Global Assessment Certificate: Level III Module 22: GAC022 Business III: International Business Studies

GLOBAL ASSESSMENT CERTIFICATE
STUDENT MANUAL
Level III
Module 22: GAC022
Business III: International Business Studies
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Date of Issue: October 2015

Version: 9.1
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Table of Contents
INTRODUCTION................................................................................................................................. I
Module Overview .................................................................................................................................. I
Learning Outcomes.............................................................................................................................. II
Unit Descriptions ................................................................................................................................. III
Suggested Delivery Schedule .............................................................................................................IV
Assessment Events .............................................................................................................................V
Icons............... ....................................................................................................................................VI
UNIT 1: INTRODUCTION TO INTERNATIONAL BUSINESS .................................................. 1

Part A Unit Introduction.................................................................................................................. 1
Part B The History of Globalisation ............................................................................................... 7
Part C Beliefs which Shape Internationalisation .......................................................................... 10
Part D Foreign Market Entry Modes ............................................................................................ 16
Part E Future Trends in International Business ........................................................................... 21
Part F Unit Review....................................................................................................................... 23
UNIT 2: EXTERNAL INFLUENCES ON INTERNATIONAL BUSINESS:

INTERNATIONAL ECONOMICS .................................................................................................. 27
Part A Unit Introduction................................................................................................................ 27
Part B International Economic Systems ...................................................................................... 29
Part C International Trade ........................................................................................................... 32
Part D International Finance ........................................................................................................ 37
Part E International Harmonisation.............................................................................................. 44
UNIT 3: ADDITIONAL EXTERNAL INFLUENCES ON INTERNATIONAL BUSINESS .... 53

Part B The Political Environment ................................................................................................. 55
Part C The Legal Environment .................................................................................................... 60
Part D The Technological Environment ....................................................................................... 63
Part E The Socio-Cultural Environment....................................................................................... 67
UNIT 4: INTERNAL INFLUENCES ON INTERNATIONAL BUSINESS ................................ 79

Part B Leadership Styles ............................................................................................................. 80
Part C Management Skills ........................................................................................................... 89
Part D Communication and Culture ........................................................................................... 101
Part E Ethics and Social Responsibility ..................................................................................... 104
Part F Unit Review..................................................................................................................... 110
UNIT 5: INTERNATIONAL MARKETING................................................................................ 113

Part A Unit Introduction.............................................................................................................. 113
Part B International Marketing and Culture ............................................................................... 115
Part C International Marketing and the 4Ps ............................................................................... 117
Part D International Marketing and Ethics ................................................................................. 132
Part E Unit Review..................................................................................................................... 138
GLOSSARY ...................................................................................................................................... 141
APPENDICES ................................................................................................................................... 135
Appendix A Tips for Oral Presentations ....................................................................................... 149
Appendix B Cultural Quiz ............................................................................................................. 149
REFERENCES .................................................................................................................................. 155
Student Manual GAC022: Business III: International Business Studies
Introduction
Introduction
Module Overview
Welcome to Business III: International Business Studies. In this module you will develop an
understanding of how global business is conducted.
The module begins by studying the history, dynamics and future trends of the changing world order.
Next, your attention is drawn to the external influences on the international business environment,
including the economy, politics, the law, technology and the socio-cultural environment.
Internal influences such as the techniques which contribute to successful international business
interactions, including leadership, management, communication and cultural sensitivity are discussed, as
well as marketing strategies in international business contexts.
Real world case studies are supplied, as are numerous opportunities for reviewing content.
At the end of this module, you will be required to write a business research report and present your
findings orally. Refer to the Academic Writing Manual. Unit 4: Business Research Reports for an
overall perspective on business report writing. Appendix A of the Academic Writing Manual
summarises the presentation and referencing requirements for GAC academic essays and reports. For a
more detailed account of referencing requirements, consult the GAC Referencing Guide. In this
Student Manual, Appendix A offers tips for giving oral presentations.
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October 2015 Version 9.1
GAC022: Business III: International Business Studies Student Manual
Introduction
Learning Outcomes
By the end of this module you will be able to:
1. Describe and analyse key concepts around globalisation

2. Demonstrate and apply an understanding of the external factors impacting on the
development of international business
3. Demonstrate, evaluate and apply an understanding of the internal factors which contribute to
successful international business interactions
4. Apply knowledge of marketing strategies to international business contexts
5. Demonstrate investigative and analytical skills for a business research task
6. Communicate information using appropriate formats and language for business
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Version 9.1 October 2015
Introduction
Unit Descriptions
The units included in this module are:
Unit Unit Title Description
Introduction to  The History of Globalisation

1
International Business
 Beliefs which Shape Internationalisation
 Foreign Market Entry Modes
 Future Trends in International Business
2 External Influences on  International Economic Systems

International Business:
 International Trade
International Economics
 International Finance
 International Harmonisation
3 Additional External  The Political Environment

Influences on International
 The Legal Environment
Business
 The Technological Environment
 The Socio-Cultural Environment
4 Internal Influences on  Leadership Styles

International Business
 Management Skills
 Communication and Culture
 Ethics and Social Responsibility
5 International Marketing  International Marketing and Culture
 International Marketing and the 4Ps
 International Marketing and Ethics
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Introduction
Suggested Delivery Schedule
Week 1 Overview of module
Unit 1 A, B, C
Week 2 Unit 1 D, E, F
Week 3 Unit 2 A, B, C
Assessment Event 4: Business Terminology Logbook - first submission
Assessment Event 1: In-class Test – Multiple Choice and Short Answer Test
Week 7 Unit 4 A, B
Week 8 Unit 4 C, D
Week 9 Unit 4 E, F
Assessment Event 2: In-class Test – Short Essays + Case Study Test
Draft Assessment Event 3: Project – Written Report
Week 11 Unit 5 D, E
Week 12 Module Review
Assessment Event 3: Project - Written Report to be submitted

Assessment Event 3: Project - Oral Presentation
Assessment Event 4: Course Work including Business Terminology Logbook –
second submission
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Introduction
Assessment Events
You should ensure that you follow the advice contained in the GAC Referencing Guide and the
Academic Writing Manual when completing GAC022 assessments.
Assessment Assessment Event Weighting

Number
1 In-class Test – Multiple Choice and Short Answer Test 15%

30 questions – 15 Multiple Choice and 15 Short Answer
Week 6 or at the end of Unit 3
2 In-class Test – Short Essays + Case Study Test 30%

Students respond in essay form to two of four topics provided and
answer three questions about the Case Study.
Week 9 or at the end of Unit 4
3 Project: Project Report and Oral PowerPoint Presentation 45%

Week 12 or at end of Unit 5
Written report – minimum of 1,250 words (30%)
Oral PowerPoint presentation – 10-minute presentation, 5-minute
question and answer session (15%)
4 Course Work 10%

On-going
a) Active participation in class, including: evidence of preparation
for class, willingness to contribute positively by working
cooperatively with other class members, asking questions,
seeking clarification and contributing to class discussions.
b) Completion of assigned Independent Study Tasks.
c) Completion of a Business Terminology Logbook which is

collected twice: in Week 4 or at the end of Unit 2, and again in
Week 12 or at the end of Unit 5.
Development of a Business Terminology Logbook which is collected

twice: in Week 4 or at end of Unit 4C, and again in Week 12 or at
the end of Unit 8
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Introduction
Icons
The following icons will be used as a visual aid throughout the Student Manual:
Icon Meaning
Information
Task
Hints and Cautions
Review
Independent Study
Focus
Written Assessment/
Assignment
Presentation
Assessment Event
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Unit 1: Introduction to International Business
Part A Unit Introduction
Part B The History of Globalisation
Part C Beliefs which Shape International Business
Part D Foreign Market Entry Modes
Part E Future Trends in Internationalisation
Part F Unit Review
Overview In this unit you will learn to:
 describe the history of globalisation, its key motivators, current global

business strategies and future trends.
 describe the changing world order since the mid-20th century and the
growth of the world economies
 discuss the forces driving globalisation

 describe the ideological foundations of different modes of entry into
global business
 analyse and discuss past trends and predict future trends
Overview Your teacher will provide you with an overview of the four Assessment
of Events for this module:
Assessment  AE1: In-class Test – Multiple Choice and Short Answer Test
Events  AE2: In-class Test – Short Essays + Case Study Test
1, 2, 3 & 4  AE3: Project – Written Report and Oral Presentation
 AE4: Course Work – including the Business Terminology Logbook
which you are expected to maintain throughout the module.
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Before Turn to a partner and brainstorm a response to the following questions:

You
What is international business?
Begin
What is globalisation?
International International business is the transnational commerce of goods and services,

Business including business transactions involving personnel and financing.
Some international business activities are conducted by governments but, for

the most part, international business is carried out by private companies
operating in the global marketplace. International business is a part of
globalisation.
It is hard to imagine now a world without international business. Everything

that is consumed, everything that is produced and every financial activity
engaged in is affected by international business. Virtually every nation has
firms engaged in various types of international business activity. Through
these activities nations enjoy the benefits of international business. For
example, access to a great variety of goods and services produced around the
world.
Globalisation Globalisation is far more wide-reaching than international business.

It is a process whereby people, companies and governments of different
nations interact, integrate and become interdependent.
Source: http://www.globalization101.org/what-is-globalization/ [Accessed 4 June 2015]
Countries and people are becoming increasingly interconnected through

travel, worker migration and business deals. What persuades governments
to integrate their economies with others is that the perceived gains of
globalisation outweigh the perceived costs. Globalisation impacts on the
environment, culture, political systems, economic development, prosperity
and human physical well-being in all societies.
You may recall from GAC015, a discussion on the advantages and

disadvantages of globalisation. Take some time now to think and discuss
with your partner or a group the advantages and disadvantages of
globalisation. Also discuss reasons why businesses and governments are
becoming more and more open to globalisation.
There are four main forces driving globalisation:

 market
 geo-politics
 costs
 competition
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Market Forces
•As people’s taste and preferences for goods and services converge, companies are
seeing a demand for their products in different parts of the global marketplace. As a
result, standardisation is one approach that companies are taking to fill this massive
demand by homogenous consumers.
Geo-Politics
•As more and more nations are joining international organisations, such as the WTO,
many trade barriers are coming down including tariffs and import quotas. This decrease
in trade regulations means that more and more businesses are able to compete globally
without excessive external government intervention aimed at discouraging foreign
competitors.
Costs
•Companies are finding it cost effective to allocate resources and responsibilities to other
locations worldwide. The reason for this is because the cost of labour or resources in
different countries is sometimes cheaper than in the home country. For example, some
companies will have research and development facilities in country A, manufacturing in
country B, and assembling of the final product in country C.
Competition
•New companies worldwide are increasing in number at a very high rate in many
industries. As this happens, companies must be aware of the competition that exists in
the world and strive to overcome their competition. If not, these companies that lag
behind will find it harder to compete and stay afloat.

Task 1.1 Work with a partner. Brainstorm examples for the four drivers of globalisation.
Complete the figure below.
Market Costs
converging consumer lifestyles and push for economies of scale
tastes
The drivers of
globalisation
Geo-Politics Competition
reduction of trade barriers more companies competing globally
Now join another pair and compare your examples.
Technology Another, more recent, driver of globalisation is technology:

The Internet and the World Wide Web
Having access to information from all over the world via the Internet, has
had a profound effect on how people shop, gather information and connect
with others. In addition, thousands of new businesses are created every
year that rely on this this medium.
Telecommunications
With the invention of innovative technologies in telecommunications and
related fields; such as fibre optics, microprocessors, memory chips and
telecommunications-switching devices, the speed and carrying capacity
with which we are able to communicate with people all over the world has
greatly increased.
Source: Information Technology and Globalization (2006), Global Envision [online]. Available from:
http://www.globalenvision.org/library/7/970 [Accessed 27 May 2015]

Transportation
Advancements in the transportation industry have made it possible to send
materials overseas faster, cheaper and in greater volume. As a result, more
and more businesses are finding it convenient to have multiple locations
worldwide serving different purposes in the production process. This is
evident in the automotive industry where some companies have a high
proportion of their vehicles manufactured in other parts of the word but
assembled in the home country.
Production
As technology develops, so do the advancements in production processes,
especially the use of robotics in manufacturing plants. The increase in the
use of robotics has allowed companies to increase productivity and
efficiency, while at the same time to decrease errors. The use of robotics
has also allowed companies to keep up with the demand of consumers
worldwide.
Task 1.2 For this task, work in a group of three or four. Select one of the
technological drivers of globalisation. Conduct research to find a company
or product that uses the technology your group has chosen to improve their
business functions. For example, if Production is chosen, find a
company/product that is using a specific machine that has helped its
production processes.
Answer the following questions:
Which technological category did your group research?

What is the company/product?
How is it being used in the company/industry?
How has it benefitted its users?
What are the disadvantages (if any) of using this technology?
Are there any other useful or interesting facts about the technology?
Join another group and take turns to explain your group’s selection to the
other group’s members. Take notes as you listen and ask questions to
clarify anything that you don’t understand.

Task 1.3 Work with a partner. Use the table below to answer the following
question:
How has progress in technology and telecommunications helped fuel
globalisation?
Figure 1.1 The Impact of Technology on Economic Growth
World Data 2008 2009 2010 2011 2012 2013
GDP per 9,350.2 8,753.7 9476.7 10,356.4 10,438.6 10,613.5

capita (US$)
Merchandise 52.0 42.4 47.2 51.0 50.4 49.4

trade (% of
GDP)
Time required 38.6 36.2 34.0 30.1 29.7 24.9

to start up a
business
(days)
Mobile phone 59.7 67.9 76.7 84.3 88.6 93.1

subscriptions
(per 100
people)
Secure 111.1 113.2 155.2 184.2 181.9 160.5

Internet
servers (per 1
million
people)
Internet users 23.3 25.8 29.3 32.0 35.6 38.1

(per 100
people)
Source: World Bank Search. Available from:

http://search.worldbank.org/data?qterm=mobile%20phone%20subscriptions&language=EN&format=html [Accessed 27 May 2015]

Part B The History of Globalisation
Before Modern business dealings are global and characterised by their participation in
You regional (and no longer simply country-to-country) trade alliances. It is difficult to
Begin determine a starting point for globalisation; however certain events clearly stimulated
it.
Work with a partner and brainstorm responses to the following question:
Can you think of any historical events which you think stimulated globalisation?
Now read the information below.

Did you mention any of these events?
 The first circumnavigation (sailing around) of the globe in the 16th century
stimulated world trade and investment.
 There was another expansion in globalisation in the late 19th century, which was
halted by the outbreak of the First World War. Soon after the First World War, in
1929, the Great Depression started and lasted for several years.
 After the end of the Second World War in 1945, international growth once again
accelerated. In 1947, the first General Agreement on Tariffs and Trade
(GATT) was signed. This and other GATT tariff reduction treaties saw average
world tariffs on manufactured goods fall from 37.5% in 1947 to 4% in 1997.
 In 1957, the European Economic Community (EEC) came into being. Six
countries in Western Europe became a single market: the Federal Republic of
Germany, Belgium, the Netherlands, Luxembourg, France and Italy.
 The oil shocks of the 1970s, when oil prices quadrupled, created a whole new
pattern of capital flows.
 The Australia-New Zealand Closer Economic Relations Agreement (CER)

was initiated in 1983. Its aim was to facilitate freer trade between Australia and
New Zealand.
For more information visit:
http://dfat.gov.au/trade/agreements/anzcerta/Pages/australia-new-zealand-closer-
economic-relations-trade-agreement.aspx [Accessed 27 May 2015]
 The collapse of the Soviet Union in 1989 signalled the failure of communism and
led to a surge in capitalism and free trade.
 ASEAN (the Association of Southeast Asian Nations) was founded in 1967 to

promote security, socio-cultural and economic integration. Today it includes over
500 million people in Indonesia, Malaysia, the Philippines, Singapore, Thailand,
Brunei, Vietnam, Myanmar (Burma), Laos and Cambodia. The creation of

ASEAN was followed by the signing of the AFTA (ASEAN Free Trade Area)
agreement, formally encouraging the free flow of goods within this area. ASEAN
also aims to promote lawful social progress and stability within the region in
accordance with the United Nations Charter.
http://www.asean.org/ [Accessed 27 May 2015]
 In 1978, Deng Xiaoping led a Second Revolution, which introduced economic and
social reforms that put China on track towards globalisation.
 NAFTA (the North American Free Trade Agreement) includes Canada, the
US and Mexico. Their combined GDPs make NAFTA the world’s biggest free
trade area. The first NAFTA agreement was signed by US President George
H.W. Bush, Mexican President Carlos Salinas, and Canadian Prime Minister
Brian Mulroney in 1992. On 1 January 2008, all tariffs between the three
countries were removed.
http://www.naftanow.org/default_en.asp [Accessed 27 May 2015]
 The European Union (EU) was established by 12 countries in 1993 to extend the
area of influence of the EEC. Today people, goods, services and capital circulate
freely among its 28 member states, and over 500 million citizens.
http://europa.eu/abc/index_en.htm [Accessed 27 May 2015]
 The World Trade Organization (WTO) was founded in 1995 to succeed the
GATT. It works to resolve trade disputes and reduce trade barriers. The WTO
will be discussed further in Unit 2, Part E.
http://www.wto.org/ [Accessed 27 May 2015]
 On 1 January 2002, the Euro was introduced as the official currency of the
Eurozone (those EU countries which use the Euro as their currency). In 2014
there were 19 Eurozone member countries.
 The recent financial crisis (sometimes called the Great Recession, or GFC
(Global Financial Crisis)) peaked in 2008 and pushed the global economy into a
severe downturn. As finance dried up, world trade shrank as fast as it did during
the 1930s Great Depression.
There are also a number of technological events that have facilitated globalisation.
Can you think of any?

Task 1.4 Conduct research to identify five key events which stimulated globalisation in
your country. Write them in the chart below.
As a starting point, consider the drivers covered in Part A of this unit.

Part C Beliefs which Shape Internationalisation
The way a business approaches internationalisation depends largely on how

senior management perceives the world and regards how business should be
developed. There are four beliefs which shape international development
strategies:
1. Ethnocentric
2. Polycentric
3. Regiocentric
4. Geocentric
Ethnocentric 1. Ethnocentric beliefs

Beliefs
Ethnocentric beliefs are held by multinational corporations (MNCs) that
have their headquarters in one country but operate in several other countries.
Their management style, decision-making and culture stem from their home
country, even though they are based in foreign countries. In ethnocentric
companies:
 the home country is perceived as superior
 the parent country culture, work approaches, management style, decision
making and key personnel dominate
 the host country is mainly considered a channel for consuming excess
home country production
 overseas expansion is planned in the home country by the international
division of the company
Examples would be Sony and LVMH. Ethnocentric companies may disregard
local customs at the expense of their own culture. Employing parent country
nationals (PCNs) instead of host country managers minimises this risk.
Polycentric 2. Polycentric beliefs

Beliefs
Polycentric organisations have a decentralised management system that
works in each of their operating countries. In polycentric companies:
 each country is perceived as unique

 operations are decentralised: local workers are hired and techniques are
applied with minimal coordination by headquarters
 subsidiaries are established in overseas markets
 each subsidiary develops its own unique business and marketing
strategies
An example would be the Swiss company, Nestlé. The managers at Nestlé

match the company’s products to the consumers. For example, there will be
products sold in Europe that are different or not available in their Asia Pacific
organisations. A polycentric approach facilitates product adaptation to local
market needs by managers who are host country nationals (HCNs).

