strata
1. Social mobility - the extent to which individuals can move out of the strata into which
they are born  xã hội linh động hơn -> ng nghèo thành giàu
⮚ Caste system - closed system of stratification in which social position is
determined by the family into which a person is born ¬ change is usually not
possible during an individual's lifetime -> đang giảm dần hiện nay
⮚ Class system - form of open social stratification ¬ position a person has by birth
can be changed through achievement or luck -> trúng số, phất lên -> hiện tượng
này đang tang dần
2. The significance attached to social strata in business contacts
⮚ Class consciousness - a condition where people tend to perceive themselves in
terms of their class background, and this shapes their relationships with others
 An antagonistic relationship between management and labor raises the cost of production
in countries with significant class differences
Religion
Religion is a system of shared beliefs and rituals that are concerned with the realm of the
sacred
Four religions dominate society
1. Christianity
2. Islam
3. Hinduism
4. Buddhism
5. Confucianism is also important in influencing behavior and culture in many parts of Asia
Ethical systems - a set of moral principles, or values, that are used to guide and shape behavior
⮚ Religion and ethics are often closely intertwined.
Language
Language - the spoken and unspoken (nonverbal communication such as facial expressions,
personal space, and hand gestures ) means of communication
⮚ Countries with more than one language often have more than one culture ¬ Canada,
Belgium, Spain
Language is one of the defining characteristics of culture
⮚ Chinese is the mother tongue of the largest number of people
 ⮚ English is the most widely spoken language in the world
⮚ English is also becoming the language of international business
⮚ but, knowledge of the local language is still beneficial, and in some cases, critical for
business success
⮚ failing to understand the nonverbal cues of another culture can lead to communication
failure
Education
Formal education is the medium through which individuals learn many of the language,
conceptual, and mathematical skills that are indispensable in a modern society
⮚ Important in determining a nation’s competitive advantage
⮚ Japan’s postwar success can be linked to its excellent education system
⮚ General education levels can be a good index for the kinds of products that might sell in a
country ¬ Example: impact of literacy rates
Hofstede’s dimensions of culture:
1. Power distance - how a society deals with the fact that people are unequal in physical and
intellectual capabilities
2. Uncertainty avoidance - the relationship between the individual and his or her fellows
3. Individualism versus collectivism - the extent to which different cultures socialize their
members into accepting ambiguous situations and tolerating ambiguity
4. Masculinity versus femininity - the relationship between gender and work roles
Hofstede’s work has been criticized for several reasons
⮚ made the assumption there is a one-to-one relationship between culture and the nation-
state
⮚ study may have been culturally bound
⮚ used IBM as sole source of information
⮚ culture is not static – it evolves
But, it is a starting point for understanding how cultures differ, and the implications of those
differences for managers.
Culture evolves over time  changes in value systems can be slow and painful for a society
Social turmoil - an inevitable outcome of cultural change
⮚ as countries become economically stronger, cultural change is particularly common
economic progress encourages a shift from collectivism to individualism
⮚ Globalization also brings cultural change
Chapter 5: Ethics, Corporate Social
Responsibility, and Sustainability
Ethics
Ethics - accepted principles of right or wrong that govern
⮚ the conduct of a person
⮚ the members of a profession
⮚ the actions of an organization
Business ethics - accepted principles of right or wrong governing the conduct of business people
Ethical strategy - a strategy, or course of action, that does not violate these accepted principles
The most common ethical issues in business involve
1. employment practices
2. human rights
3. environmental pollution
4. corruption
5. moral obligations of multinational companies
How Are Ethics Relevant To Employment Practices?
Firms should
⮚ establish minimal acceptable standards that safeguard the basic rights and dignity of
employees
⮚ audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the
standards
⮚ take corrective action as necessary
How Are Ethics Relevant To Human Rights?