Although the polycentric approach offers many advantages, there are also
difficulties in coordinating activities and goals with the parent company.
There is also the risk that home country managers lack the experience and
insight to coordinate activities in overseas subsidiaries.
Regiocentric 3. Regiocentric beliefs

Beliefs
Some organisations choose to eliminate their structural divisions in order to
operate more efficiently globally. This type of organisation is described as
having a regiocentric attitude. In regiocentric companies:
 different regions are viewed as different markets: a particular region with
common political/economic/marketing characteristics is regarded as a
single market, irrespective of national boundaries
 strategy, organisation and marketing activities are organised at a regional
level
 divisions are created and staffed on a regional basis
 company goals are negotiated between headquarters, regional
headquarters and subsidiaries
Examples would be IBM and Telefonica in Spain which have reorganised
their businesses into industry or product groups rather than by country.
Regiocentric management is staffed by both PCNs and HCNs, and is
dependent on company goals at any given time. A regiocentric attitude
capitalises on the best people and practices, irrespective of where they may
originate.
Geocentric 4. Geocentric beliefs

Beliefs
Geocentric management strives to achieve a fully globalised market. In
geocentric companies:
 the world is perceived as a single market
 a standardised marketing mix is developed
 the management team includes the best people for given roles, no matter
where they come from
 the subsidiaries are connected by a coordinated plan that allows for local
needs and actions in the context of overall organisational performance
Examples would be HSBC and KFC who perceive the whole world as a
single market for which they develop standardised products/services and a
consistent company image.
The choice of internationalisation strategy depends on several factors such as
the size of the organisation, company experience in a given market, the size
of the potential market and the type of product.

Task 1.5 First, work on your own. List the advantages and disadvantages associated
with a) ethnocentric b) polycentric c) regiocentric and d) geocentric
business beliefs.
Then, compare your ideas with a partner. Then:
List at least two specific examples for each advantage/disadvantage.
Task 1.6 Work in groups of three. Conduct research about the companies below to
answer the following questions:
Which belief does each company follow?
Provide examples which illustrate this belief.
Why do you think they follow this particular belief?
Then compare your answers with another group.
L’ORÉAL Starbucks Whirlpool Corporation
Shangri-La Hotels Coca-Cola Procter & Gamble
Toyota McDonalds Unilever
Multinational What are multinational corporations and what do they do?

Corporations
A multinational corporation (MNC) is a company which conducts
business in more than one foreign country. MNCs embrace globalisation
and have a large amount of equity (capital) invested in host countries.
In 2009, there were over 800,000 multinational companies in the world.
Source: United Nations Conference on Trade and Development [online]. Available from:
http://unctad.org/en/Pages/Publications.aspx [Accessed 27 May 2015]
A common MNC model is to put the executive headquarters in the home

country, and production facilities in one or more other countries.
Task 1.7 Figure 1.2 on the following page shows:

 the 10 biggest MNCs in 2015 based on foreign assets
 the 10 most reputable MNCs in 2015
Does anything surprise you about these rankings? If so, what?

Which variables do you think were taken into account to establish the
reputations ranking?
Do you agree with the reputation rankings? If not, why?

Figure 1.2 Ranking of 10 biggest and 10 most reputable MNCs in 2015
Rank 2015 - 10 biggest MNCs 2015 - 10 most reputable MNCs
1. General Electric - USA BMW - Germany
2. Royal Dutch Shell - UK & Holland Google – USA
3. Toyota - Japan Daimler - Germany
4. ExxonMobil - USA Rolex - Switzerland
5. Total SA - France LEGO - Denmark
6. BP plc - UK The Walt Disney Company – USA
7. Vodafone Group – UK Canon - Japan
8. Volkswagen - Germany Apple – USA
9. Chevron – USA Sony - Japan
10. Eni SpA - Italy Intel – USA
Source: Adams, S. (2015), The World’s Most Reputable Companies in 2015, Forbes Magazine [online]. Available from:
http://www.forbes.com/sites/susanadams/2015/04/21/the-worlds-most-reputable-companies-in-2015/2/ [Accessed 27 May
2015]

Task 1.8 In groups, brainstorm advantages and disadvantages that MNCs can have on
the host country using the categories below:
Employment
Advantages
Tax Revenue
Technology Transfer
Product Selection
Environmental Impact
Disadvantages
Natural Resources
Competition
Cultural and Social

Impact
Can you think of any other advantages or disadvantages?
Task 1.9 Below is a list of complaints; some are expressed by MNCs and others are
expressed by host countries. Sort them onto the correct side of the scale.
profit-taking limited technology foreign exchange overpriced

restrictions transfer controls resources
interference in failure to uphold disrespect for local domination of the

local government contracts customs local economy
Can you think of any other complaints?

Common complaints by MNCs Common complaints by host

countries

Part D Foreign Market Entry Modes
International business activities fall into two broad categories: international

trade and international investment. International trade takes place when a firm
engages in the export and/or import of goods and services. International
investment takes place when a firm transfers resources in order to undertake
business activities in another country.
An entry mode is the method in which a company enters a new international

market. International expansion can be achieved via the following modes:
1. Exporting
2. Licensing
3. Joint Venture (JV)
4. Foreign Direct Investment (FDI)
5. The Internet
Exporting 1. Exporting
Exporting involves marketing and selling home country goods and services in
another country. There is no investment in host country production facilities.
Most of the costs are marketing expenses.
Exporters may use agents or distributors to sell home country products in a

particular host country. Agents negotiate on behalf of the home country
producer. They are usually paid a commission on goods and services sold. They
do not buy the goods/services from the company. Distributors, on the other
hand, buy the goods/ services and then resell them to customers. The distributor
incurs the costs for any unsold products.
Exporting is most effective when the host country:
is politically unstable
has high production costs
offers limited sales volume potential
requires little adaptation of the good/service

Licensing 2. Licensing
Licensing allows the licensee in the host country to use the property of the
licensor. The licensee pays a fee for the use of licensor’s technology, brand
and/or expertise. Franchising is a type of licensing. The licensor generally
requires relatively little investment.
Licensing is most effective when the host country:
has high investment and import barriers
offers a small potential sales volume
makes it difficult for a new competitor to enter

the market
requires a big cultural adaptation
Joint 3. Joint Venture (JV)

Venture
A joint venture is an alliance between two companies: one in the host
country, the other in the home country. For example, for any business
wishing to enter China it is compulsory to find a Chinese partner. Both
parties own a proportion of the business. The parties involved share the risks,
rewards and technology.
Joint ventures are most effective when the host country:
offers a high potential sales volume
has some political risk
makes it difficult for foreign business owners
is able to provide the necessary skills and

distribution network

Foreign 4. Foreign Direct Investment (FDI)

Direct
Investment Foreign direct investment is when the home country company invests in
plant, machinery and labour in the overseas market. The investment is made
by purchasing an existing business or setting up a new one. To be considered
FDI, the home country company must own at least 10% of its subsidiary.
The significant level of investment allows a high degree of control over how
the business is run.
FDI is most effective when the host country:
offers a high potential sales volume
has a low political risk
has high import barriers
requires little cultural adaptation
The 5. The Internet

Internet
The Internet is used by both conventional companies which have integrated
e-marketing approaches, as well as new, wholly Internet-based companies.
For example, strawberrynet.com sells perfume, skincare and make-up
products worldwide; all exclusively online.
The Internet is particularly effective when the host country:
offers a low potential sales volume
has a high political risk
applies minimal import duties
requires no product adaptation

Task 1.10 Work with a partner. Find a company that has expanded internationally and
describe which one of the foreign market entry modes they are using.
Here are some questions that will help start your research.
What is the name of the company?

Which countries do they operate in?
Which foreign market entry modes are they using and how are they utilising it?
Are there any other companies involved?
Join another pair and compare your research.
Task 1.11 How do the various overseas entry modes compare?

Complete the table below. Then compare your answers with a partner.
Strategy Advantages Disadvantages

Exporting Need to “learn” the overseas market Transport costs
before investing
Licensing Minimal investment and risk Requires a lot of investigating and planning
Joint A way of dealing with cultural Requires a lot of investigating and planning
Ventures restrictions
Foreign Obtain greater knowledge of local Higher risk than other strategies
Direct market
Investment

The Internet Minimal investment and risk Minimal customer relationship: difficult to
build loyalty

Part E Future Trends in International Business

As the world’s economies become more ‘global’, events in one country affect
the fortunes of another. This means that world economic conditions can change
rapidly. For example, towards the end of 2008, the world economic outlook
changed dramatically from the prior optimism as a result of the global financial
crisis. This will be discussed in the next unit.
Which future issues is the global economy facing?
Demographic •By 2025, the global population is predicted to reach 8 billion.

and Social •Dependency ratios are expected to proceed upwards as a result of
Change increasing life expectancy and declining birth rates.
•“The aggregate purchasing power of emerging economies will overtake

Shifts in Global that of G7 countries by 2030.”
Economic
•Consumers from various regions are increasing consumption at
Power unprecedented rates.
•“Rapid expansion is putting urban infrastructure, environment and

Rapid social fabric under pressure.”
Urbanisation •Businesses have to adjust to the urban customer base, and city leaders
have to ensure growth is sustainable.
•The rise in global population increases demand for finite resources

Climate Change such as energy, food and water.
and Resource
•Governments need to put policies in place to protect the environment.
Scarcity Social responsibility for businesses is a must.
•Digitalisation and social media are becoming more intertwined in the

day-to-day lives of people worldwide.
Technological
Breakthroughs •New technological advances are occuring more frequenlty and at a
faster rate. Companies are now being forced to create business plans
that fit strategically to the digital world.
Source: Five global megatrends continue to advance, (2015) PWC [online]. Available from:
http://www.pwc.com/gx/en/issues/megatrends/index.jhtml [Accessed 20 August 2015]
To remain competitive, many businesses will need to compete on a global scale.

Task 1.12 What do you think will be the future impact of globalisation on individuals,
businesses and countries?
Brainstorm your own ideas and then conduct research for information. List
your ideas in the table below.
The Future Impact of Globalisation

Individuals Businesses Countries
Compare your list with a partner. Then your teacher will lead a class
discussion.

Part F Unit Review
Review What have I learnt in Unit 1?
In this unit, the basis of international business and the different strategies
organisations adopt in order to be effective world-wide have been studied.
Your teacher will lead a review discussion of Unit 1.
Language Review this unit. Make a list of all new business terms in your Business
Focus Terminology Logbook. Ensure you are clear on the meaning of the
terminology as well as the appropriate use.
Remember that your Business Terminology Logbook will be collected for

marking at the end of Unit 2.

Task 1.13 Unit 1: Introduction to International Business: Key Terms crossword

puzzle
Note: If there are hyphens or apostrophes, they count as letters.
The following are made up of 2 or more words with a blank in between each
word:
 Across: 5, 14
 Down: 1, 6

Task 1.14 Summary

Complete the summary below using the key terminology presented
throughout the unit.
Globalisation is the growing ____________________ between the peoples, companies

and governments of different states. The main factors driving globalisation are market,
___________________, competition, cost and _____________________.
Globalisation has accelerated since the mid-20th century. __________________

___________________ have collapsed thanks to organisations such as NAFTA and
the EU. The fall of the Soviet Union provided further impetus to _________________
___________________. It took the _____________________
___________________ ___________________ to temporarily halt globalisation, due
to the ___________________ ___________________ ___________________.
There are four major globalisation strategies: ___________________, polycentric,

regiocentric and ___________________. Each has its pros and cons.
___________________corporations are companies which have embraced
globalisation. They have invested a large amount of ___________________ in more
than one ____________________ ____________________.
The future of international business hinges on companies capitalising in the change of

demographics, shifts in ___________________, rapid urbanisation, climate change
and resource scarcity, as well as _____________________ breakthroughs. Entry into
a foreign market can be undertaken in several ways: by exporting,
___________________, agents/distributors, entering into a __________________
___________________, by Foreign Direct Investment, or through the Internet. The
choice of strategy will depend on the ___________________ and
__________________ of the company.
Assessment Assessment Event 1 is due at the end of Unit 3.

Event 1 Review the requirements for this assessment.

Unit 2: External influences on international business: International Economics
Unit 2: External Influences on International Business: International

Economics
Part B International Economic Systems
Part C International Trade
Part D International Finance
Part E International Harmonisation
Part F Unit Review
Overview In this unit you will learn to:
 describe the impact of the economy on the international business

environment
 discern whether the role of economics is different in international
business compared to its role in domestic business
 discuss the influence of international trade relations
 explain why there is a need for independent international organisations
empowered to monitor and regulate the activities of government and
international businesses
Assessment Your Business Terminology Logbook will be collected for marking at the
Reminder end of this unit.
Assessment Event 1: In-class Test – Multiple Choice Questions Test will

take place after Unit 3.

Unit 2: External Influences on International Business: International Economics
What is international economics?

International International economics studies international trade in goods and services
Economics and the implications of international investment.
There are two broad sub-fields within international economics: international

trade and international finance.
International Economics
International finance takes a

macroeconomic approach to
International trade takes a understanding the international
microeconomic approach to economy. It includes studying the
understanding the effects of the connection between transnational
international economy. It includes economic indicators such as GDP,
analysing supply and demand, studying unemployment rates, inflation rates and
the effects of changes in trade policies on exchange rates etc. International finance
consumers and companies, and involves studying how exchange rates
evaluating competition. interact, and evaluating the
consequences of shifts in monetary and
fiscal policies.

Part B International Economic Systems
The economic environment is arguably the most important factor in

international business. As you learnt in GAC012, there are a number of ways
of classifying economies. Generally we think of economies as being free-
market, planned or mixed.
Task 2.1 How much do you remember about the different economic systems?
First complete the table below on your own. Then check with a partner.
Criteria Free-Market Planned Mixed

Production and distribution Businesses and Individuals produce goods and Businesses __________________
of goods and services ____________________ services for the government. and the ____________________
produce goods and services. The _______________________ produce goods and services.
Individuals, other businesses, then distributes those goods and Individuals, other businesses, and
and the government purchase services to its citizens. the government buy the goods and
the goods and services with services. The government helps
money. The price of the goods ensure that distribution of goods and
and services is determined by services is fair, by regulating prices
the _______________ for the and providing _______________
good versus its supply. services like health care, etc. .
Consumer choice and Consumers usually have There is ______________choice. Consumers usually have
competition _____________options when The government distributes only ____________ options when
purchasing goods or services. _____________ type of product purchasing goods or services.
There are usually several for a given good or service. However, the government may own
businesses offering the same ________________ like water,
product. This ensures transport and electricity.
__________ competition and
fair prices, as businesses
compete for consumers’
money.
Profit Profit is the ______________ Profit is _______________ a Profit is the _______________ factor
incentive of businesses. main factor. of business. However, the
Prices must be reasonable in government takes a large percentage
order for the business to of profit in the form of____________.
prosper.
Productivity __________________ ______________________ ___________________ productive.

productive workers. Very productivity. Workers see little Profit is still an incentive, but is
motivated to be productive additional benefit in being more heavily taxed.
since taxes are low. productive.
Property rights ____________________ own ______________________ ____________________,

natural and human capital. owns all capital. businesses, and the
They sell the use of these to _____________________own
businesses. capital.
Standard of living Very high for a Low for ________________. Good for_______________. Less
________________. Very low Lack of opportunities to improve. disparity. Very high taxes result in
for a ________________. ‘brain/capital drain’.
Rather good for ‘Lowest common denominator’
________________. Low effect. Dependence on the state
taxes and corresponding low breeds lack of initiative.
social safety net.

Developed and developing countries
Developed Developed countries are also called industrialised/advanced

Countries economies/First World countries. They are usually democracies, operate
free-market/mixed economies and fight corruption. They are more
dependent on manufacturing than agriculture. New technology is widely
used.
Developing Developing countries are also called less developed/non-industrialised/

Countries emerging economies/Third World countries. Developing nations have a
lower standard of living and lower levels of productivity than developed
countries. People spend a larger proportion of their income on food. The
countries have a small industrial base and limited access to new
technologies. Overall their people have low levels of education, healthcare
and life expectancy. These countries are usually characterised by high
population growth and rapid rates of urbanisation.
Note: ‘Developing countries’ are heterogeneous (dissimilar) in terms of

standard of living, productivity, geography, demographics, infrastructure
and natural resources. The term newly industrialised countries (NIC) is
used for those countries which are not yet ready to be classed as
‘developed’ but which nevertheless have more advanced economies than
other ‘developing’ nations.
Economic indicators like GDP, per capita income and industrialisation are
used to establish a country’s level of development.
A more recent measure is the UN Human Development Index (HDI).

“The Human Development Index (HDI) is a summary measure of average
achievement in key dimensions of human development.”
“The HDI was created to emphasize that people and their capabilities
should be the ultimate criteria for assessing the development of a country,
not economic growth alone.”
Source: UN Human Development Reports [online]. Available from:
http://hdr.undp.org/en/content/human-development-index-hdi [Accessed 30 May 2015]
Since 2010, the new method in calculating the HDI measure includes three
other dimensions of human development, in addition to standard of living:
 a long and healthy life: life expectancy at birth

 knowledge: mean years of schooling and expected years of schooling
 standard of living: GNI per capita
Consider the table overleaf which lists the top 36 countries by HDI. Then
answer the questions in Task 2.2.

Figure 2.1 2013 UN Top 36 countries by HDI
1. Norway 13. Iceland 25. Slovenia
2. Australia 14. United Kingdom 26. Italy
3. Switzerland 15. Hong Kong, China 27. Spain
4. Netherlands 15. Korea (Republic of) 28. Czech Republic
5. United States 17. Japan 29. Greece
6. Germany 18. Liechtenstein 30. Brunei Darussalam
7. New Zealand 19. Israel 31. Qatar
8. Canada 20. France 32. Cyprus
9. Singapore 21. Austria 33. Estonia
10. Denmark 21. Belgium 34. Saudi Arabia
11. Ireland 21. Luxembourg 35. Lithuania
12. Sweden 24. Finland 35. Poland
Source: UN Human Development Reports [online]. Available from: http://hdr.undp.org/en/content/table-1-

human-development-index-and-its-components [Accessed 30 May 2015]
Task 2.2 Did anything surprise you about the above rankings?
What would you say are the key similarities between the top ten countries in
terms of HDI? Consider the information covered in Part B of this unit.
Do you think that free market/mixed economies stimulate the growth of

international business more than state-directed economies? If so, why? If not,
why not? Provide some examples.
Follow the link below and examine the differences between the three factors
used to calculate the HDI for each country:
http://hdr.undp.org/en/data
What conclusions can you draw between countries ranked higher in HDI
than countries that rank lower?
Make notes and be prepared to discuss this in class.

Part C International Trade
Before In GAC 012 you learnt about Gross Domestic Product (GDP).
You
Begin Do you remember what GDP is?
When talking in international trade terms, the Gross National Product (GNP)
is sometimes used.
What is the difference between GDP and GNP?
Another frequently used term when talking about international trade is Gross
World Product (GWP).
What do you think GWP means?
In order to understand how international trade increases the welfare of a

country’s citizens we need to consider why trade takes place. To do this the
principles of absolute and comparative advantage should be considered.
The Theory The Theory of Absolute Advantage is attributed to the Scottish economist
of Absolute Adam Smith (1723-1790).
Advantage
A country is said to have an absolute advantage over a trading partner when it
produces more of a good/service with the same assets, or when it needs fewer
assets to produce an equal amount of a good/service. Study the example
below.
Output per hour of labour
France Indonesia
Wine (barrels) 3 1
Rice (bags) 1 4
Which country has an absolute advantage in wine production?

Which country has an absolute advantage in rice production?
What would happen if one country had an absolute advantage in the
production of both?

The Theory of Comparative Advantage

The Theory The Theory of Comparative Advantage is attributed to David Ricardo, an
of English political economist (1772-1823).
Comparative
Advantage A country is said to have a comparative advantage when the opportunity cost
of producing a good/service is lower than that of a trading partner.
The opportunity cost of an item is the cost paid when giving up one
investment in favour of another. So, for example, the opportunity cost of
going to college is the money you would have earned if you worked instead.
You lose three or four years of salary while getting your degree. On the other
hand, you hope to earn more during your career as a result of your education
to compensate for the lost wages.
So assessing a comparative advantage involves comparing productivity
between nations and industries. The following example illustrates this
principle:
Italy is more productive then Germany in producing both cheese and wine. If
Italy is twice as productive as Germany in terms of cheese production, but
three times as productive as Germany in wine production, then Italy’s
comparative advantage is in wine. Likewise, Germany’s comparative
advantage is in cheese, the product in which it is least disadvantaged in terms
of productivity.
Logically, Italy should trade in what it is ‘most best’ at producing, while
Germany should trade in what it is ‘least worst’ at producing.
Adapted from: Suranovic, S.M. (2015) The Theory of Comparative Advantage – Overview,
The Ricardian Model of Comparative Advantage [Online]. Available from:
http://internationalecon.com/Trade/Tch40/T40-0.php [Accessed 30 May 2015]
Task 2.3 Work with a partner and follow the link. Watch the video about absolute and
comparative advantage. Come up with an example of comparative advantage
to explain to another pair of students.
http://www.youtube.com/watch?v=Pd_qs8ueIWw [Accessed 30 May 2015]
Task 2.4 For this activity, you will be given questions regarding comparative and
absolute advantage. With your partner, complete the tasks provided by your
teacher. This task will help you to fully grasp how these theories on
international trade are used to determine where goods should be produced.
Heckscher- Swedish economists Eli Heckscher and Bertil Ohlin came up with a different
Ohlin Theory explanation of comparative advantage. They argued that a country’s
comparative advantage arises from the differences in a nation’s factor
endowments. Factor endowments are defined as the resources, such as land,
labour, and capital that a nation is endowed with. The more of a factor they
have, the lower its cost. This theory states that a nation will produce and
export goods that use factors which are abundant in supply and import goods
that use factors which are scarce in the home country (Hill 2013, p. 190).

The International Business Cycle

The The global economy is affected by regular and recurring fluctuations in the
International levels of economic activity, in the same way as a national economy. These
Business fluctuations are known as the international business cycle.
Cycle
Task 2.5 What do you remember about the economic cycle?

Four corners activity. Your teacher will explain.
Historically there is a strong relationship between the business cycles of

different world economies. Like a national economy, GWP tends to go
through cycles of prosperity, recession, depression and recovery.
A global recession is difficult to pinpoint, even when it is happening. This
explains why most recessions are only acknowledged in hindsight.
The GFC Example of a global economic downturn: The GFC
Microeconomic factors like investment flows and consumer confidence in one part of the world
can have a profound effect on the international business cycle, as illustrated by the recent
Global Financial Crisis (GFC).
In 2001, the US Central Bank (or Federal Reserve) started a trend of reducing interest rates.
This made it very cheap to borrow money. Consequently, many consumers borrowed money in
order to finance investments in shares and property. As demand increased, prices (especially
property) skyrocketed.
Many lenders became careless when verifying whether the borrowers could actually afford the
repayments on the houses. By late 2007, the number of home buyers defaulting on their
mortgages (unable to make home loan repayments) increased rapidly. The market in which the
mortgages were bought and sold declined. Soon lenders stopped providing home loans. With
fewer home loans available, demand shrank, and property prices tumbled. Financial institutions
began to make losses. This led to a panic. People took their money out of financial institutions.
A number of very large investment banks on Wall Street failed. Lehmann Brothers, one of the
largest investment banks, went bankrupt.
Soon after, the credit markets, where businesses borrow money to finance expansion, also
tightened. Businesses were unable to obtain loans for investment and working capital. Many
businesses also had debts which were beyond their means, and they began to go bankrupt. As
they closed their doors, the unemployment rate jumped. The increase in the ranks of the
unemployed meant that more and more people defaulted on their mortgages, causing additional
bankruptcies. The effect was felt by financiers around the world.
Adapted from: The International Business Cycle . NSW HSC [online]. Available from:
http://www.hsc.csu.edu.au/economics/global_economy/business_cycle/Topic4Tutorial4.html [Accessed 31 May 2015]

Task 2.6 Work in groups of four.
Read the article your teacher will give your group. Complete the organiser
below. Your classmates will help you complete the rest of the table.
Text 1 - title: Text 2 - title: Text 3 - title: Text 4 - title:
Primary/
Secondary
Source?
Author’s
thesis?
(the key
idea/ opinion
that is
supported)
Main ideas
Supporting
details

Trading Trading blocs are trading agreements where member states enjoy
Blocs preferential trading conditions.
Which trading blocs do you remember from GAC012?
Trading blocs fall into different categories:
1. Free Trade Areas

2. Customs Unions
3. Common Markets
4. Economic Unions
1. Free Trade Areas

Free Trade Area member countries impose no trade barriers on each other but
individually they impose trade barriers on outside countries. Non-tariff
barriers are reduced. Non-tariff barriers are those laws which limit imports,
including product and labelling requirements and subsidies. All Free Trade
Area members receive equal treatment.
2. Customs Unions
In Customs Unions there is some degree of unity in trade policies with
outside countries. Example policies include the application of a common
external tariff (CET) and uniform quotas on imported products.
3. Common Markets
Common markets go further than Customs Unions in standardising trade
policies. People, capital and other resources are able to circulate freely
within the area, and non-tariff barriers to trade are removed.
4. Economic Unions
An economic union is the most integrated of economic blocs. In addition to
harmonising laws relating to the circulation of people, capital and other
resources, an economic union also has uniform fiscal (government taxation
and spending) and monetary (money supply) policies. Member nations of an
economic union often have a common currency. This removes the element of
uncertainty associated with exchange rate fluctuations, and facilitates the
decision of where to locate a business.
Source: Holden, M. (2003), Stages of Economic Integration: From Autarky to Economic Union.
Government of Canada Publications [online]. Available from: http://dsp-psd.pwgsc.gc.ca/Collection-
R/LoPBdP/inbrief/prb0249-e.htm [Accessed 31 May 2015]
Task 2.7 Work with a partner.

Think of at least one example for each category of trading bloc?
To which trading blocs does your country belong?
What are the advantages/disadvantages of each membership?

Part D International Finance
International International finance is a sub-field of international economics. It focuses

Finance on the interplay between exchange rate fluctuations, foreign investment and
international trade.
For the most part, international trade is related to microeconomics, while

international finance follows macroeconomic principles.
International finance supports economic growth and helps businesses

develop beyond subsistence (survival) level. For example, a family-owned
and operated T-shirt manufacturer can only make a limited number of T-
shirts. If the family is able to borrow money to invest in additional
employees and a larger workshop, it can produce many more T-shirts and
provide a living for more families.
Developing countries struggle to grow their economies because they have

limited access to investment capital.
International Companies that have increasing business dealings across national borders
Financial need to have a sound grasp of international financial markets. There are
Markets many types of financial markets but we will be concerned in particular to
two types: capital markets and forex markets. Capital markets, such as
stock markets or bond markets, are used by companies to help finance a
project or activity because they cannot obtain the funds internally or believe
that getting the funds from the markets is cheaper. Forex markets are where
currencies are traded. It is open 24 hours a day, 5 days a week. Immense
amounts of money are traded through this medium every day. This market
is especially important for businesses that are operating internationally
because monies are exchanged using an unpredictable exchange rate that
fluctuates on a daily basis.
Globalisation has led to the creation of global financial institutions to

provide essential financial services, including banking, funds transfer and
credit allocation. Examples of prominent financial institutions are the World
Bank and International Monetary Fund.
Stock Access to capital is essential for every international company. Companies

Exchanges can raise money by floating their company on one of the world’s stock
exchanges located in financial centres around the world, like New York,
London and Tokyo. Stock exchanges or stock markets are places where
investors buy and sell shares and other securities depending on a company’s
market performance. Global organisations now list their companies in stock
exchanges around the world in order to attract investment capital.

Task 2.8 In pairs, choose a public company of your choice and find their ticker
symbol. You can use either of the links below:
https://www.google.com/finance
http://finance.yahoo.com/
Then, find their stock price chart for the past year and compare how the
stock price has changed from 12 months ago until now. What do you notice
about the change? Was it significant?
Now, find a competitor (usually called Related companies) and compare the
competitor’s stock price chart to your chosen company and answer the
following questions:
Do the movements in the price between the two companies differ or do

they move in similar directions?
If they are different in price or movement, what do you think caused these
differences?
Which of the two companies would you invest in? Why?
Task 2.9 In pairs, choose one of the following world stock exchanges and write a
summary of its operations. Be prepared to present and discuss your ideas in
class.
London Stock Exchange -

http://www.londonstockexchange.com/home/homepage.htm
Japan Exchange Group - http://www.jpx.co.jp/english/
New York Stock Exchange - http://www.nyse.com
Hong Kong Stock Exchange - http://www.hkex.com.hk/index.htm
[All accessed 31 May 2015]
Stock market fluctuations can set off a chain reaction throughout the world.
For example, stock market turbulence in the emerging economies of South-
East Asia in 1997 surprised many by the speed with which it affected both
developing and industrialised nations. Likewise, the global financial crisis,
which began in 2007, stunned the world by the speed at which it developed.
This time, world leaders united in their efforts to minimise the repercussions.
The G-20 was the forum used by the world leaders to develop a global
strategy. You can find more information about the G-20 in Part E of this
unit.

Foreign When companies conduct international business, funds are converted from
Exchange one currency to another. The conversion rate they get depends on the
Rates fluctuations of the exchange rate. While some countries have pegged
(aligned) their currency to the US dollar, others allow their currency to float
and fluctuate on a day-to-day basis according to trading activities. A pegged
exchange rate means that the government will intervene in the currency
market to make sure the rate doesn’t change or stays within a band. However,
too much intervention by the government can not only drain its reserves but
also lose control of its monetary policy. Advocates of a pegged or fixed
exchange rate believe that this method decreases the uncertainty of the
currency movement, limits the destabilising effects of speculation, and
provides monetary discipline on the government from increasing the money
supply to unacceptably high levels.
Floating a currency means that the government doesn’t intervene in the

currency markets and allows the exchange rate to fluctuate on a daily basis.
The fluctuations are caused by the demand and supply of the currency in the
currency market. Advocates of this policy believe that it allows the
government to have control over its monetary policies which can be used to
either stimulate or contract the economy (Hill 2013, p. 364-365).
Floating a currency can cause rapid changes in the value of that country’s
currency, which can in turn lead to significant changes in the costs of setting
up and operating an international business.
Task 2.10 In pairs, find the foreign exchange rates for your country’s currency, against
the euro, the Japanese yen, the Australian dollar and the US dollar for the past
year. You should use the monthly average exchange rates. Using Microsoft
Excel, create a spreadsheet to record these fluctuations identifying the
percentage fluctuation between your country’s currency against the rest.
Create a line graph to plot the fluctuations. Also, assess the impact of any
fluctuations on your country’s involvement in international trade. The
following Web site is useful:
http://www.x-rates.com/ [Accessed 31 May 2015]
Exchange Trade flows can be influenced by foreign exchange rates. Volatile (unstable)
Rate currencies can have a dramatic impact on the value of business transactions.
Fluctuations For example, imagine that Airbus Industries has agreed to provide a US
company with aerospace parts in six months’ time. Depending on foreign
exchange rate fluctuations, the parts could become more or less costly
when compared to the original budget.
At a macro level, exchange rate fluctuations can also have an impact on
national economies. Canada’s trade deficit rose for the fifth month in a row
in July 2010. If this trade deficit were due to excessive imports, or
insufficient exports, then either reducing imports or raising exports would
decrease the deficit. Manipulating exchange rates is one way to alter these

trade flows.
If the Canadian dollar were to depreciate (fall in value), then imported goods
would cost Canadians more, and demand for imports would drop. On the
other hand, since overseas currencies would appreciate (grow in value)
compared to the Canadian dollar, overseas demand for Canadian exports
would rise. In this particular instance, the record trade deficit is attributed to
a strong Canadian dollar, which has caused exports to shrink.
However, exchange rate fluctuations are not solely responsible for trade
imbalances. There are many other pressures on the flow of goods and
services.
Adapted from: Suranovic, S. (2006), Overvaluation and Undervaluation., International Finance Theory
and Policy [online]. Available from: http://internationalecon.com/Finance/Fch30/F30-6.php [Accessed 31
May 2015]
Task 2.11 Work in pairs to discuss the factors may cause exchange rate fluctuations.
Make sure you provide examples.
Make notes as you discuss this topic so that you can share your ideas with
the whole class.
Purchasing One of the most important theories in international finance is purchasing

Power power parity (PPP). It is the most common way of comparing living
Parity standards in different countries and is based on the Law of One Price (LOP).
The LOP states that a particular good should cost the same price in a given
currency no matter the country in which it is sold.
Since 1986, The Economist magazine has published a global comparison of

the price of a McDonald’s Big Mac™ hamburger. The aim of this
comparison is to assess exchange rates. It is called the Big Mac Index.

Task 2.12 The following table contains the Big Mac indicators of PPP in 2015. Use
the link below to complete the remainder of the table. Remember to write
the name of the currency in the second column.
http://www.economist.com/content/big-mac-index (Accessed 4 June 2015)
Figure 2.2 Jan 2015 Big Mac Indicators of PPP
Country or Region Big Mac price in local Big Mac price over/undervaluation
currency In US dollars versus US $ (%)
United States $ 4.79 - -
Australia AU$ 5.3 4.32 -9.8
Brazil Real (R$) 13.5 5.21 +8.7
Britain
Canada
Chile
China
Denmark
Egypt
Eurozone
Hong Kong SAR
Indonesia
Japan
Malaysia
Mexico
Norway
South Africa
Switzerland
Thailand
Turkey
Source: The Big Mac Index (Jan 22nd, 2015), The Economist [online]. Available from: http://www.economist.com/content/big-mac-index
[Accessed 31 May 2015]
Task 2.13 Using Figure 2.2, answer the following questions. After answering the
questions, write a summary that includes all of your answers. Afterwards,
compare with your partner.
In which country does the dollar buy the cheapest Big Mac hamburger?
What is the currency there?
Which other currencies are valued similarly?
In which three countries is the Big Mac the most expensive?
Which is the world’s most overvalued currency?
Explain the financial implications for a South African tourist visiting
Norway.

Why PPP is difficult to achieve

The theory of PPP is a practical way to examine foreign exchange rates at a given
point in time. However, the price of a product is not simply equal to the total cost
of its raw materials. In the case of a Big Mac, trade does not result in a uniform
price across borders, and price differences do not necessarily decrease. Instead,
the price of a Big Mac may be increasingly different in different countries over
time.
The following factors help explain why PPP equilibrium is difficult to achieve:
1. Transportation Costs
2. Trade Barriers
3. Taxes
4. The Cost Of Non-Traded Goods
1. Transportation Costs
Transportation costs may cause big price differences for a good/service in

different countries. In the case of a Big Mac, shipping the sesame seeds for the
buns is relatively cheap. However, it is a lot more expensive to ship the
perishable (fresh) ingredients like beef, cheese and tomatoes. Proximity
(closeness) to sources of supply therefore influences transportation costs, which in
turn affects the consumer price of a Big Mac in different markets.
2. Trade Barriers
Another factor affecting price is trade barriers. In order to protect the home
country agricultural industries, nearly every nation restricts the importation of
agricultural goods. Tariffs (taxes on imported goods) and quotas (limits on the
amount of a good that can be imported) both raise the price of imported
agricultural goods.
3. Taxes
Disparities in PPP may also be due to tax differences. The Big Mac prices reported
by The Economist include sales or value added taxes. So the Big Mac will cost
more in countries that have higher taxes than the US. Their currencies will
consequently seem to be overvalued versus the US$.
4. The Cost of Non-Traded Goods
Indirect costs (those other than the ingredients of a Big Mac) are known as non-
traded goods, and include the rental/purchase of a restaurant space and energy
bills. The price of non-traded goods in different countries will affect the price of a
Big Mac and influence PPP.
Source: Pakko, M.R. and Pollard, P.S. (2003), Burgernomics: A Big Mac Guide to Purchasing Power Parity.
Cite Seer [online]. Available from: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.151.5115

Task 2.14 Follow the link below. It takes you to a country comparison of GDP per capita
at purchasing power parity. Compare it to Figure 2.2, Jan 2015 Big Mac
Indicators of PPP.
What do you notice?
http://www.indexmundi.com/g/r.aspx?c=xx&v=67 [Accessed 31 May 2015]
Task 2.15 First, work by yourself. Imagine you own a restaurant in Auckland (New
Zealand) that caters for Japanese tourists and business people. Much of the
food you buy is from Japan. Lately the NZ dollar has fallen by 10% against
the Japanese yen. This means that the cost of importing your food has risen
dramatically. You have three options:
 Raise your menu prices
 Ask your customers for payments in Japanese yen
 Try to purchase your foodstuffs locally
Which option would you choose? Why?
Now form a group of three. Make sure that your group has students who have
chosen at least two different options. Explain your choice to your group. Your
purpose is to persuade the other group members to share your opinion.

Part E International Harmonisation
International The growing interdependence of the world’s economies has brought with it a
Trade need for international institutions that can coordinate and regulate the
Relations activities of governments and international businesses. Understanding the
nature of world trading environments requires a brief discussion of these
institutions.
Such international institutions include the:

1. World Trade Organization (WTO)
2. International Monetary Fund (IMF)
3. World Bank
4. Group of Eight (G8)/ Group of Seven (G7)
5. Group of Twenty (G-20)
6. Organisation for Economic Co-operation and Development (OECD)
7. Organization of the Petroleum Exporting Countries (OPEC)
The 1. The World Trade Organization (WTO)

WTO
The WTO was founded by 101 member countries in 1995, succeeding the
General Agreement on Tariffs and Trade (GATT). As of 26 April 2015, the
WTO has 161 members and represents 97% of total world trade. Thirty other
countries are negotiating membership.
The WTO promotes free trade and helps to resolve trade disputes. It also works
to ensure that all its members benefit from globalisation. Its functioning is
guided by the WTO agreements, which are negotiated and signed by its
member trading countries.
After 30 years of increase, the volume of global trade shrank by 12% in 2009,
due mainly to the GFC. This was the biggest slide in global trade since the
Second World War, and topped the -7% decline in 1975. The drop in global
trade in US dollars was even steeper than in volume (-23%) due to the lower
price of oil and other commodities.
Figure 2.3 Volume of World Merchandise Exports, 1965-2009 (Annual % change)
Source: WTO Secretariat (2010), International Trade Statistics , WTO [online]. Available from:
http://www.wto.org/english/news_e/pres10_e/pr598_e.htm [Accessed 31 May 2015]

Since the GFC, world trade has increased but is still sluggish. Some of the
sluggishness can be explained by the flattening of import demand in developed
economies and moderate import growth in developing economies. On the
export side, both developed and developing economies reported small positive
increases.
Figure 2.4 Volume of World Merchandise Exports and GDP, 1950-2013 (Annual
% change)
16
14
12
10
-2
-4
-6
-8
-10
-12
-14
Exports GDP
Source: WTO Secretariat (2013), International Trade Statistics, WTO [online]. Available from:
https://www.wto.org/english/res_e/statis_e/its2014_e/its14_charts_e.htm [Accessed 31 May 2015]
According to WTO economists, world trade is expected to grow by just 4.7%

in 2014. This is expected to improve slightly to around 5.3% in 2015. Despite
recent data suggesting that the recovery in Europe and the United States will
gather strength over upcoming cycles, geopolitical risks continue to add a layer
of uncertainty to the economic outlook.