Basic human rights are taken for granted in developed countries

⮚ freedom of association
⮚ freedom of speech
⮚ freedom of assembly
⮚ freedom of movement
How Are Ethics Relevant To Environmental Pollution?
Some parts of the environment are a public good that no one owns, but anyone can despoil
The tragedy of the commons occurs when a resource held in common by all, but owned by no
one, is overused by individuals, resulting in its degradation.
Ethical Dilemmas
Ethical dilemmas - situations in which none of the available alternatives seems ethically
acceptable
⮚ real-world decisions are complex, difficult to frame, and involve consequences that are
difficult to quantify
⮚ the ethical obligations of an MNE toward employment conditions, human rights,
corruption, environmental pollution, and the use of power are not always clear cut ¬ the
right course of action is not always clear
Why Do Managers Behave Unethically?
Several factors contribute to unethical behavior including
1. Personal ethics - the generally accepted principles of right and wrong governing the conduct
of individuals ¬ expatriates may face pressure to violate their personal ethics because they are
away from their ordinary social context and supporting culture ¬ managers fail to question
whether a decision or action is ethical, and instead rely on economic analysis when making
decisions
2. Decision-making processes - the values and norms that are shared among employees of an
organization ¬ organization culture that does not emphasize business culture encourages
unethical behavior
3. Organization culture - organization culture can legitimize unethical behavior or reinforce the
need for ethical behavior
4. Unrealistic performance expectations - encourage managers to cut corners or act in an
unethical manner
5. Leadership - helps establish the culture of an organization, and set the examples that others
follow ¬ when leaders act unethically, subordinates may act unethically, too
6. Societal culture – firms headquartered in cultures where individualism and uncertainty
avoidance are strong are more likely to stress ethical behavior than firms headquartered in
cultures where masculinity and power distance rank high
Philosophical approaches:
- STRAW MEN: deny the value of business ethics -> apply the concept in
unsatisfactory way
1. Friedman: responsibility  INCREASE PROFITS only follow
the rule not the ethics
 2. Cultural relativism: follow the ethics of the cultures in which
they operate
3. Righteous moralist: home country standards of ethics follows in
other countries
4. Naïve immoralist: do what other firms do
 All are inappropriate guidelines for ethical decision making.

Chapter 6: International Trade Theory

Free trade - a situation where a government does not attempt to influence through quotas or
duties what its citizens can buy from another country or what they can produce and sell to
another country
Trade theory shows why it is beneficial for a country to engage in international trade even for
products it is able to produce for itself
Mercantilism
Mercantilism (mid-16th century) suggests that it is in a country’s best interest to maintain a
trade surplus—to export more than it imports
⮚ Advocates government intervention to achieve a surplus in the balance of trade ¬
Mercantilism views trade as a zero-sum game—one in which a gain by one country results in a
loss by another
Absolute advantage
Adam Smith (1776) argued that a country has an absolute advantage in the production of a
product when it is more efficient than any other country in producing it
⮚ Countries should specialize in the production of goods for which they have an absolute
advantage and then trade these goods for goods produced by other countries
Comparative advantage
The theory of comparative advantage (1817)- countries should specialize in the production of
those goods they produce most efficiently and buy goods that they produce less efficiently from
other countries
⮚ Even if this means buying goods from other countries that they could produce more
efficiently at home
Heckscher-Ohlin Theory
Eli Heckscher (1919) and Bertil Ohlin (1933) - comparative advantage arises from differences in
national factor endowments
 ⮚ the extent to which a country is endowed with resources like land, labor, and capital
The more abundant a factor, the lower its cost
The pattern of trade is determined by factor endowments
⮚ Heckscher and Ohlin predict that countries will
o export goods that make intensive use of locally abundant factors

o import goods that make intensive use of factors that are locally scarce
Product Life-Cycle
The product life-cycle theory - as products mature both the location of sales and the
optimal production location will change affecting the flow and direction of trade
According to the product life-cycle theory
⮚ The size and wealth of the U.S. market gave U.S. firms a strong incentive to develop new
products
⮚ Initially, the product would be produced and sold in the U.S.
⮚ As demand grew in other developed countries, U.S. firms would begin to export
⮚ Demand for the new product would grow in other advanced countries over time making it
worthwhile for foreign producers to begin producing for their home markets
⮚ U.S. firms might set up production facilities in advanced countries with growing demand,
limiting exports from the U.S.
⮚ As the market in the U.S. and other advanced nations matured, the product would become
more standardized, and price would be the main competitive weapon
⮚ Producers based in advanced countries where labor costs were lower than the United
States might now be able to export to the United States
⮚ If cost pressures were intense, developing countries would acquire a production
advantage over advanced countries
⮚ Production became concentrated in lower-cost foreign locations, and the U.S. became an
importer of the product
New Trade Theory
New trade theory suggests that the ability of firms to gain economies of scale (unit cost
reductions associated with a large scale of output) can have important implications for
international trade
Countries may specialize in the production and export of particular products because in certain
industries, the world market can only support a limited number of firms
Porter’s Diamond Of Competitive Advantage
Identified four attributes that promote or impede the creation of competitive advantage
1. Factor endowments - a nation’s position in factors of production necessary to compete in a
given industry
⮚ can lead to competitive advantage
⮚ can be either basic (natural resources, climate, location) or advanced (skilled labor,
infrastructure, technological know-how)
2. Demand conditions - the nature of home demand for the industry’s product or service
⮚ influences the development of capabilities
⮚ sophisticated and demanding customers pressure firms to be competitive
3. Relating and supporting industries - the presence or absence of supplier industries and
related industries that are internationally competitive
⮚ can spill over and contribute to other industries
⮚ successful industries tend to be grouped in clusters in countries
4. Firm strategy, structure, and rivalry - the conditions governing how companies are created,
organized, and managed, and the nature of domestic rivalry
⮚ different management ideologies affect the development of national competitive
advantage
⮚ vigorous domestic rivalry creates pressures to innovate, to improve quality, to reduce
costs, and to invest in upgrading advanced features