Figure 2.4: Growth in the volume of world merchandise trade and GDP, 2005-15a
(Annual % change)
a
Figures for 2013 and 2014 are projections.
Source: WTO Secretariat (2014) International Trade Statistics, WTO [online]. Available from:
https://www.wto.org/english/news_e/pres14_e/pr721_e.htm [Accessed 21 August 2015]
For further information visit: http://www.wto.org/ [Accessed 31 May 2015]
The IMF 2. The International Monetary Fund (IMF)
The IMF is an international organisation which was established in 1945 with

fewer than 50 member countries and now has 188 countries. It works to
promote global monetary cooperation, stabilise finances, facilitate
sustainable economic growth, and reduce poverty around the world. It
assesses the economic health of its member countries, warns them of
impending risks and offers practical advice. It also lends capital to countries
in difficulty, and provides technical assistance and training to help countries
improve economic management.
For further information visit:
http://www.imf.org/external/ [Accessed 31 May 2015]
The 3. The World Bank

World Bank
There has also been recognition that some countries benefit more from trade
than others. Thus, the World Bank was established in 1944 to promote the
development of the world’s poorer countries. Like the IMF, it works to
ensure that all countries benefit from globalisation.
The World Bank’s key role is to provide financial and technical assistance to

developing countries. It provides:

... low-interest loans, zero to low-interest credits, and grants to developing
countries. These support a wide array of investments in such areas as
education, health, public administration, infrastructure, financial and
private sector development, agriculture, and environmental and natural
resource management. Some of our projects are cofinanced with
governments, other multilateral institutions, commercial banks, export
credit agencies, and private sector investors.
Source: About (n.d.), World Bank [online]. Available from:
http://www.worldbank.org/en/about/what-we-do [Accessed 31 May 2015]
For further information visit:

http://www.worldbank.org/ [Accessed 31 May 2015]
The G8/G7 4. The Group of Eight (G8)/Group of Seven (G7)
The G8 consists of the eight most industrialised nations in the world: the
USA, Japan, Germany, France, the UK, Italy, Canada and Russia. Together
they account for almost half of the world’s GDP, trade and financial flows.
The G8 plays an important part in the global economy because it accounts for
so much of the world’s financial flows. Its member countries enjoy freer
trade and access to large markets, new technologies and employment
opportunities. But as of 2014, Russia has been suspended from the group in
response to their actions against Ukraine.
To find out more about the G8/G7 visit:
http://www.g8.utoronto.ca/

The G-20 5. The Group of Twenty (G-20)
The G-20 was established in 1999, following the 1997 Asian Financial Crisis.
There are 19 member countries: Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia,
South Africa, Republic of Korea, Turkey, the UK and the USA. The European
Union (represented by the President) is the 20th member.
Its objective is to steady the global financial market by facilitating contact
between the main developed and emerging economies. G-20 finance ministers
and central bank governors meet once a year to discuss high priority world
economic issues and plan for sustained economic growth. The G-20 members
were very involved in reducing the impact of the 2008 GFC.
To find out more about the G-20 visit:

https://g20.org/ [Accessed 31 May 2015]
The OECD 6. The Organisation for Economic Co-operation and Development

(OECD)
OECD was established in 1960 and has 34 member countries committed to
democracy and a market economy. Its role is to:
… use[s] its wealth of information on a broad range of topics to help
governments foster prosperity and fight poverty through economic growth and
financial stability. We help ensure the environmental implications of economic
and social development are taken into account.
Source: About OECD (n.d.), OECD [online]. Available from:
http://www.oecd.org/about/whatwedoandhow/ [Accessed 31 May 2015]
To find out more about the OECD visit:

http://www.oecd.org/ [Assessed 31 May 2015]
OPEC 7. The Organization of Petroleum Exporting Countries (OPEC)
OPEC was created in 1960 and is made up of the 12 oil-producing nations

which account for two-thirds of the world’s oil reserves. At twice-yearly
meetings, member states are assigned output quotas. Indirectly, this
organisation influences the international business cycle, since oil price
increases tend to increase the cost of production for many goods, leading to a
decrease in demand.
To find out more about OPEC visit:

http://www.opec.org [Accessed 31 May 2015]

Task 2.16 Conduct research to establish to which of the above organisations your country
belongs. Complete the table below. Discuss as a class.
Organisations to which Membership Benefits Membership Disadvantages

my country belongs
Independent Conduct research to find out the following:

Study
What are the implications for countries that do not enter into trade
agreements with other countries or blocs?
What is your country trying to achieve in the world trade context?
Make notes and be prepared to discuss your findings in the next class.

Part F Unit Review
In Unit 2, the importance and role of international economics in conducting

transnational business was examined. In addition, the international
institutions which promote and monitor free trade and global equal
opportunity were studied.
Language Review this unit. Make a list of new business terms in your Business
Remember that your Business Terminology Logbook will be collected for
marking at the end of this unit.
Independent Begin preparing for Assessment Event 1: In-class test – Multiple Choice
Study and Short Answer Test (at the end of Unit 3) and Assessment Event 2: In-
class Test – Short Essays + Case Study Test (at the end of Unit 4) in your
independent study time from now on.
Remember that you are expected to revise for both assessments. Your
revision should be based on the material in your Student Manual, your notes,
your Business Terminology Logbook and discussions in class, as well as on
your Independent Study about the topic areas.

Task 2.17 Unit 2: External Influences on International Business: International

Economics: Key Terms crossword puzzle
The following are made up of 2 or more words with a blank in between

each word:
 Across: 1, 5, 7, 15, 17
 Down: 2, 3, 6, 10

Task 2.18 Summary

Complete the summary below using the key terminology presented throughout
the unit.
In Unit 2, we have looked at the influence of international economics on international trade.

World countries are generally classed as _______________ or_______________. Their successful
participation in the world economy is largely dependent on which type of ________________
________________ they embrace. Free-market or mixed economies tend to grow
_______________ than planned economies.
International trade is largely governed by ________________ principles. International business

_______________ mirror those in different world economies. _______________
_______________ are a type of preferential trading arrangement. They fall into four different
categories: free trade areas, customs unions, common markets and _______________
_______________ . The Gross World Product (GWP) tends to go through cycles of
_______________, _______________, _______________ and _______________. The recent
Global Financial Crisis (GFC) started with the unguarded lending of _______________, stemming
from a rise in demand fuelled by very _______________ interest rates.
International finance is largely governed by _______________ principles. The dynamics of

______________ ______________ and foreign investment are studied, together with the impact of
______________ ______________ and trade deficits. Foreign exchange _______________ may
dramatically change the value of business transactions and purchasing power parity (PPP).
Purchasing power parity is difficult to achieve because of ________________ _______________,
trade barriers, _______________ and non-traded ________________.
As the world economies become more ________________, the need has arisen for international
organisations to coordinate and regulate international business. The WTO, The IMF and the World
Bank promote _______________ _______________. The OECD promotes ________________
and a _______________ _______________. OPEC protects the interests of oil-producing nations.
The G8 and the G-20 promote the _______________ _______________of the world.
Assessment Your Business Terminology Logbook will now be collected for marking.
Reminder

Unit 3: Additional External influences on International Business
Part B The Political Environment
Part C The Legal Environment
Part D The Technological Environment
Part E The Socio-Cultural Environment
Part F Unit Review
Overview The external environment refers to all the influences over which a company
has little or no control. These influences may either benefit or pose a risk to
the company’s operations. To be successful, businesses need to monitor
changes in the external business environment and adapt appropriately.
In this unit you will learn to:

 describe the impact of politics on the international business environment
 assess key legal issues in relation to the international business
environment
 describe and evaluate the impact of new technology on the growth of
international business
 describe and explain how key socio-cultural factors impact on the
international business environment
Assessment Assessment Event 1: In-class Test – Multiple Choice and Short Answer
Reminder Test will be done at the end of this unit. You should now revise Units 1
and 2.

Focus As we saw in Unit 2, there has been a reduction in international trade

barriers and this has resulted in increased political and legal initiatives.
Technological progress has facilitated globalisation. Improved methods of

transportation as well as newer communications technologies have
combined to shrink distances between newly created markets.
In terms of social forces, there has been a worldwide rise in consumerism as

a result of rising personal income and the availability of consumer credit.
The convergence (meeting) in consumer tastes has come about as a result of
global advertising and satellite television. All of these will be examined in
this unit.

Part B The Political Environment
On a political front, the period following the Second World War, which
ended in 1945, was dominated by the division between ‘Western’ countries
(including Japan) and the ‘Eastern Bloc’ (the Soviet Union and its satellite
countries in Eastern Europe). The former represented democracy and free-
market economies whereas the East implemented communism and state-
planned economies.
Between 1989 and 1991 a series of revolutions occurred in Eastern Europe.
Most notably, the Soviet Union and its allied communist governments
collapsed. Now many of these former communist nations seem to have
committed to democracy and free market economies. If this trend continues,
the opportunities for international business will be enormous. However, there
will also be substantial risks.
Foreign Foreign Direct Investment is whereby a company in one country makes an

Direct investment in a company in another country. There has been an investment
Investment revolution in places like Latin America and China. China has been the
world’s largest FDI recipient among developing countries since the early
1990s.
According to OECD:
… FDI is defined as cross-border investment by a resident entity in one
economy with the objective of obtaining a lasting interest in an enterprise
resident in another economy. The lasting interest implies the existence of a
long-term relationship between the direct investor and the enterprise and
a significant degree of influence by the direct investor on the management
of the enterprise. Ownership of at least 10% of the voting power,
representing the influence by the investor, is the basic criterion used.
Source: OECD Factbook 2013: Economic, Environmental and Social Statistics (2013),
OECDiLibrary [online]. Available from: http://www.oecd-ilibrary.org/sites/factbook-2013-
en/04/02/01/index.html?itemId=/content/chapter/factbook-2013-34-en [Accessed 31 May 2015]
The table below shows how FDI to China has increased significantly to an
estimated US$123.9 billion in 2013.
Figure 3.1 FDI 2000-2013 - World and China (Billions of US$)
2000 2004 2007 2010 2013

World 1,415.0 737.7 2,002.0 1,422.3 1,452.0
China 40.7 60.6 83.5 114.7 123.9
China % of world 2.9 8.2 4.2 8.1 8.5
FDI
Source: United Nations Conference on Trade and Development (UNCTAD) (2014), World Investment Report [online].
Available from: http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf [Accessed 31 May 2015]

In the last thirty years, the world share of output from industrial giants like
the USA has dropped from 40% to 19.31%, with similar slippages
occurring in France, Germany and the UK. At the same time, other
countries such as India, Indonesia, Vietnam, China and South Korea have
increased their share of world output. More countries, including Singapore
and South Korea, have joined the ranks of the developed world. These
changes continue to influence the development of the global economy.
Political Businesses contemplating going international have to consider where their

Influence government stands in the international treaty arena, both treaties for military
and for economic purposes. Being a part of an international organisation can
provide some relief for businesses operating in countries that are member
countries.
For example, NATO (North Atlantic Treaty Organisation) is an alliance

between 28 countries determined to provide security and safety from external
parties.
An example of an economic alliance between countries is the ADB (Asian

Development Bank) which consists of 67 member countries and their purpose
is to provide funding needed for growth and prosperity.
With a partner discuss the following:
What are the benefits of countries becoming members of organisations

such as NATO and ADB?
What are the advantages of doing business in a country with which your
country is aligned?
Task 3.1 In order to get a better understanding of what the North Atlantic Treaty
Organization (NATO) is and does, visit http://www.nato.int/ [Accessed 31
May 2015] and answer the following questions:
What is the North Atlantic Treaty Organization (NATO)?

What does it do?
Who makes up its membership?
How does NATO influence the political risks involved in conducting
international business?
Look at the FAQ link and make notes on the background information to
NATO.

Task 3.2 Now, turn your attention to the Asian Development Bank (ADB), which was
founded in 1966. Visit: http://www.adb.org/ [Accessed 31 May 2015] and
answer the following questions:
What is the Asian Development Bank?
What does it do?
How many countries are members?
How does the ADB influence the political risks involved in conducting
international business?
Share your ideas with the rest of your class.
Political As relationships develop between international businesses and host

Change governments, the existence of a stable political environment becomes
increasingly important. Any change of government can cause uncertainty in
the international business environment.
In addition, governments play an important role in facilitating and promoting

trade and investment by opening up their borders and negotiating trade
agreements and tariffs. In Latin America, for example, dictatorships that
generated low growth and high levels of debt and inflation are slowly being
replaced by democracies promoting free market reforms.
These changes mirror those that have occurred in the last 25 years in the
global economy. Barriers to the free flow of goods and services have come
down. Widespread de-regulation and privatisation of state-owned businesses
continues to take place.
This increasing interdependence has led to the emergence of

Intergovernmental Organisations (IGOs). Unlike other alliances, such
as the G8 which are simply task forces, IGOs are created by treaties: the
governments of two or more countries establish an IGO as a separate legal
entity, whose codes are internationally enforceable.
Most IGOs have a legislative body that makes laws which member
countries are obliged to follow. Among the oldest IGOs are the United
Nations and the North Atlantic Treaty Organization (NATO).
Can you think of any other IGOs?

Task 3.3 Work with a partner to complete the table provided. Political risks are listed in
the left hand column, i.e. host country politics, war, acts of terrorism, home
country interference in host country. Brainstorm examples and potential
consequences.
See if you can think of another political risk.
Political Risks Examples Potential Economic

Consequences
Host country politics: change of Venezuela – Hugo Chavez Change in economic philosophy and
government policies, decreased international
confidence, less FDI, slowing
economic growth, political
turbulence
War: civil war or war with

another country
Acts of terrorism
Home country interference in

host country

Task 3.4 With a partner, conduct research to find details on two or three political
risks that your country has faced and describe the economic consequences
of each. Use the table below
Political Risks Economic Consequences
1.
2.
3.

Part C The Legal Environment
Legal Consider the nature of international business transactions.

Issues
What distinguishes international business transactions from domestic ones?
International business transactions often involve significant amounts of

money and long term commitments. In addition, the parties in the business
relationship tend to be great distances apart and might not be as familiar with
each other as is the case in domestic business relationships.
Importantly, international business transactions are subject to the law of the

host country, not that of the home country. International business managers
must take into account the fact that home country laws might not apply in
other countries. Additionally, there may be host country laws which do not
exist in the home country. Companies entering the international arena need
to understand and comply with all the relevant laws. For example, many
countries have laws that restrict the import of certain goods or require
payment of certain tariffs or duties. Often, products must be labelled in a
certain way; especially food or medical products that require safety
warnings.
Thus legal issues are of paramount importance in all international business
transactions. Examples of legal issues to be aware of when conducting
international business include:
1. Export and import restrictions
2. International contracts
3. Documentation of activities
1. Export and import restrictions
Some products are subject to export restrictions:

 exports to some countries are restricted
 exports to some purchasers are restricted
Bringing goods into a country is subject to restrictions, as well as taxes or
duties.
Some products are subject to import restrictions:

 imports from some countries are restricted
 imports from some sellers are restricted
If an imported product is to be resold, many countries require it to be marked

to show the country of origin.

Task 3.5 Work with a partner. Can you think of examples for the export and import
restrictions mentioned earlier? Complete the table below.
Examples of Import Restrictions Restrictions Examples of Export Restrictions

firearms Strategic raw materials such as
products
live animals to Australia platinum from South Africa
countries
purchasers/sellers
2. International contracts
Agreements and contracts are needed to provide some security for all parties
involved in transactions. International contracts provide business partners
with protection, for example against the risk of non-payment or non-
delivery. This is vital because of the difficulty of debt collection in a foreign
country.
Currency fluctuations should also be addressed in contracts.
Most developed countries have ratified (signed) the UN Convention on
Contracts for the International Sale of Goods (CISG). Its terms
automatically become a part of international trade contracts unless the
business partners clearly state otherwise, or the countries are not CISG
signatories.
3. Documentation of activities
Companies operating in overseas markets are expected to comply with host
country rules for the documentation of business dealings and charging of
expenses.
It is also necessary to comply with transfer pricing rules. Most countries
have established these rules to prevent companies from shifting profits from
higher-tax to lower-tax countries.
Note: Disregarding or disobeying host country laws can be very damaging

to the finances and the image of a business. In most countries, legal
information is almost by definition public information, so it is possible to
find out what is needed. If the laws are not observed, the host country may
freeze (immobilise) large amounts of goods or cash. Legal difficulties often
cause serious disputes between host governments and foreign businesses,
requiring lengthy negotiations that may end in a failure to invest, or even
continue with the existing business.

Countries such as China that are increasingly opening themselves up to

international trade need to refine their legal framework to continue to attract
investors. To illustrate, laws on producing imitations of branded products in
China used to be non-existent but this is now changing.
Increasing internationalisation has led to a concerted effort to standardise
business laws across national borders. Regional lawmaking bodies like the
EU facilitate legal compliance by streamlining the process across several
countries. In addition to verifying home country laws covering international
business, it is important to be aware of current host country business laws.
Most governments now post legal requirements on the Internet. Another
useful strategy for businesses to ensure they are respecting host country legal
requirements is to network with other companies conducting similar
business in the same part of the world.
Task 3.6 Create a mind map summarising the information in Part C. Where possible,
provide examples.
Task 3.7 In groups of three or four, select a foreign country and conduct research to
find out what laws they have for international businesses to regulate their
activities as well as to protect them. Take notes and be prepared to discuss
them in class. Use the questions below to help with your research:
What laws does the foreign country have that regulate international
businesses conducting business in their country in terms of taxes,
sanctions, export/import restrictions and product quality standards?
What laws does the foreign country have that protects international
businesses operating in their country? For example, incentives, tax relief,
special privileges and intellectual property rights.
Go to the foreign government’s web site for more information.
Task 3.8 Work with a partner and conduct research to answer the following
questions:
1. Certain laws limit which product may be named in a certain way.

Research the laws governing the following: Feta Cheese,
Champagne, and Parma Ham.
2. Compare the date marking and food labelling laws in your country
with those in another country of your choice.
3. How does the consumer benefit from the laws in 1 and 2?
Be prepared to discuss as a class.

Part D The Technological Environment

In this section the impact of technology on international business is
examined. It will become apparent that technology has become a key driver
of globalisation and may provide a competitive edge in the international
business arena.
Defining Technological innovations facilitate globalisation. H.L. Friedman, a

Technologies renowned economic journalist, states:
Integration has been driven in large part by globalization's defining

technologies: computerization, miniaturization, digitization, satellite
communications, fibre optics, and the Internet.
Source: Magsino, R.F., (2007) Globalization and Education in the 21st Century, Encounters on
Education V. 8, Fall 2007, pp. 55-68 [online]. Available from:
library.queensu.ca/ojs/index.php/encounters/article/download/575/754 [Accessed 31 May 2015]
Task 3.9 Work with a partner and conduct research. Define and find examples of
applications to international business for each of the above defining
technologies. Complete the table below.
Defining technology Definition Application to international business

computerisation To control a function, process Intelligent manufacturing facilities
or creation with a computer
miniaturisation
digitisation
satellite
communications
fibre optics
the Internet

Satellite Satellite Communications

Communications
The most obvious technological improvement driving international
businesses is satellite communications. Many services which until
recently were only available locally, such as financial services, can now
be accessed through modern telecommunications systems, even in the
remotest parts of the world.
In 1964, the international body INTELSAT was established to manage

satellite issues such as the distribution of satellite positions. EUTELSAT
(created in 1974) further promoted harmonisation of communication
technologies, specifically in Europe.
Electronic banking is at the forefront of financial networking through

modern telecommunications. Electronic Funds Transfer (EFT) enables
banks to globally send and receive funds.
The Society for Worldwide Interbank Financial Telecommunication

(SWIFT) strives to ensure a secure and dependable global electronic
financial system.
Source: SWIFT (n.d.), About SWIFT [online]. Available from:

http://www.swift.com/about_swift/index.page?lang=en
Thanks to satellite technology, even telephones are becoming increasingly

accessible to people in isolated areas or developing countries. It is no
longer necessary to hardwire a city to provide residents with telephone
services. This can be done wirelessly, thus allowing people to use mobile
phones, beepers, and other telecommunications services.
Computerisation Computerisation and the Internet

and the
Internet With the advent of satellite communications, travel abroad for corporate
employees has decreased. International business communication largely
occurs by satellite over the Internet, through broadband access via
personal computers or laptops.
As personal computers have become cheaper and their technology more

reliable and user-friendly, their sales have increased exponentially.
Accordingly, the costs of global communication and, therefore the costs of
doing international business, are decreasing.
The intranet (an Internet network within a given organisation) makes it

possible for an MNC to establish close connections with subsidiaries in
host countries all around the world.

The Internet also makes it simple for companies to set up shop and
immediately connect with consumers in foreign markets around the world.
As developing countries progress, companies are able to tap into an ever
increasing potential market.
Consequences of technological development

The six major consequences of technological development are:
1. Increased asynchronous communication
2. Greater productivity
3. Broader access to information
4. Rapid growth in the number of SMEs
5. Heightened need for great communicators
6. Additional social costs
These are discussed below.

1. Increased asynchronous communication
Until recently business communication mainly took place using real-time,

face-to-face technology, such as teleconferencing. Now, asynchronous
(happening at different times) communication is on the rise. Technological
advances have brought asynchronous communication into time frames of
minutes and seconds. Conventional telecommunications (e.g. telephones)
are being replaced by text messages (SMS), e-mails chat and instant
messaging.
2. Greater productivity
Technology lowers the cost of doing business, and speeds up the processes
involved. This leads to increased productivity (efficiency).
3. Broader access to information

In the past, there were lengthy delays for companies wishing to trade in
foreign markets as they researched the regulatory requirements for each
country. Now, governments post the necessary information on their own
Web sites. Likewise, interested governments can learn more about
prospective client companies by looking at their Web sites.
For manufacturers, speedy access to large amounts of information gives
them the power to increase the quality and quantity of products on offer,
receive orders from around the world, reply the same day, and coordinate
orders and invoices on a global scale.
The increase in availability of information extends to consumers, who are
now able to make more informed, globally-researched decisions before

buying a product or service.
4. Rapid growth in the number of SMEs

The rapid growth in small-and medium-sized enterprises (SMEs) is a
function of the change to a more knowledge-based economy. Technology
enables the efficient production of goods, even in small volumes. To keep
up with changes in the global marketplace, businesses need to be flexible
and react promptly. SMEs have a flatter organisational structure than larger
companies, so they are able to quickly adjust to changes.
5. Heightened need for great communicators

Telecommunications may help to overcome problems caused by distance,
but there are dangers in becoming too reliant upon technology. It is
necessary to agree acceptable procedures for communicating electronically.
Language and cultural barriers, which can be challenging during a
conventional meeting, may become even more problematic when virtual
team members are in different countries.
Because of this, organisations need to recruit employees with superior
communication skills. Virtual team members must be well educated with
above-average networking skills, and able to work with minimal direction
from above. However, technology can only support virtual team-building; it
cannot replace human contact.
6. Additional social costs

Embracing new technology can have a negative impact on society. For
example, the adoption of technology in developing countries often has
social costs: in the form of urbanisation, job displacement, and the increase
in the ‘digital divide’. The ‘digital divide’ refers to differences in securing
information technology in different countries or regions of the world. Many
people believe that the introduction of new technologies intensifies global
wealth and class disparities (inequalities) since many individuals cannot
afford access.
Task 3.10 Work in small groups.
Look at the table you completed in Task 3.7. Discuss the consequences that
the six defining technologies have had on your home country. Be prepared
to share your answers with the whole class.

Part E The Socio-Cultural Environment
In this section, we explore how differences in society and culture can affect
Introduction
international business. Society is a set of individuals connected by a system
of interrelationships. Culture is a set of values, attitudes and beliefs that
govern how groups of people live. Sometimes a society or country is made
up of several cultures. For example, Canada has many cultures, including
the Anglo, French and Native American cultures, and then within each of
these there are also sub-cultures.
Task 3.11 List at least five important aspects of your culture. Then write down how
you believe the rest of the world stereotypes these five aspects. Why is this?
Discuss in class with your teacher.
Task 3.12 How culturally aware are you? Take the Cultural Quiz in Appendix B.
The Five Geert Hofstede (1981) studied international businesses in 40 countries and
Dimensions identified five dimensions of national culture. They are:
of National
Culture 1. Power Distance measures the extent to which a group accepts or rejects
inequalities in power distribution.
This is linked to the view of hierarchy. In France, for instance, one
individual may have the power usually shared by organisations in other
countries. In Denmark, there are often several CEOs that share power. One
Danish CEO drove a battered old car and was admired for his lack of
concern for image and materialism. In Japan, the use of uniforms is used to
blur the distinction between workers and managers. Workers are
encouraged to be involved in decision-making however, despite the
collective spirit, the boss ultimately still holds power.
Low Power Distance High Power Distance
New Zealand
Japan
Denmark France Philippines
Australia
USA

2. Uncertainty Avoidance denotes how much risk and uncertainty a group

will tolerate.
Germany, Italy, France and Japan are all high on the Uncertainty
Avoidance Index (UAI) compared to the UK, USA and Australia. The
former countries have a preference for sticking to rules and using tried and
tested methods as opposed to taking risks. Their work practices tend to be
planned as opposed to short-term, reactive, higher-risk management styles.
Low Uncertainty Avoidance High Uncertainty Avoidance
UK
France Germany
Singapore USA
Japan Italy
Australia
3. Individualism is a measure of the emphasis on individual achievement

versus collective performance.
Individualism also indicates how much people favour the belief that their
primary concern in life is their own (or loved ones’) prosperity. Conversely,
collectivism indicates a desire to impact on the well-being of a wider group.
Anglo-Saxon countries such as the USA, Australia and the UK are high on
individualism and this is supported by their practices of individual payment
and performance appraisals. In South Korea, conformity to group norms, or
collectivism, is paramount.
Individualism Collectivism
USA South Korea

India
Australia Italy Ecuador
Japan
UK Pakistan

4. Masculinity communicates whether ‘masculine’ qualities are favoured over

‘feminine’ qualities. ‘Masculine’ countries tend to be male-dominated and
favour qualities such as competitiveness, advancement and material benefits.
Low masculinity countries are those which put an emphasis on the quality of
work relationships and of work life, and where there is little gender
discrimination. Scandinavian countries such as Sweden and Denmark have
extensive social welfare programs whilst Japan and Canada emphasise
‘masculine’ qualities at work.
Low Masculinity High Masculinity
Sweden USA Japan

France
Denmark UK Canada
5. Long-Term Orientation is the degree to which a society emphasises short-

term gain versus future concerns. In European cultures, time is viewed as a
limited resource. Managers tend to have appointments scheduled in 30 to 60-
minute slots and time must be used productively. In Middle Eastern cultures,
time is thought to be unlimited and expandable to accommodate activities. A
manager may be late because he has stopped to chat to someone on the way to
a meeting; the relationship with that person is considered to be more important
than the task of the meeting. Americans tend not to worry about the past, and
the present is not too crucial compared to the future. In Europe and Asia, there
is greater emphasis on the past and tradition.
Short-Term Orientation Long-Term Orientation
USA UK Middle East

Japan
Netherlands Canada India

Task 3.13 Visit the site:
http://www.geert-hofstede.com/ [Accessed 1 June 2015]

You will be able to access Hofstede’s Cultural Dimension Analysis Charts
by country. Click on ‘Cultural Tools’ and select ‘Country Comparison.’
Complete the table below. Show your own country’s position in the five
dimensions. Compare and contrast this with two other countries: one from
the same region in the world and one from a different part of the world.
Share your findings with the class.
Low Power Distance High Power Distance
Low Uncertainty Avoidance High Uncertainty Avoidance
Individualism Collectivism
Low Masculinity High Masculinity
Short -Term Orientation Long -Term Orientation

Task 3.14 Work in pairs. Choose one of the five dimensions of national culture to research
in more detail. Examine how this dimension is approached in five countries.
Complete the table below. Be prepared to present your findings to the class.
Dimension:
Country 1: Country 2: Country 3: Country 4: Country 5:
Similarities and Differences between the Five Countries
Task 3.15 Work with a partner. Your teacher will provide you with Case Study 1:
Case The Globalization of Health Care.
Study 1
Read the case study and answer the questions. Then discuss your answers in
small groups before participating in a class discussion.

Religious Religious beliefs may be the most visible feature of different societies. Below
Beliefs is a pie chart which shows the approximate worldwide percentage of members
for the six religions with the largest number of adherents as of year 2010.
Figure 3.2 Percentage of adherents - the six largest world religions in year
2010
Christianity 2.3 billion
Islam 1.6 billion
Hinduism 943 million
Buddhism 463 million
Sikhism 24 million
Judaism 15 million
Source: Worldwide Adherents of all Religions (2010), Britannica [online]. Available from:
http://www.britannica.com/EBchecked/topic/1731588/Religion-Year-In-Review-2010/298437/Worldwide-Adherents-of-All-Religions
[Accessed 1June 2015]
The extent to which religion influences the lives of people in different

countries varies.
Christianity Christians number around 2.3 billion. Christianity’s core attributes:

 Belief in one God made up of three elements: God the Father, God the Son
(Jesus) and the Holy Spirit
 Belief that Jesus died on the cross so that those who believe in him could
have eternal life
 The Ten Commandments: a list of moral standards on which Christians
base their lives
 Belief that people should be loved as one loves oneself, and treated as one
would like to be treated
 Belief in justice: all people should be shown fairness, generosity and
tolerance
 Belief in compassion: those who are suffering or in need should be helped
 Since all people are equal in God’s eyes, prejudice and bigotry are immoral
Source: Christianity (n.d.), Faithology [online]. Available from: http://www.faithology.com/christianity
[Accessed 1 June 2015]

Islam There are approximately 1.6 billion Muslims. Islam’s core attributes:
 Belief in only one almighty God - Allah
 Islam has five pillars. They are: Shahada, the testimony of faith that only
Allah should be worshipped, Salat, formal worship or prayer five times a
day, Zakat, giving to the poor (2.5% of the capital of adult Muslims once a
year), Hajj, a once in a lifetime pilgrimage to Mecca, which every Muslim
should try to do health and finances permitting, and Sawm, fasting during
the holy month of Ramadan
 Belief that community life comes before personal well-being, and everyone
is accountable for observing community principles
 The Islamic rule of law is the Sharia, and Muslims look to the Koran for
guidance in reaching all decisions, including business decisions. For
example, although the Koran approves of profit through legitimate trade
and commerce, it forbids the social and economic exploitation of others.
Islam also forbids charging interest payments, such as interest added to
overdue bills for goods supplied or services rendered.
Source: Islam. (n.d.), Faithology [online]. Available from: http://www.faithology.com/islam [Accessed 1
June 2015]
Hinduism There are approximately 943 million Hindus. Hinduism’s core attributes:
 Belief in a Supreme God, who is represented by the many gods and
goddesses which come directly from him
 Belief that the soul goes through a cycle of reincarnations
 The number of reincarnations until nirvana (a state of eternal happiness) is
reached depends on how righteously the previous life was lived
 Dharma is the value system guiding Hindu conduct. However, everyone
has their own dharma, according to their situation in life
 The notion of karma: every action has an equal reaction. Actions against
dharma will result in a bad reaction
 Hinduism is very tolerant of other religions
Source: Hinduism. (n.d.), BBC [online]. Available from: http://www.bbc.co.uk/religion/religions/hinduism/
[Accessed 1 June 20105]
Buddhism There are about 463 million Buddhists in the world. Buddhism’s core
attributes:
 No belief in one supreme God
 Based on the teachings of Buddha, the “Enlightened One”
 Buddha taught that the path to enlightenment is through loyalty to The Four
Noble Truths: life is suffering, attachment to transient (temporary) things
causes suffering, it is possible to stop suffering, and the path to stopping
suffering is The Eightfold Path
 The Eightfold Path is a code of conduct; by practising ethical conduct,
mental development and wisdom, individuals will be freed of suffering
 Belief that nothing is permanent, change is possible

 Belief that suffering results from negative or evil actions, whereas

happiness comes from positive or ethical actions
Source: Buddhism (n.d.), BBC [online]. Available from:
http://www.bbc.co.uk/religion/religions/buddhism/ [Accessed 1 June 2015]
Sikhism There are close to 24 million Sikhs. Core attributes of Sikhism:

 Belief that there is only one God and everyone is equal in God’s eyes, so
therefore in their eyes too
 A good life is lived as part of a community
 There are three duties: pray, work to earn an honest living, and serve and
give to others
 Belief in a cycle of reincarnation which a person leaves once he/she
achieves a total oneness with God
 Belief that God shows people how to get close to him through the holy
books
 Belief that God is in every person, no matter how evil they seem, so
everyone is capable of turning their lives around
Source: Sikh Beliefs (n.d.), BBC [online]. Available from:
http://www.bbc.co.uk/religion/religions/sikhism/beliefs/beliefs.shtml [Accessed 1 June 2015]
Judaism There are approximately 14.8 million Jews. Judaism’s core attributes:
 Belief that there is only one God, who made Jews his chosen people in
return for their setting an example of ethical behaviour to the rest of the
world
 People are judged by the way they live their faith; by how much they
promote holiness in the world
 Belief that God is just and fair: good behaviour is rewarded, bad behaviour
is punished
 The community is paramount in Jewish life: even in prayer books ‘we’ or
‘our’ replace ‘I’ and ‘my’
 Respect and responsibility for the global Jewish community
 Belief that only someone who is born of a Jewish mother can be Jewish
 It is very difficult to convert to Judaism
Source: Jewish Beliefs (n.d.), BBC [online]. Available from:
http://www.bbc.co.uk/religion/religions/judaism/beliefs/beliefs_1.shtml [Accessed 1 June 2015]
In summary, it should be seen that all societies have different social structures
and religious beliefs and these have implications for international business
practice.
Task 3.16 Your teacher will put you in pairs and supply you with the name of a
company. Together, research the company to find out which religious
principles its management follows, and how these principles are put into
everyday business practice.

Task 3.17 Your teacher will provide you with Case Study 2: McDonald’s in India. Read
the case study and then your teacher will provide you with further instructions.

Part F Unit Review
In Unit 3, the other external influences on international business were

examined, namely the political, legal, technological and socio-cultural
environments.
Remember that your Business Terminology Logbook will be collected

for marking at the end of Unit 5.
Assessment Assessment Event 1: In-class Test – Multiple Choice Questions Test is

Event 1 due at the end of this unit. You should now revise Units 1, 2 and 3.

Task 3.18 Unit 3: Additional External Influences on International Business: Key

Terms crossword puzzle

each word:
 Across: 1, 2, 3, 9
 Down: 13, 14, 16

Task 3.19 Summary

Complete the summary below using the key terminology presented throughout
the unit.
In Unit 3, we have looked at other external influences on international business, namely the
political, legal, technological and socio-cultural environments.
The political environment has changed significantly since World War II. Most countries in both
Eastern Europe and Latin America have adopted a commitment to _______________ and a
________________ _______________ economy. China has also loosened up its
_______________ economy, and foreign direct investment has soared there. The share of world
output of the developed countries has _______________ in favour of developing countries such as
Thailand, China and Brazil. Intergovernmental organisations like _______________ work to
secure a _________________, _________-_________ environment for conducting business.
All international organisations are subject to the law of the _______________ country, and not the
_____________ country. This makes it very important to be fully aware of all the
_______________ issues involved in doing business overseas. Businesses need to consider export
and import _________________, correctly drafting international _______________ and
documenting all activities. Failure to comply with foreign ________________ can result in goods
or cash being frozen.
Technological developments are the key driving force of globalisation. Advances in

_______________ _______________ , such as the Internet and satellite communications, have
favoured the development of _______________ _______________, increased productivity,
broadened access to communication, facilitated the _______________ in SMEs, heightened the
need for people with great communication skills, and revealed a ‘digital divide’.
Research by Geert Hofstede has helped us better understand the influences of the __________-
__________ environment. He identified _______________ dimensions of national culture, and
positioned countries within these dimensions: power distance, _______________
_______________, individualism, ________________ and time orientation. Adherence to a
_______________ can also influence business dealings. Hinduism, Buddhism, Christianity, Islam,
Sikhism and Judaism (the six major religions in terms of number of believers) offer different
perspectives on dealing with others, as well as time and money.
Assessment Assessment Event 2 is due at the end of Unit 4.

Event 2
Assessment Assessment Event 1: In-class Test – Multiple Choice and Short Answer
Event 1 Test will be done now.

Unit 4: Internal Influences on International Business
Part B Leadership Styles
Part C Management Skills
Part D Communication and Culture
Part E Ethics and Social Responsibility
Part F Unit Review
Overview This unit covers different aspects of management on a global scale. Firstly,
leadership skills are paramount, since managers have to work with people
of different cultures and values. International management also requires
significant adaptability and flexibility. The connection between culture and
communication is explored. Finally, globalisation has favoured the creation
of international bodies to promote ethical business conduct.

 analyse and discuss leadership styles in a variety of international
contexts
 discuss the role of management skills: goal setting; managing
conflict; problem solving; establishing, managing and evaluating
work groups; time management; and motivational skills in global
contexts
 discuss how to select and apply the use of appropriate communication
methods in international business environments
 analyse and discuss the importance of inter-cultural understandings in
international business relationships
 discuss management responsibility and ethics in a global environment
Assessment This assessment will be done at the end of this unit. You should now revise
Event 2 Units 1, 2 and 3.

Part B Leadership Styles

Focus Effective leadership styles and practices in one culture aren’t necessarily
effective in another. As we have discussed in GAC006 and GAC012, even
within the same country effective leadership tends to be very situational.
However certain leadership styles transcend international boundaries.
Theories of Leadership
In the context of business management, one of the most important roles for
business managers is to lead. This involves influencing subordinates to put in
their best efforts in order to achieve company goals.
Leadership is in part influenced by philosophical beliefs. Douglas McGregor,
an American social psychologist, developed two theories of employee
motivation: Theory X and Theory Y (Robbins et al. 2003, p.446).
Theory X managers/leaders believe that people are basically lazy and work
only for money, whilst Theory Y managers believe that employees are self-
starters and enjoy challenges and responsibilities. These two philosophies
will affect the leadership style that a manager will adopt.
Theory X The principles of Theory X (authoritarian management style) are that:
 people do not like work and will avoid it if possible
 people generally have little ambition and expect to be directed
 job security is what motivates employees the most
 it is necessary to force people to work towards organisational goals, and
check on their progress
Theory Y The principles of Theory Y (participative management style) are that:

 working hard is natural
 people will work independently and check on their own progress
 job satisfaction drives commitment to objectives
 employees will seek responsibility under the proper conditions
 most people are imaginative and creative
 organisations rarely exploit the full intellectual potential of their
employees
Acceptance of these theories will vary by culture. US managers may believe

that to motivate workers their higher order needs should be satisfied and will
adopt a Theory Y approach. Managers in another country may adopt a
Theory X approach.
Many managers tend towards Theory X, and generally get poor results.
Enlightened managers use Theory Y, which produces better performance and
results, and allows people to grow and develop.

Figure 4.1 Illustration of Theory X and Theory Y approaches
Management
Staff
Staff
Management
Task 4.1 Work with a partner and use the following questions to help you to complete
the table below.
What are the characteristics of a Theory X manager/leader?
What are the characteristics of a Theory Y manager/leader?
Can you think of examples of Theory X and Theory Y managers/leaders?
Characteristics of Theory X managers/leaders Characteristics of Theory Y managers/leaders

 results-driven and deadline-driven, to the  decisions shared with lower levels
exclusion of everything else
Examples of Theory X managers/leaders Examples of Theory Y managers/leaders
 
 
 

Theory Z In addition there is a third theory, Theory Z, developed by the American

professor and author, Dr William Ouchi. The Theory Z management approach
merges American and Japanese workplace philosophies.
In the 1970s and 1980s, many US companies lost market share to international
competitors, particularly Japanese companies. Dr Ouchi spent years
researching Japanese and American corporations. In 1981, he published a book
called Theory Z - How American Business Can Meet the Japanese Challenge.
In this book, Ouchi says that Japanese management style is the key success
factor.
This is a managing style that focuses on a strong company philosophy, a
distinct corporate culture, long-range staff development and consensus
decision-making.
Ouchi, W. (1981). Theory Z: How American business can meet the Japanese challenge. Business
Horizons, 24(6).
Ouchi shows that Theory Z management reduces staff turnover, increases job
commitment, and significantly improves productivity.
The thinking behind this theory is that the more employees are involved in
decision-making, the more they will cooperate.
Theory Z managers emphasise:
 trust
 communication
 greater responsibility
 group work

Task 4.2 Work with a partner to complete the table below. The first column lists
common theory Y management practices. The second column lists common
theory X management practices. The last column is for Theory Z, which is a
mixture of both theory X and Y management practices.
Predict what will appear in the last column. Join another pair and compare
your answers before you check as a class.
Theory Y Companies Theory X Companies Theory Z Companies

+ =
Provide long-term Provide short-term Long-term employment. Companies make
employment employment considerable training investment, so they
do their utmost to retain personnel
through good and bad times.
Are slow to evaluate and Are quick to evaluate
promote and promote
Offer non-specialised career Offer specialised career

paths paths
Employees monitor their Monitoring mechanisms

own work are spelt out (policies
and rules)
Adapted from: Theory Z Reference for Business [online]. Available from: http://www.referenceforbusiness.com/management/Str-
Ti/Theory-Z.html [2 June 2015]
Task 4.3 Work with a partner and conduct research. Find a company or country that
has similar characteristics to each theory’s management practices. Make sure
you can justify your selection of country/company with each theory.
Make notes and be prepared to discuss in class.