Chapter 7: Government Policy and

International Trade
Governments use various methods to intervene in markets including
1. Tariffs - taxes levied on imports that effectively raise the cost of imported products
relative to domestic products
⮚ Specific tariffs - levied as a fixed charge for each unit of a good imported
⮚ Ad valorem tariffs - levied as a proportion of the value of the imported good
Tariffs can:
- increase government revenues
- force consumers to pay more for certain imports
- are pro-producer and anti-consumer
- reduce the overall efficiency of the world economy
2. Subsidies - government payments to domestic producers
 - Subsidies help domestic producers
- Compete against low-cost foreign imports
- Gain export markets
⮚ Consumers typically absorb the costs of subsidies
3. Import Quotas - restrict the quantity of some good that may be imported into a country
⮚ Tariff rate quotas - a hybrid of a quota and a tariff where a lower tariff is applied to
imports within the quota than to those over the quota
⮚ A quota rent - the extra profit that producers make when supply is artificially limited by
an import quota
4. Voluntary Export Restraints - quotas on trade imposed by the exporting country,
typically at the request of the importing country’s government
⮚ Import quotas and voluntary export restraints ¬ benefit domestic producers ¬ raise the
prices of imported goods
5. Local Content Requirements - demand that some specific fraction of a good be produced
domestically ¬ benefit domestic producers ¬ consumers face higher prices
6. Administrative Policies - bureaucratic rules designed to make it difficult for imports to enter
a country ¬ polices hurt consumers by limiting choice
7. Antidumping Policies–also called countervailing duties–punish foreign firms that engage
in dumping and protect domestic producers from “unfair” foreign competition
Dumping - selling goods in a foreign market below their costs of production, or selling goods in
a foreign market below their “fair” market value bán ở thị trg nc ngoài vs giá rẻ hơn
⮚ enables firms to unload excess production in foreign markets
⮚ may be predatory behavior - producers use profits from their home markets to subsidize
prices in a foreign market to drive competitors out of that market, and then later raise
prices
There are two main arguments for government intervention in the market
1. Political arguments - concerned with protecting the interests of certain groups within a
nation (normally producers), often at the expense of other groups (normally consumers)
2. Economic arguments - concerned with boosting the overall wealth of a nation - benefits
both producers and consumers

Political Arguments
1. Protecting jobs - the most common political reason for trade restrictions ¬ results from
political pressures by unions or industries that are "threatened" by more efficient foreign
producers and have more political clout than consumers
2. Protecting industries deemed important for national security - industries are often
protected because they are deemed important for national security ¬ aerospace or semiconductors
3. Retaliation for unfair foreign competition - when governments take, or threaten to take,
specific actions, other countries may remove trade barriers ¬ if threatened governments do not
back down, tensions can escalate, and new trade barriers may be enacted ¬ risky strategy
4. Protecting consumers from “dangerous” products - limit “unsafe” products
5. Furthering the goals of foreign policy - preferential trade terms can be granted to countries
that a government wants to build strong relations with ¬ trade policy can also be used to punish
rogue states
6. Protecting the human rights of individuals in exporting countries - through trade policy
actions
7. Protecting the environment - international trade is associated with a decline in
environmental quality ¬ concern over global warming ¬ enforcement of environmental
regulations

Economic arguments
1. Infant industry argument: 1 industry should be protected until it can develop and be viable
position
2. Strategic trade policy: first-mover advantages can be important to success