Leadership Styles
Leadership behaviour can be categorised into three commonly recognised
styles: authoritarian, paternalistic and participative. These styles will first
be considered in a domestic setting before being studied in an international
context.
You will now work in groups of three. Each group will read information
about one of the leadership styles and do the corresponding task. A whole
class discussion will follow.
Authoritarian Firstly, authoritarian leadership concentrates on ensuring tasks are

Leadership accomplished as a priority. It is seen as one-way communication with the
manager informing the employees what has to be done and not expecting or
wanting discussion.
Task 4.4 Does an authoritarian style relate more to Theory X, Y or Z?

When may authoritarian leadership be an appropriate style?
Discuss this in class.
Paternalistic Paternalistic leadership uses work-centred behaviour combined with a

Leadership concern for employees. The belief is that if employees work hard, then the
company will look after them. The style is common in Japan and can be
related to a ‘strict but caring parent’ approach. There is two-way
communication in a paternalistic relationship.
Task 4.5 Does this relate more to Theory X, Y or Z?

When may paternalistic leadership be an appropriate style?
Participative Participative leadership combines a work-centred and employee-centred

Leadership approach. Control is decentralised and employees are encouraged to take
control of their own work loads. According to Likert’s research into
management styles (cited in Hodgetts & Luthans 2003, p.264), participative
leadership is two way communication between leader and employee and also
between employees, for instance in the form of work groups.
Task 4.6 Does this relate more to Theory X, Y or Z?

When may participative leadership be an appropriate style?

Task Vs The Blake Mouton Managerial Grid

Person Some leaders are very task oriented. This means that they are focussed on
Leadership accomplishing the tasks required of them. Other managers are people oriented.
Styles This means that they want the people around them to be happy and satisfied.
Still other managers are a compination of both.
In the 1960s, Robert Blake and Jane Mouton developed a framework that
calculates task centeredness versus people-centredness. The Managerial Grid is
based on two behaviours:
 Concern for People – how much a leader considers the needs of team
members, their interests and their areas of personal development when
they decide how to accomplish a task.
 Concern for Results – how much a leader emphasises concrete
objectives, organizational efficiency and high productivity when they
decide how to accomplish a task.
The framework identifies five different leadership styles as can be seen below.
Source: Mind Tools (n.d.), The Blake Mouton Managerial Grid, Mind Tools [online]. Available from:
http://www.mindtools.com/pages/article/newLDR_73.htm [Accessed August 21 2015]
Figure 4.2 below shows Blake and Mouton’s Management Grid. The Y axis
shows concern for people; the X axis shows concern for production/task. This
grid illustrates the emphasis that different management styles place on people
or on production/task. For example, the authoritarian (produce or perish) style
has high concern for production but not for people. So, on the grid, it would be
placed at position 9.1. The reverse would be a low concern for production with
a high concern for people (country club style) at 1.9.
Figure 4.2 The Management Grid
PARTICIPATIVE
PATERNALISTIC
AUTHORITARIAN
Adapted from Blake & Mouton (1985)

Task 4.7 Consider Figure 4.2 and answer the following questions:
Which position on the grid do you believe to be the most appropriate for
your country? Why?
Do you believe managers might move around the grid depending on the
workplace situation/task?
Where would you place the leaders/managers you selected in Task 4.1?
What sort of leader are you?
Task 4.8 What kind of a leader are you?

Visit the Web site below and take the test to find out. After you have taken the
test, discuss as a class.
Were there any surprises?
Do you think the results are an accurate reflection of your approach?
http://www.nwlink.com/~donclark/leader/matrix.html [Accessed 2 June 2015]
International context
How do leaders in different countries attempt to direct their employees? Much
research on this question has been undertaken in recent years. In 2003,
Hodgetts and Luthans published International Management: Culture, Strategy
and Behavior which is now in its ninth edition. In this book, they applied
management concepts and techniques to companies working in multinational,
multicultural environments.
They found British and Scandinavian managers tend to use a participative

approach to management, reflecting the political background of their countries.
They also tend to avoid being involved in the day-to-day business operations
and prefer to delegate. Leaders in Germany and France are more authoritarian
and work-centred in their approaches. However, with the increase of
globalisation and the spread of US companies into Europe, it appears the
participative approach is increasing.
Japan is well-known for its paternalistic attitude which promotes security of

employment in response to hard work. Hodgetts & Luthans (2003, p.415)
argue that Japanese managers have the greatest trust in the ability and initiative
of their employees. They describe their style as ‘soft’ Theory X, as there is a
strong control element coupled with great concern for the welfare of their
employees.
Research into Chinese leaders (cited in Hodgetts & Luthans 2003, p.426)
shows a move from the old style of collectivism, when an individual would

sacrifice personal gain for the group, to more of an emphasis on self-

sufficiency and individual accomplishments. Chinese management style is seen
to be changing rapidly in line with the growth of its economy and western
influences.
Middle Eastern managers, from the same research, were shown to be

participative in style and similar to US managers. Also countries such as India,
that have their business roots formed by colonialism, show similarities to the
British style of management.
Task 4.9 Work in groups of three. Visit the Web site below, which hosts videos of
prominent business leaders. Click on the ‘Browse’ drop-down button and then
click ‘leadership.’ Select one video to watch. The chosen executive should be
from a different part of the world to your own country. Then think of a local
business leader. Compare and contrast the two executives’ leadership styles.
Complete the compare/contrast table below.
Do your impressions agree with the Hodgetts & Luthans research findings?
Discuss your views in class.
http://www.meettheboss.tv/ [Accessed 2 June 2015]

Business leader 1 Features compared and Business leader 2

contrasted
Name: Name:
Company: Company:
Differences:  Differences:
Similarities:
Assessment Your teacher will now distribute the Instructions to Students for Assessment
Event 2 Event 2.

Part C Management Skills
What do we mean by ‘management skills’? It is a phrase we use often without

giving it much thought.
Management is more than rank. Rank may be the formalised authority to lead
but it does not guarantee others will follow. Managing people in order to get
the task accomplished and managing people in order to maintain positive and
enthusiastic relationships are the two most pivotal goals of effective leaders.
In many Western countries there is growing evidence that the managerial

mindset is shifting from control to leadership in order to bring out the best in
people and to better respond to change.
International management is the process of applying effective management
concepts and techniques in a multinational environment. This requires
significant adaptability and flexibility on the part of the manager.
Task 4.10 Work with a partner. In GAC012, you looked at the Robbins categories of
essential management skills. Do you remember what they are? Complete the
concept map to summarise Robbins’ ideas.
Check as a class.
Categories
of essential
management
skills

Task 4.11 Figure 4.3 illustrates the various skills required of managers today. Place the
types of skills under the headings of planning, organising, leading and
controlling in the table below.
Figure 4.3 Selected Skills of Effective Managers.
1. Goal Setting
7. Managing
Conflict
2. Solving Problems
Effective Managers
6. Building Work
Groups
3. Time
Management
5. Interpersonal 4. Verbal
Skills - Motivating Communication
Source: Robbins et al. (2003, p. 17)
Planning Organising Leading Controlling
Task 4.12 Are there particular skills an international manager needs?

Add them to the table above.

Selected Skills of Effective Managers

In this section, the following Robbins et al. (2003) skills will be covered:
 Goal Setting
 Solving Problems
 Time Management
 Motivating
 Building Work Groups
 Managing Conflict
Verbal Communication will be considered in Part D.
Goal 1. Goal Setting

Setting
One of the major tasks managers have to perform is goal setting. Goals give
direction to employees in their work and they clarify the performance
expectations between a manager and an employee. If a manager has a Theory
Y style of leadership, and especially if the goals are discussed with the
employee, the goals can be a basis of self-management and motivation. In
order for goal setting to be effective and to motivate employees to be
productive, the goals need to be SMART.
What do the letters of the acronym stand for? You learnt about SMART goals
in GAC006 Unit 2.

Solving 2. Solving Problems

Problems
Linked to conflict resolution is problem solving, which involves recognising
where actual and desired situations diverge, and then acting to either reduce the
inconsistency or make the most of the opportunity it presents.
Some problems will have a programmed decision attached to them. These are
problems that are familiar and frequent, and the manager will have a process
for dealing with them. However, there will also be problems that are new and
unexpected and responses will involve non-programmed decisions.
At the far end of the spectrum, crises are extreme or critical situations which
can have serious consequences if they are unresolved.
Task 4.13 Work in pairs. Identify three examples of international management problems
for each type of decision under the headings Programmed Decisions, Non-
Programmed Decisions and Crises. For example, how would you plot the
following problems?
 a server going down on a company Web site
 war breaks out
 an employee wanting to take leave of absence
Write the information below.
International Management Problems
Programmed Decisions
Non-Programmed Decisions
Crises

Time 3. Time Management

Management
As we learnt in Unit 3 Part E, time is prioritised differently in different
cultures. This is an important point to realise for any manager operating a
business overseas. However, whatever the circumstances, managers need to
manage their time effectively and productively.
As Lewis Platt, chairman of Hewlett Packard (1992-1999) said:
The whole day is a series of choices, be ruthless about priorities and
continually work to optimise your time.
(Campling et al. 2006, p.172)
This is a Western and northern European view of time management, whereas

in Italy or the Middle East, the priority will be to network and spend time
with important clients.
One of the keys to good time management, irrespective of the country or
culture in which the business operates, is planning. Establishing daily
priorities and outcomes makes for more effective management than simply
dealing with issues as they arise.
Task 4.14 With your partner, spend a couple of minutes performing the role-play
described below.
•You are an American business person and you have a prospective

buyer from Dubai. You are aware that people from Dubai think time
is an expandable resource and building relationships is extremely
Role A: important. However, you are on a tight schedule and have many
appointments that cannot be interrupted or delayed. You also know
American that it might be an insult to discuss business matters right away and
business that some time will be needed to build a relationship. You want to
person accommodate your prospective buyer as much as possible without
insulting him/her .
•How will you prepare for the meeting? How will you conduct your
meetings?
•You are a business person from Dubai and have arranged to meet
with a prospective manufacturer from America. You are already
aware of his/her products and are convinced that you would like to
Role B: purchase them. A time has been arranged to meet with this person
Business and you would like to persuade him/her to be your manufacturer.
person Your plan is to take some time to get to know this person and then
from talk business so you have decided to meet with this person on
several occasions. You do not like to be rushed and will give up this
Dubai business opportunity if you do not feel comfortable.
•During the role-play, emphasize your desire to build relationships
before talking business and arranging a deal.
Motivating 4. Motivating
Motivating and rewarding employees is one of the most important - and
challenging - activities that managers perform.
(Robbins et al. 2003, p.548)

Motivation is greatly affected by culture. Misjudging the cultural differences

as described by Hofstede, on such matters as risk, masculinity,
individualism, etc., can result in demotivating a workforce.
Task 4.15 Review Hofstede’s research in Unit 3 Part E. With a partner, discuss how
people may be motivated differently in five different countries (one country
should be your own). Make notes and be prepared to discuss your ideas in
class.
Read the following comments, cited in Deresky (2002, p. 446-450):
Starbucks has found that motivating their managers in Beijing is multifaceted. They
know that people won’t switch jobs for money alone. They want to work for a
company that gives them an opportunity to learn. They also want to have a good
working environment and a company with a strong reputation.
In Thailand, the introduction of an individual merit bonus plan, which runs

counter to the societal norm of group cooperation, may result in a decline
rather than an increase in productivity.
In Mexico, everything is a personal matter, but a lot of managers don’t

get it.
The Islamic work ethic is ‘Life has no meaning without work. Laziness is a
vice’.
In Japan, success is to take many small steps, consistently, everyday.

Task 4.16 Consider the quotes above. List at least five factors that motivate you, in
descending order of priority. Compare your ideas with a partner.
What conclusions can you draw about motivators for people of the same
culture?
What about motivators for people of different cultures?
Task 4.17 The table below ranks the top ten motivating factors from the employee’s
point of view. Work with a partner and try to work out the ranking of the
same factors from the employers’ point of view.
What can you conclude?
Then, work together to decide on your ranking of the same motivating

factors. Compare your ranking to the motivating factors you listed in Task
4.16.
What can you conclude?
Figure 4.4 Employee Compared with Employer Motivation Survey

Results.
Employees’ Items Employers’ Your Pair

Ranking Ranking Ranking
1 Interesting work
2 Appreciation of work
3 Feeling "in on things"
4 Job security
5 Good wages
6 Promotion/growth
7 Good working
conditions
8 Personal loyalty
9 Tactful discipline
10 Sympathetic help with

problems
Source: Kovach, 1999.

Building 5. Building Work Groups

Work
In the new international business environment, collaborative work groups, rather
Groups
than individuals, have become the focus for innovation. Thus managers in modern
organisations need to ensure that work groups under their supervision are
operating as effectively as possible. To do this they need to understand individual
needs, individual differences, group development, group dynamics and what it is
that makes a work group effective.
Managers have become coaches, mentors and/or facilitators. At the same time,
careful clarification of the boundaries of decision making and managerial
authority are necessary. Delegation of operational decisions to work groups
should be a gradual process that could take a number of years.
Motivating work groups is one approach to harnessing the creative energy of
subordinates. According to Carlopio et al. (2001, p. 429) there are at least eight
ways of motivating a work group, including:
1. Fostering personal mastery experiences
2. Modelling behaviour
3. Providing support
4. Creating emotional arousal
5. Sharing necessary information
6. Providing necessary resources
7. Clarifying responsibilities
8. Building confidence
Task 4.18 Read the descriptions of ways to motivate work groups and match with one of the
eight ways of motivating a group (above). Check with a partner. Discuss as a
class.
1. As Carlopio et al. (2001, p. 436) note:
Participating in a problem-solving work group or a task force is motivating
since people get a chance to do things that they could not do by themselves.
It is important to set up a work group performance management system. It needs
to define roles and responsibilities, and contain appropriate reward systems that
recognise successful participation at a work group level rather than be based
solely on individual task-specific behaviour.
Type of motivation: ________________________
2. Employees need to see an alignment between their personal values and the
goals and objectives of the organisation. It is important that managers enable
employees to see how what they do every day is connected to their inherent
(built-in) beliefs. This represents a departure from the traditional wage-work
relationship.

3. This is where opportunities are provided for work group members to

accomplish successively more difficult tasks. The philosophy it is that continual
small wins will motivate work group members to go on to bigger achievements.
4. Managers need to earn their colleagues’ trust for the work group to function
effectively. To achieve this, managers need to exhibit the following traits:
reliability, consistency, fairness, equity, openness and honesty.
5. Empowering employees is about facilitating independent decision making
throughout the organisation. To do this requires a full and free flow of
information. Shared information conveys a sense of trust and increases the
collaboration of operational people with the empowering manager. If everyone
in the organisation is to be responsible for its success, then everyone needs
complete and transparent information.
6. To demonstrate desired behaviours, managers point to people who have been
successful in similar situations. For example, to teach persistence in the face of
failure, there is the story of Harland David Sanders (the Colonel Sanders of
KFC). He struggled to sell his now famous chicken recipe. In fact, it was
refused by 1,009 restaurants before finally being accepted.
7. Here resources might be more about adequate training and time rather than
extra money or materials. At the very least managers need to provide people
with the necessary resources to achieve control over their own work if their
attempts to motivate workers are to be successful.
8. Feedback and praise from responsive and supportive managers is fundamental
to motivation. It reaffirms to each individual work group member that they are
integral to the work group and the overall mission of the organisation.

Managing 6. Managing Conflict

Conflict
As well as motivating employees, there will be times when managers need to
manage conflict. The word ‘conflict’ refers to perceived differences which need
to be managed before they cause increased stress or harm to productivity. In
GAC006, we saw that conflict can be constructive or destructive, i.e. Functional
or Dysfunctional. What do these terms mean? Below we will discuss three sub-
groups of conflict that exist in the workplace and how each can be either
functional or dysfunctional. There are three types of conflict: task, relationship
and process conflict.
1. Task conflict arises from differences in opinion about the aims, objectives
and nature of a task.
Low to moderate levels of conflict can often be a positive influence as it usually
results in discussion and can lead to the group performing better as the task is
more clearly understood and defined.
2. Relationship conflict refers to personality differences. This type of conflict
is more difficult to manage and risks becoming unproductive. If the conflict
becomes personal, the resulting resentment may prevent mutual understanding.
3. Process conflict refers to disagreement about the way work is undertaken.
For process conflict to be positive, it must be kept to a minimum.
There are three approaches to dealing with conflict:
 Traditional
 Human Relations
 Interactionist
Traditional Human Relations Interactionist
• Conflict is bad and therefore • Conflict is natural and • Some conflict is good but
to be avoided inevitable in any group some conflict is destructive
• It is not always a negative • The type of conflict needs to
force be identified

At an optimal level, group conflict is productive and leads to innovation. Low

or high conflict levels lead to low productivity. For example, if there is no
conflict, the group may become apathetic and passive. On the other hand, if
conflict levels are too high, work is disrupted and performance is negatively
impacted. When the conflict level is too high, managers need to use conflict
resolution techniques.
Task 4.19 Work with a partner: follow this link:

http://www.kilmanndiagnostics.com/overview-thomas-kilmann-conflict-mode-
instrument-tki [Accessed 2 June 2015]
Read Kilmann’s explanation of how people resolve conflict. Make ‘Mind Map’
notes on the following:
What are the two dimensions of human behaviour in conflict situations?

What are the five conflict resolution options?
Conflict
Resolution
Options
You will use what you have learned in this task to perform the group activity in
Task 4.20.
Task 4.20 Work in a group of five. In your group, think of a situation where each member
of your group is arguing over how to handle the situation. For example, you and
your group members may be planning a summer vacation trip but all have
different opinions of where to go. Of course, this situation becomes a conflict
situation.
After deciding on the situation and the different roles of each group member,
you must now conduct the role-play and try to reach an agreement. But before
you start, assign to each member one of the five different modes for responding
to conflict (Competing, Accommodating, Avoiding, Collaborating, and
Compromising).
Your task is to argue depending on the mode you’ve been given. It may be hard
to come to an agreement because of the variety of behaviours involved, but the
point of this task is to show how certain types of behaviours can exist when
handling conflict situations.

Part D Communication and Culture
Before Communication is a critical factor in cross cultural management issues. Since

You communication conveys culture, communication and culture are very closely
Begin related. The following section will attempt to reveal this inter-relationship.
Discuss the following questions:
What is communication?
What forms does communication take?
Communication is an inherent part of a manager’s role whether it is listening,

talking, negotiating, meeting someone or using the Internet, e-mail or instant
messaging. “Communication is the transferring and understanding of meaning”
(Robbins et al. 2003, p.633).
In communication, a message is sent to a receiver. It is essential that the
message, whether verbal, written or in gestures, is unambiguous (clear) for the
receiver.
Anything that disturbs the meaning is usually called ‘noise’ but it is ‘context’,
i.e. the culture, experience or relations between the sender and receiver that will
affect the interpretation of the message. The more dissimilar the cultures, the
more chance there is of misinterpretation.
Intercultural communication occurs when a member of one culture sends a
message to a receiver of another culture. In intercultural communication, it is
important to understand what cultural variables cause ‘noise’ in the
communication process. Awareness of what causes cultural noise minimises
misinterpretation and improves communication.
Effective communication also depends on trust that has developed between the
parties. However, the development of trust varies across cultures. For example,
in China and Japan business transactions are based on longstanding relationships
rather than on formal contracts, as is the case in the USA.
Some cultural variables cited in Deresky (2002, p.131) that can affect
communication are:
Cultural
Variables
Affecting
Communication
Attitudes
Roles
Language
Nonverbal
Communication

1. Attitudes.
Attitude underlies our communication. If a person from a different country is
stereotyped, it is implied that they are somehow different. This is lazy and often
destructive. Astute managers will deal with each person as an individual and spend
time getting to know their uniqueness.
2. Roles
The perception of a manager’s role differs around the globe. In America, managers
delegate responsibility and encourage autonomy. In Greece, managers are expected
to be authoritarian and make decisions on behalf of the employee.
3. Language
Spoken and written language is often the cause of miscommunication. Even when
the language is the same, there may still be misunderstanding due to subtleties of
usage. George Bernard Shaw, a famous British playwright, said, “Britain and
America are two nations separated by a common language!”
Language may be different between the home and host country, or even within the
same country. When languages are different, there are increased opportunities for
miscommunication. The impact of language differences will be explored further in
Unit 5: International Marketing.
4. Nonverbal communication
By being sensitive to nonverbal communication (or body language), managers may
pick up on problems in communication. Posture, gesture, facial expression and eye
contact all carry as much, if not more, weight than words. Nonverbal
communication is not international in its meaning. For example, Americans are
taught to use eye contact whilst Japanese bow their heads out of respect. South
Americans and southern Europeans prefer to stand very close together and touch a
great deal, whilst northern Europeans prefer to be outside someone’s ‘personal
space’. Silence can become uncomfortable for an Australian manager after about
10-15 seconds, whilst Chinese managers tend to think for 30 seconds before
replying.
Task Follow the link to watch a video about body language at the office:
4.21 http://www.youtube.com/watch?v=0IpEpHaR-WI [Accessed 2 June 2015]
Work with a partner. Compare these body language conventions in the film with
those in your country. Discuss your findings in class.
There are many more examples of nonverbal communication that can influence
effective communication. In pairs, list as many examples as you can. Discuss as a
class.

Achieving effective intercultural communication rests on developing cultural

sensitivity. Cultural sensitivity allows verbal and nonverbal messages to be
appropriately encoded and decoded.
To avoid misunderstandings, in addition to becoming familiar with their
colleagues’ verbal and nonverbal communication, global managers must be
aware of their own communication. They should anticipate the most likely
meaning that the receiver will attach to their message, and check with regular
feedback that the desired message is being conveyed and received. Colloquial
(informal) expressions should be avoided. Speaking clearly and reading
nonverbal signs also helps minimise miscommunication.
Task 4.22 Your teacher will provide you with Case Study 3: Walmart’s Foreign
Case Study 3 Expansion. Read the case study and then your teacher will provide you with
further instructions.

Part E Ethics and Social Responsibility

Focus The topics of ethics and social responsibility in a domestic business context
have already been studied in GAC012 Business II: Business Studies.
How does the concept of business ethics apply in an international business
context?
What is meant by social responsibility in an international business context?
How can we tell that social responsibility is becoming a global concern?
These are some of the questions that will be covered in this section.
Social There are differing viewpoints on the role of social responsibility in

Responsibility business. One point of view is that wealthy multinationals should use their
power and influence to provide training, local employment, investment
capital and new technology to improve the conditions within the countries
they operate. Sometimes these corporations have more power and influence
than the host country governments.
An opposing view is that the only responsibility an international business has
is “to make a profit, within the confines of the law, in order to produce goods
and services and serve its stakeholders’ interests” (Deresky 2002, p. 37).
Others still would argue that organisations should make a stand against
unethical practices globally. The organisation, Reebok, audits all its suppliers
in Asia in order to see that ‘human rights’ are upheld whilst Levi Strauss has
a policy stating:
...We should not initiate or renew contractual relationships in countries
where there are pervasive violations of human rights.
(Deresky 2002, p.41)
However, ethics in global management is particularly complex because ethics

are based on culture and attitude. Often home and host countries have
conflicting values. It is very hard for a company to impose a particular
behaviour around the world if it is contrary to host country standards.

Ethics in an One outcome of companies working in different cultures all over the world has
International brought attention to what can be considered as normal practice. Managers in
Business one country may find a certain type of behaviour unethical while the same
behaviour is considered the norm in another. Many ethical issues in
international business come from the fact that political systems, laws,
economic development and culture vary significantly from country to country.
Managers must therefore be sensitive to these differences and make sure steps
are taken to avoid ethical issues.
In an international setting, the most common types of ethical issues are:
employment practices, human rights, environmental regulations, corruption,
and the moral obligation of multinational corporations (Hill 2012, pg. 136). All
five will be discussed shortly below.
Employment Practices
There will be issues when employment practices in the host country are of a
different standard than in the home country. When these standards are of a
noticeably lower standard, which standards should be used? In the past, many
companies from the West outsourced manufacturing and other activities to take
advantage of cheaper labour and operating costs (and perhaps fewer regulations
in terms of working conditions). However, when such exploitation of workers
became widely known, these companies were often criticised. The critics
asked; “Why are workers in the countries making products for us to use
countries not being given certain levels working conditions and wages?” Even
though no laws were being broken in the foreign country, these companies
often had no choice but to slowly and eventually start providing higher
standards of wages and benefits to their workers in the host countries.
Human Rights
There will be issues when human rights in the host country are of a different
standard than in the home country. Rights that may be taken for granted in the
home country may not be respected in the host country. These rights may
include freedom of speech, freedom of movement, freedom from religious or
political repression etc. Businesses conducting affairs internationally will come
across situations where people in host countries are not given basic human
rights. In these circumstances, questions have been raised as to whether the
business should even operate in these societies. Do businesses have a moral
obligation to help the citizens? Should MNCs even do business in countries
where the violation of human rights is common? Such questions can create
serious debates as governments may not like interference from outsiders.
Environmental Pollution
There will be issues when regulations relating to the environment in the host
country are of a different standard than in the home country. While most
developed nations have strict rules against companies emitting pollutants,
dumping toxic chemicals, and the like, some developing nations do not. As a
result, some multinationals that enter these developing nations do not feel
obliged to abide by the standards in the home country following instead the
practices in the host country. This results in often worse, often dangerous,
levels of pollution. The question becomes, ‘Should these companies pollute

simply to make more money? Should we expect MNCs to follow global
standards in respect to pollution?’
Corruption
Corruption has long been an issue and will continue to be one. The most
common form of corruption can be seen when companies offer bribes or other
rewards to officials or people with certain responsibilities in order to gain an
advantage. This may be to secure contracts, fast-track permits required for
production, or to ensure other benefits. Even though bribes may be seen by
some as a form of payment for their services and may even be regarded as a
normal business activity, bribes in general have been found to be economically
inefficient and can lead to unwarranted expenses being incurred. In the end this
only hurts the stakeholders.
The Moral Obligations of Business
In GAC012, you discussed the concept of Corporate Social Responsibility. To
elaborate further, CSR involves the idea that companies have a responsibility
to give back to the community when they use that community’s resources for
profit taking. From the perspective of a profit maximizing business, managers
should not be concerned with spending shareholder’s money on expenses that
do not provide a direct return to the company. On the other hand, many people
require and ever put pressure on these companies to ensure that at least a
portion of their earnings is invested back into the community. Ultimately, it is
the responsibility of the companies themselves to decide whether maximizing
profit outweighs the need to be accepted by the communities they operate in or
vice versa.
Task 4.23 Role Play

Work with a partner to debate a global issue regarding labour laws. Student A
will represent a company’s point of view and Student B will be an activist
with an opposing point of view. Each student must try to persuade the other to
change their position. Try to use as many specific examples as possible to
support your arguments.
Before you start the role play, conduct research to find supporting evidence and
specific examples to support your arguments.

•You work for a company that has contracted a manufacturing plant in

a developing country to produce a new clothing line. Many activists are
Student complaining that the workers in the plant do not receive the same
benefits that workers in the home country would receive, including
A salary, safe working conditions, insurance, etc. You need to present the
costs and benefits for both your company and the workers at the
plant. Explain to the activist this is a win-win situation for both parties.
•You are an activist who wants Student A to provide better working

conditions for the workers at their new plant. You believe that they are
Student taking advantage of these people in a way that would be impossible in
the home country. You are determined to change the working
B environment for the better of the people. You need to present the
differences in the benefits between the workers in the plant and similar
workers in the home country.
Task 4.24 In pairs, list some examples of recent ethical dilemmas that international
businesses have faced, especially in your own country.
What decisions did the businesses make?
In your opinion were these decisions ethical or not?
Do you agree with them? Why or why not?
Task 4.25 Conduct research to find a Multi-National Corporation that has recently acted
in a socially responsible way.
What does the business do? What are its products/services?
What was the issue? What did they do that was socially responsible?
Who did their act benefit? How?
Worldwide As globalisation has accelerated, several organisations have been created in an

Social attempt to set consistent worldwide social accounting standards. Managers must
Accounting be aware of these standards and make decisions accordingly. In this section, the
Standards
following worldwide social accounting standards will be considered:
1. UN Global Compact
2. SA8000
3. FTSE4Good Index
1. The UN Global Compact

Over 12,000 participants, including over 8,000 businesses from 145 countries
worldwide participate in the UN Global Compact, making it the world’s
largest CSR organisation.

The UN Global Compact asks companies to…

…embrace, support and enact, within their sphere of influence, a set of core
values in the areas of human rights, labour standards, the environment, and
anti-corruption.
Source: About Us. UN Global Compact [online]. Available from:
https://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html [Accessed 2
June 2015]
Task 4.26 To find out more about the UN Global Compact, visit:
www.unglobalcompact.org [Accessed 2 June 2015]
Make notes on the following:
What is the Global Compact?
What is the code of conduct?
List the ten principles in the code of conduct. Are they sufficient to ensure a
global consistency in application of ethical standards?
Who can join?
Is the code of conduct enforced?
Find and list examples of participating corporations in your own country and one
other country.
Do you think organisations should impose their values on other cultures if it is
for the good of all?
Prepare to discuss your answers in class.
2. SA8000
Another organisation called Social Accountability International (SAI) also
works to improve the quality of life for workers around the world by...
...protecting the integrity of workers around the world by building local
capacity and developing systems of accountability through socially
responsible standards.
Source: About SAI Social Accountability International [online]. Available from:
http://www.sa-intl.org/index.cfm?fuseaction=Page.ViewPage&pageId=472 [Accessed 2 June
2015]
SAI established Social Accountability 8000 (SA8000), a recognised reference

for social accountability standards for international companies. SAI is based on
ILO (International Labour Organisation) conventions, the UN Convention on
the Rights of the Child and the Universal Declaration of Human Rights. As of
September 2014, 3,400 certified companies from 74 countries were members.
Standards include:
 No child labour: no workers under the age of 15
 No forced labour

 No discrimination, for example based on race, caste, religion or gender

 A safe working environment
 Workers’ rights to unionise respected
 No more than 48-hour working weeks, with one day off for every 6
consecutive days worked
 Wages sufficient to meet workers’ basic needs
Source: SA8000 – Standards and Documents Social Accountability International [online].
Available from: http://sa-intl.org/index.cfm?fuseaction=Page.ViewPage&pageId=937 [Accessed 2
June 2015]
3. FTSE4Good Index
The FTSE is the Financial Times Stock Exchange in London. It sponsors the
FTSE4Good Index which lists all companies that meet certain corporate social
responsibility standards.
To be included in the indices, companies need to demonstrate that they are
working towards:
 Managing the environment
 Tackling the causes of climate change
 Countering bribery
 Upholding human and labour rights
 Implementing sustainable supply chain and labour standards
Source: The FTSE4Good Index Series FTSE [online]. Available from:

http://www.ftse.com/products/indices/FTSE4Good [Accessed 2 June 2015]
Task 4.27 Work with a partner to consider the following questions.

Which companies would you include in the FTSE4Good Index?
Which companies should NOT be on the FTSE4Good Index?
Discuss as a class
Note! Research shows that cultures have different attitudes towards ethical behaviour
and social responsibility. People travelling, living and/or working abroad should
be aware that social responsibility and ethical behaviour are important and
controllable issues.
Task 4.28 Work with a partner and list some ethical behaviours that foreigners should be
aware of before coming to your country: This behaviour could pertain to either
tourists or business people. Then write down some behaviours of foreigners that
you have noticed who have acted in a way that was seen as unethical, rude or
disrespectful to your country’s culture.

Part F Unit Review
This unit has covered many different aspects of management on a global

scale. Leadership skills are paramount, and managers need to be adaptable
and flexible since they are conducting business in countries with different
cultures and values. The connection between culture and communication
was explored. Finally, globalisation has favoured the creation of
international bodies to promote ethical business conduct.
Remember that your Business Terminology Logbook will be collected

for marking at the end of Unit 5.
Assessment Assessment Event 2: In-class Test – Short Essays + Case Study Test will
Event 2 be done at the end of this unit.

Task 4.29 Unit 4: Internal Influences on International Business: Key Terms

crossword puzzle
The following are made up of 2 or more words with a blank in between each
word:
 Across: 5, 7, 10, 12, 18
 Down: 3, 8

Task 4.30 Summary

In Unit 4, we have looked at the internal influences in international business.
There are three major theories of leadership which influence leadership style. Theory X states that
people basically do not like work and have to be somehow _______________ to work towards
organisational _______________. Theory Y states that workers are self-starters and will
_______________ responsibility under certain conditions. Theory Z is based on the premise that
the more employees are _______________ in decision-making, the more they will
______________.
From these leadership theories, three leadership styles emerge: _______________,

_______________ and _______________ leadership. To help consider management styles, Blake
and Mouton developed a _______________ _______________. It has concern for
_______________ on one axis, and concern for _________________ on the other. Depending on
the _______________, managers might move around on the grid. Management styles will also
vary according to the international ______________ in which they operate.
An international manager’s role is to _______________ employees, manage _____________,

solve problems and facilitate work groups in a _______________ _______________ manner.
Effective _______________ _______________ is another culturally dependent role. Culture and
communication are affected by ‘noise’ variables such as ______________, _____________,
_______________ and ________________ communication.
Finally, business ______________ in an international context are complicated because what is

regarded as acceptable in one culture may not be so in another. The most common issues that have
been raised recently concern issues with employment practices, _______________,
_____________ _______________, corruption, and moral obligations. International bodies try to
set consistent worldwide ________________. These include the FTSE4Good Index,
_______________ and the UN Global Compact.
Assessment Assessment Event 2: In-class Test – Short Essays + Case Study Test
Event 2 will be done now.

Student Manual GAC 022: Business II: International Business Studies
Unit 5: International Marketing
Part B International Marketing and Culture
Part C International Marketing and the 4Ps
Part D International Marketing and Ethics
Part E Unit Review
Overview This unit focuses on marketing in the global world. Although the 4Ps of
domestic marketing (Product, Place, Pricing and Promotion) also apply in
marketing internationally, culture and ethics have a larger part to play.

 discuss the influence of cultural norms on the choice of marketing
strategies in an international context
 compare and contrast marketing strategies in domestic and international
markets
 evaluate and discuss ethical and environmental issues in international
marketing
Assessment Project - Written Report of minimum of 1,250 words, and an Oral

Event 3 PowerPoint Presentation (45%).
A draft of your Written Report is due after Unit 5, Part C.
Your final Written Report and Oral PowerPoint Presentation are due in the
last week of the module.
Assessment Your Business Terminology Logbook is due for collection in the final week
Event 4 of the module.

GAC 022: Business III: International Business Studies Student Manual
Task 5.1 International marketing is about marketing across national borders.

Although the basic principles remain the same, international marketing is
far more challenging than domestic marketing.
Why do you think international marketing is more challenging than
domestic marketing? Some of the boxes below contain headings to help you
get started. There are more boxes below that you can use freely.
Complete the chart below. First think on your own, then compare with a
partner.
Language: Politics: Financial Resources: Communication:

Differences in
language, religion,
beliefs
What makes international marketing

challenging?
Laws in the host

country market

Part B International Marketing and Culture

Remember the 4Ps of marketing? They are: product, place, price and
promotion. The 4Ps (or marketing mix) still apply internationally but are greatly
influenced by cultural differences.
Self- When someone (often unconsciously) judges host country culture according to
Reference home country cultural standards, it is called Self-Reference Criterion (SRC).
Criterion SRC is to be avoided at all costs in international business. This is particularly
important in marketing, where the product needs to meet the local customers’
needs.
You cannot motivate people, especially if they are from a different culture,
unless you have been accepted by them. A salesperson who speaks the host
country language will be able to communicate about a product. However, it will
take a multicultural salesperson to motivate that person to buy the product. A
buyer will not like a foreigner who uses their own culture as a benchmark for
evaluating the host country’s culture. Therefore, in order to market effectively
internationally, understanding the cultural norms of the host country is vital.
Some of the first cultural questions to be answered when marketing overseas,
should be:
Who in the foreign market uses the product?

In what way are the targeted foreign buyers similar to or different from
domestic buyers?
How can the product be incorporated into their lifestyle?
How open is the foreign market to accepting new ideas?
What are the foreign market’s values?
In 1995, the US company Campbell’s set itself the goal of achieving 50% of its
revenue from the sale of soup in foreign markets within five years. Its overseas
growth strategy was founded on new product development which satisfied local
consumer tastes. For example, Campbell’s executives found that Poland was a
land of soup eaters, consuming three times that of US consumers. So they
invested in a wide range of different soups using local ingredients and tastes.
For China, they developed a range of soups to suit local tastebuds such as
watercress, duck gizzards, fig and date soups. In Mexico they developed a chilli
soup.
Some products, such as fashion items, have global appeal based on teenage
tastes. Adidas sports shoes, Nintendo video games and music CDs or downloads
are examples. Luxury goods are also easily transferable worldwide with Gucci
using the same advertising campaign around the world.
On the other hand, a country such as China is so vast that they have many
different languages and religions. Marketing to a country with over 1 billion
people with many different needs, wants and beliefs will be very challenging for
foreign and domestic businesses. It would be a mistake for businesses to
underestimate the challenges of the market in China.

Task 5.2 Work with a partner to research a country with different cultures (co-cultures)
within and compare the similarities and differences of those cultures. Then select
a product and decide how you could market this product in the different co-
cultures of that country. Think about using all the different advancements in
technology that can help you to reach different co-cultures.
Task 5.3 Follow the web link for the article: International Takeoff of New Products: The
Role of Economics, Culture and Country Innovativeness. Identify the research
questions and major findings of the research. There are four research questions
and four major findings listed on the Web page.
Go to:
http://bear.warrington.ufl.edu/centers/MKS/articles/3e82434384_article.pdf
[Accessed 24 August 2015]
Your teacher will provide more details about the task.

Be ready to contribute in class.

Part C International Marketing and the 4Ps
Product When considering products and services in an international context, the same
models apply as in domestic marketing.
However, international product decisions often focus on whether to
standardise or adapt the offer. In other words, should the same product be
marketed internationally, or should it be adapted to please local tastes?
There are advantages and disadvantages to standardisation.
Before you begin the task below, with a partner, discuss the following
questions:
In which circumstances will product standardisation or adaptation work
best?
Have you witnessed a MNC that decided to offer standardised products in
your country that either succeeded or failed? Explain why you think they
either succeeded or failed. If they failed, what could they have done
differently?
Be prepared to justify your ideas.
Task 5.4 Work with a partner and decide whether the statements below are advantages
or disadvantages of standardisation. Sort them onto the appropriate side of
the chart on the next page.
 Efforts are concentrated on one product, so quality is improved.