Chapter 8: Foreign Direct Investment

What Is FDI?
Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to
produce and/or market in a foreign country ¬ the firm becomes a multinational enterprise
FDI can be in the form of
- greenfield investments - the establishment of a wholly new operation in a foreign
country
- acquisitions or mergers with existing firms in the foreign country
The flow of FDI - the amount of FDI undertaken over a given time period
⮚ Outflows of FDI are the flows of FDI out of a country
⮚ Inflow of FDI are the flows of FDI into a country
The stock of FDI - the total accumulated value of foreign-owned assets at a given time
Gross fixed capital formation - the total amount of capital invested in factories, stores,
office buildings, and the like
 - the greater the capital investment in an economy, the more favorable its prospects are
likely to be
- So, FDI is an important source of capital investment and a determinant of the future
growth rate of an economy
Why Choose FDI?
1. Exporting - producing goods at home and then shipping them to the receiving country for sale
 exports can be limited by transportation costs and trade barriers  FDI may be a
response to actual or threatened trade barriers such as import tariffs or quotas
2. Licensing - granting a foreign entity the right to produce and sell the firm’s product in return
for a royalty fee phí bản quyền on every unit that the foreign entity sells
⮚ Internalization theory (aka market imperfections theory) - compared to FDI licensing
is less attractive ¬ firm could give away valuable technological know-how to a potential
foreign competitor ¬ does not give a firm the control over manufacturing, marketing, and
strategy in the foreign country ¬ the firm’s competitive advantage may be based on its
management, marketing, and manufacturing capabilities
What Is The Pattern Of FDI?
Knickerbocker - FDI flows are a reflection of strategic rivalry between firms in the global
marketplace
- multipoint competition - when two or more enterprises encounter each other in different
regional markets, national markets, or industries
Dunning’s eclectic paradigm - it is important to consider
⮚ Location-specific advantages - that arise from using resource endowments or assets that
are tied to a particular location and that a firm finds valuable to combine with its own
unique assets
⮚ Externalities - knowledge spillovers that occur when companies in the same industry
locate in the same area
How Does FDI Benefit The Host Country?
There are four main benefits of inward FDI for a host country
1. Resource transfer effects - FDI brings capital, technology, and management resources
2. Employment effects - FDI can bring jobs
3. Balance of payments effects - FDI can help a country to achieve a current account surplus
4. Effects on competition and economic growth - greenfield investments increase the level of
competition in a market, driving down prices and improving the welfare of consumers ¬ can lead
to increased productivity growth, product and process innovation, and greater economic growth
How Does FDI Benefit The Home Country?
The benefits of FDI for the home country include
1. The effect on the capital account of the home country’s balance of payments from the
inward flow of foreign earnings
2. The employment effects that arise from outward FDI
3. The gains from learning valuable skills from foreign markets that can subsequently be
transferred back to the home country
How Does Government Influence FDI?
Governments can encourage outward FDI ¬ government-backed insurance programs to cover
major types of foreign investment risk
Governments can restrict outward FDI ¬ limit capital outflows, manipulate tax rules, or outright
prohibit FDI
Governments can encourage inward FDI ¬ offer incentives to foreign firms to invest in their
countries ¬ gain from the resource-transfer and employment effects of FDI, and capture FDI
away from other potential host countries
Governments can restrict inward FDI ¬ use ownership restraints and performance requirements

Chap 9: regional economic integration

agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free

Chap 11:
flow of goods, services, and factors of production between each other

Attitudes and Influencing

Attitudes
- An attitude is an enduring
organization of motivational,
emotional, perceptual, and
cognitive processes with respect
to some aspect of our
environment. (the way one
thinks, feels, and acts toward
some aspect of his or her
environment)
Chap 11: Attitudes and
Influencing Attitudes
- An attitude is an enduring
organization of motivational,
emotional, perceptual, and
cognitive processes with respect
to some aspect of our
environment. (the way one
thinks, feels, and acts toward
some aspect of his or her
environment)
 Agreements between countries in a geographic region to reduce tariff and non-tariff barriers to
the free flow of goods, services, and factors of production between each other
1. The levels
A free trade area eliminates all barriers to the trade of goods and services among member
countries.  EFTA (Norway, Iceland, Liechtenstein), NAFTA( US, Can, Mexico)
2. A customs union eliminates trade barriers between member countries and adopts a common
external trade policy.  Adean community

Why Should Countries Integrate Their Economies?

- All countries gain from free trade and investment
o regional economic integration is an attempt to exploit the gains from free trade and
investments
- Linking countries together, making them more dependent on each other  creates incentives
for political cooperation and reduces the likelihood of violent conflict  gives countries greater
political clout when dealing with other nations

CHAP 14
CHAP 15