 A standardised product gives a competitor the opportunity to
design a tailor-made, unique product.
 Local markets have local needs and tastes, which may not be
addressed by a standardised product or service.
 A standardised product is reassuring for consumers. They know
that wherever they travel in the world, the product or service will
have the same characteristics.
 Since the company is making large quantities of the same product,
the cost-per-unit is reduced (economies of scale).
Can you think of any other advantages/disadvantages of standardisation? If

you can, add them to the chart.

________________________________
________________________________
Advantages ________________________________
________________________________
________________________________
________________________________
________________________________ Disadvantages
________________________________ s
________________________________
________________________________
Diffusion Not all products and services introduced in a foreign market will be
Process immediately accepted by the targeted consumers. They have to go through a
diffusion (also called an ‘adoption’) process...
a process by which innovation is communicated through certain channels
over time among members of a social system.
(Rodrigues 2001, p.160)
It describes the behaviour of consumers over time as they purchase new

products. Many companies introducing a new product will suffer initial
losses that should be recaptured once the product or service is diffused
(adopted) in the market.
Figure 5.2 The diffusion process
Recognition of a need
Search for information
Pre-purchase evaluation of the new product
Purchase of the new product
Post-purchase evalution of the new product

Task 5.5 The length of time for a diffusion/adoption process to be completed will vary
depending on the product and the country.
Can you think of examples of slow and fast adoption products in your own
country?
Consider the technology and food markets. Write your examples in the chart
below.
Slow Fast
adoption adoption
products products
- solar panels
- YouTube
- certain foods

Task 5.6 In the early 1990’s, LG first entered the India market. The challenge was that LG
had to compete with other local brands as well as the other MNCs that already
had a presence in the market.
Research LG at:
http://www.lg.com/global
Write down its vision statement. You can find this if you click on ‘About Us –
At a Glance’.
Next, work in groups of three. Your teacher will assign your group one of the
readings below. Write a short summary of your findings (200-250 words).
Present your summary to the class.
Article 1: Global Strategy of LG Electronics as a Leading Korean Company
http://www.nliresearch.co.jp/company/insurance/1009lg_electronics_eng.pdf
Article 2: How LG Surpassed Samsung in India
http://www.koreatimes.co.kr/www/news/bizfocus/2012/04/342_108490.html
Article 3: LG Electronics India
http://www.ibef.org/download/lg.pdf
Article 4: LG India to Reinvent Itself as a Consumer Technology Brand
http://articles.economictimes.indiatimes.com/2013-07-
19/news/40681489_1_sanjay-chitkara-lg-optimus-g-pro-revenue-growth
Article 5: Marketing Strategies of Global Brands in Indian Markets
http://www.researchersworld.com/vol3/issue3/vol3_issue3_3/Paper_09.pdf
[All accessed: 20 August 2015]

Place: Companies internationalise their businesses either to take advantage of

International opportunities or to deal with threats.
Marketing
Entry Modes Can you think of some examples of opportunities and threats?
Before beginning international marketing, a thorough environmental analysis
needs to be done. In GAC012, you learned about doing and using a SWOT
Analysis.
What does a SWOT Analysis involve?
Another tool to help managers research a potential new market is called a
PEST Analysis.
PEST A PEST Analysis is a useful tool for examining the external environment, in
Analysis this case an international marketing environment. PEST stands for Political,
Economic, Socio-cultural and Technological. The chart below outlines
example considerations for each factor.
Figure 5.1 International PEST Analysis
Political Economic
- How industrialised is the host country?
- Does the host country have a stable government?
- How stable is the home country/host country exchange rate?
- Do the home and host countries already have a business
- What do the key economic indicators show about future
relationship? If so, would it help or hinder international
economic prospects? (for example: GDP, employment rates,
marketing?
consumer confidence etc.)
- What is the influence of trading blocs e.g. the EU/ASEAN?
- What kind of laws are enforced?
- What is the host country's political
system? Does it encourage/limit
foreign competition?
International PEST
Analysis
Socio-cultural Technological
- What is the host country's culture: language, religion, society - Are there copyright and intellectual property laws or patents
etc. to protect technology?
- What are the cultural norms of doing business? - Does technololgy need to be adapted to respect host country
- What impact does culture have on the ability to do laws?
business? - Does technology allow for communication with the target
- What roles do men and women have? market?
- How 'green-minded ' are the locals? - How does technology influence distribution?
An international PEST Analysis helps companies to identify international

marketing opportunities, assess the competition within each market, and
determine the most appropriate entry mode.

Task 5.7 Work in groups of three or four, to conduct a PEST analysis for a country of
your group’s choosing. Two or more groups cannot conduct a PEST analysis
on the same country. Your teacher will determine which group will focus on
which country.
The following link may be a useful starting point:
http://www.library.ohiou.edu/subjects/businessblog/how-to-find-pest-
analysis-information-for-my-company-organization-or-industry/

Task 5.8 The five stages of moving from a domestic to a global organisation
In Unit 1, Part D of this manual, you learnt about the five foreign market
entry modes. Work with a partner to review them.
What are the five foreign market entry modes? Briefly describe how they
work.
Complete the chart below.
Foreign Market Entry Modes
Entry Modes Descriptions

Moving From a Domestic to a Global Organisation
The evolution from a domestic to a truly global organisation generally

involves a transition through several stages. The number of stages and
how long the process takes will vary from organisation to organisation.
•Managers make the first move towards going international by

exporting the organisation’s products. This initial stage involves
minimal investment and minimal risk. No special understanding of the
host country is generally required. Business may be done via mail
order or by trading over the Internet. Sometimes the actual export is
handled by a middle person such as an export agent or a foreign
distributor. For instance, an agent in the Auckland fruit market may
Stage 1 export New Zealand nectarines overseas. The farmer would not be
involved in the exporting but would rely on their agent to get a good
price.
•However, as the amount of exports increase, the appointment of an
internal export manager and an export department are required,
showing a commitment to export activity.
•As the organisation develops expertise in foreign markets and more

confidence in international sales activity, a desire will develop to take
greater control. At first, home country employees will be sent on
regular business trips to meet foreign customers but there is still no
Stage 2 physical presence of the company outside the home country. In
manufacturing, a move may be made to contract a foreign firm to
produce the company’s products.

• This stage represents a serious commitment to pursuing international

markets in a more aggressive manner. This can take the form of
licensing or franchising. Both forms involve one company giving
another company the right to use its brand name, technology or
product specifications for a fee.
Stage 3
Task 5.9 Work with a partner. Conduct research to identify and list the
differences between licensing and franchising.
 List the differences
 Decide which of these two business models is more suited to
manufacturing or service businesses
 Find an international example for each type of entry mode
Be prepared to discuss in class.
•As the company increases its production overseas, it may diversify.

The organisation may grow so large that it needs a more centralised
approach in order to meet customer needs, local culture and local
government requirements, as well as facilitating a rapid flow of
information. The organisation may then decide to become a true
Stage 4 multinational either by developing a product-based global structure or
an area-based structure.
Task 5.10 Refer back to Unit 1, Part C where you studied the four different
approaches to international business. Which approach is most appropriate
at this stage: ethnocentric, polycentric, regiocentric or geocentric?

•The move towards a global perspective will accelerate as the organisation

grows. Forces from global competitors, global customers, universal
products and technological investments will push the organisation into
more global integration.
•Multinational corporations (MNCs) have their headquarters in the home
country and conduct business in several host countries. The head office
coordinates global management, while often the production facilities are
located in host countries. For example, the headquarters of Nintendo Co.
Stage 5 Ltd is located in Kyoto, Japan, with subsidiaries in Europe, the Americas
and throughout the Asia Pacific region.
•Transnational corporations (TNCs) are the ultimate MNC. All business
units worldwide are dependent on one another for resources and support
services. The head office is decentralised and the company has no distinct
national identity. Unilever is an example of a TNC.
Task 5.11 Research one major international organisation from your own country. Identify
its approach to international marketing and what stage it has reached. Support
your answer with facts.
Be prepared to discuss this in class.

Price In the international setting, businesses can decide to price their goods or
services using three basic international pricing strategies: price
discrimination, strategic pricing and regulatory government pricing.
Price discrimination is when companies will charge two different prices for
the same product in two different countries. Many companies will take this
approach if the markets in both countries allow such discrimination to occur.
Too much of a difference in price will cause headaches for the company,
especially when consumers or other businesses engage in arbitrage.
Within strategic pricing there is a strategy called predatory pricing. Using
this method, companies will initially lower their prices to levels much lower
than the competitors in an effort to drive out competition. After the
competition has been removed, the company will increase its prices to
sustainable or even profit maximizing levels. All these actions ultimately
disadvantage the consumers who now have to pay more and have fewer
goods to choose from.
Regulatory government pricing is when the government of the host country
creates rules and regulations to decrease monopolistic pricing and to increase
competition within the country. For example, the government may decide
that a company is overcharging for a product and demand the company to
decrease its price to an acceptable but still profitable level.
Adapted from: Hill, C.W.L (2012). International Business: Competing in the Global Marketplace
McGraw-Hill. Pg. 598-601.
International pricing can be affected by several factors, including:

 fluctuations in foreign currencies: for example, the low US dollar in
2010 made imports into the US expensive but exports to other nations
relatively cheap
 business objectives: for example, Starbucks may accept operating at a
loss in some locations in order to achieve economies of scale and support
its global presence
 competitor pricing
 location of production plants: the cost of producing Toyota cars in Turkey
is not the same as it is in Australia
More than 60% of world trade takes place within multinational corporations
now, so the practice of transfer pricing is attracting more attention.
Do you remember what ‘transfer pricing’ is?

Transfer pricing is the moving around of profits between MNC subsidiaries

in different countries.
For example, a profitable American computer group buys micro-chips from
its own subsidiary in Korea. The profit of the Korean subsidiary depends on
the price the US parent company pays for the micro-chips and the local
(Korean) tax rate. If the parent company pays below market prices for the
micro-chips, the profit of the Korean subsidiary is artificially lowered, even
if the group as a whole has a strong financial performance. US tax officials
may accept this situation, since the profit will be reported and taxed there,
but the Korean authorities will be frustrated by the smaller income from
taxes.
The issue of transfer pricing only applies to MNCs with overseas
subsidiaries. If the US computer group bought its micro-chips from an
independent Korean company, it would pay the market price and the Korean
government would earn a higher income from taxes.
Adapted from: Neighbour, J. (2008), Transfer pricing: Keeping it at arm’s length, OECD Observer
[online]. Available from:
http://www.oecdobserver.org/news/fullstory.php/aid/670/Transfer_pricing:_Keeping_it_at_arms_length.ht
ml [Accessed 3 June 2015]

Task 5.12 Before you read the article about transfer pricing in the Russian coal industry,
complete the Anticipation Guide below. In the left hand column, circle
whether you agree/disagree with each statement. Each response is merely an
opinion.
Then read the article. When you have read the article, you may change your
responses if you learnt something new.
Did any of your answers change?
Discuss as a class.
Anticipation Guide - Transfer Pricing
Pre Reading Statements Post-Reading

agree/disagree 1. Transfer pricing is a tax avoidance scheme. agree/disagree
agree/disagree 2. Transfer pricing is illegal in Russia. agree/disagree
agree/disagree 3. A minority of Russian coal producers adopt transfer pricing. agree/disagree
agree/disagree 4. Transfer pricing benefits offshore trading companies. agree/disagree
agree/disagree 5. Coal producing regions are unaffected by transfer pricing. agree/disagree
agree/disagree 6. Domestic Russian mining companies often run at a loss. agree/disagree
agree/disagree 7. Transfer pricing is a morally acceptable practice. agree/disagree
Tighter Controls to Stop Transfer Pricing Schemes
The Russian government is clamping down on transfer pricing schemes, whereby Russian coal
companies avoid paying local taxes by selling coal at deflated prices to overseas resellers.
"It's a bit of a surprise that the government allowed it to continue for so long," said a Moscow-based
Fund Manager. Analysts from UralSib bank reported last year that transfer pricing schemes involved
80% of Russia’s coal exports. Because of the tightening of controls, mining companies have changed
their pricing practices, reducing exports to overseas tax havens.
The governor of Kemerovo, Aman Tuleyev, was pleased that most mining companies had returned
their trading operations to Siberia’s Kuzbass region, effectively providing local authorities with the
opportunity to impose tighter control over their dealings. "The first step towards solving this problem
has already been taken - 80 % of the trading houses have moved from Moscow to the Kuzbass, and the
coal companies should be praised for this," Tuleyev said. He added that transfer pricing schemes had
previously deprived his region of about 1.7 billion rubles (US$57.3 million) in annual tax revenues.
Natural resource companies took up transfer pricing practices in the 1990s in order to capitalise on the
gap in pricing between home country and international commodity prices. They would sell output to
overseas trading houses (for example in Switzerland and Cyprus) at a much lower cost than global
market prices. This enabled home country mining houses to declare losses or only small profits.
Meanwhile, the offshore traders benefited from lower overseas tax rates and made significant profits.
Adapted from: Kueppers, A. & Astakhova, O. (2010), Stricter Rules Eliminating Transfer-Pricing Schemes. The Moscow Times [online].
Available from: http://www.themoscowtimes.com/business/article/stricter-rules-eliminating-transfer-pricing- schemes/402557.html[Accessed 3
June 2015]

Promotion In Unit 3, cultural considerations when targeting consumers in foreign

markets were covered.
Language is always a challenge. Not only different domestic/host country
languages, but also language differences within the host country. For
example, in China there are many nationally recognised languages, including
Mandarin (Standard Chinese), Yuè (Cantonese), Wú (Shanghainese), and
Hakka (spoken in south eastern China and the New Territories of Hong
Kong). In addition to over 1,600 dialects, India has twenty-two main
languages, including Assamese, Bengali, Hindi, Kashmiri, Punjabi and
Tamil. Brand names could mean different things in different languages. In
the UK, the Vauxhall Corsa car was called the Nova. In Spain, this name
would be unacceptable, since ‘no va’ means ‘doesn’t work’!
Additional factors to take into account when communicating internationally
include:
 levels of literacy
 similarity/diversity of beliefs in the host country
 perception of the family and the roles within it
One example of where a multinational company was unsuccessful was

Procter and Gamble. This US multinational company markets items such as
personal care and household cleaning products, laundry detergents,
prescription drugs and disposable nappies. They used an advertisement in
Japan that had been very successful in Europe, without undertaking research
into the Japanese culture. The advertisement had a man walking into the
bathroom and discussing the soap suds with his wife who was sitting in the
bath. This intrusion was considered bad manners in Japan and the
advertisement had to be withdrawn.
A company that conducts global marketing with a single marketing campaign
is using Standardised Marketing. You are already familiar with this concept
in terms of product standardisation. Both terms are similar but concern
different areas of the marketing mix.
What are some advantages and disadvantages of standardised marketing?

Task 5.13 Read about the advertising campaign below. In the USA, Disney teamed up
with MySpace to promote the High School Musical 3 movie among teenagers.
Would this campaign work in your country? Why or why not?
Use of social networking to target teenagers: High School Musical

The movies High School Musical and High School Musical 2 were runaway successes among
teenagers. To promote High School Musical 3, Disney entered into an agreement with
MySpace, the social networking site which is very popular with teenagers. The promotion
was advertised on MySpace and included competitions where supporters were required to
show their school spirit by doing things like uploading videos, and supporting their school
with texted votes. Prizes for the winning high school included a trip to Walt Disney World or
Disneyland for all of the Year 12 students, as well as a concert by Natasha Bedingfield for the
whole school.
To find more details about the competition and view contest videos, follow this link:
https://myspace.com/hsm3 [Accessed 3 June 2015]
Adapted from: Moran, G. (2008), Best and Worst Marketing Ideas…Ever (January14, 2009), Entrepreneur [online]. Available
from: http://www.entrepreneur.com/article/199056 [Accessed 3 June 2015].
Every year in June, the Cannes Lions International Advertising Festival is

held in France. This festival claims to be the “world’s only truly global
meeting place for professionals in the communications industry”.
Source: Cannes Lions [online]. Available from: http://www.canneslions.com/ [Accessed 3 June 2015]
If time permits, follow the above link to view this year’s winning TV
commercials, as well as promotional and other communication campaigns.
Assessment Reminder
Event 3 A draft of your Written Report is now due to be submitted for feedback.

Part D International Marketing and Ethics
Overview In Unit 4, Part E, the roles of ethics and social responsibility for businesses
when expanding into foreign countries were considered. In this section the
ethical and, in particular, the environmental aspects of marketing in an
international business context will be looked at.
Until the 1960s, few organisations paid attention to the environmental

consequences of their actions. Then a number of highly visible
environmental disasters occurred that brought about a new awareness.
In the USA, hundreds of millions of dollars were spent on the clean-up of

the Exxon Valdez oil spill in 1989, which resulted in significant fines for the
Exxon Petroleum Corporation. Other notable disasters include the
following:
 Fukushima Daiichi nuclear disaster in Japan in 2011

 BP Deepwater Horizon oil spill in the USA in 2010
 Jilin Petrochemical Company explosion in China in 2006
 Baia Mare cyanide spill in Romania in 2000
 Marcopper mining disaster in the Philippines in 1996
 Chernobyl nuclear power plant accident in Russia in 1986
 Bhopal chemical disaster in India in 1984
 Seveso Dioxin Disaster in Italy in 1976
Task 5.14 In groups of three, research one of these disasters. Your teacher will give
you a Web site to start your research.
In which country did the offending corporation have its headquarters?

In which country did the disaster take place?
What happened?
What were the causes and consequences of the disaster?
What did the host country government do as a result of the disaster?
How did the disaster impact the company in the short and long term?
Put together a PowerPoint or Prezi presentation (3-4 slides or equivalent) to

share in class.
Green Green management gained prominence in the last part of the 20th century,
Management when managers were confronted with the impact that corporations have on
the environment. Watchdog groups such as Greenpeace and Friends of the
Earth sprang up and legislation to protect the environment increased. The
Earth Summits in Rio de Janeiro (1992) and Johannesburg (2002) prompted

leaders to address environmental issues and foster sustainable practices. In

2009 the UN General Assembly agreed to hold a 'Rio+20' Earth Summit in
Rio de Janeiro, Brazil in 2012.
In 2007, for the first time, energy consumption by developing countries

exceeded that of developed countries; by 1.5%. This gap is expected to
widen over time, so that by 2035, developing countries are expected to be
using 63% more energy than developed countries.
Source: International Energy Outlook (2014), EIA US Energy Information Administration [online].
Available from: http://www.eia.doe.gov/oiaf/ieo/world.html [Accessed 3 June 2015]
The list of global environmental problems includes natural resource

depletion, global warming, pollution, toxic waste and industrial accidents.
As developing countries become more affluent, urbanisation will increase,
consumption will rise and pollution is likely to worsen. The role of
environmentalists is to lobby for organisations to operate with more respect
for the environment by adopting sustainable practices.
The steel industry and public utilities are examples of sectors that have
made substantial investments in pollution reducing (and often costlier)
sources of energy. Car manufacturing is another area of greening. Vehicles
have been developed which run on less fuel and emit fewer toxic
substances. Marketers are focusing their efforts on cars which use
renewable energy sources such as methane and electricity.
Additionally, environmental groups have been successful in lobbying for a

ban on propellants such as chlorofluorocarbon (CFC). These were mostly
used in aerosol cans, refrigerators and air conditioners, and contributed to
destroying the ozone layer. The Montreal Protocol on Substances that
Deplete the Ozone Layer is an international agreement initially signed in
1987, and to date there are 196 signatory countries. It mandated that CFCs
were to be phased out by developed countries by 1996, and developing
nations by 2010. If this agreement is respected, the ozone layer is expected
to recover by 2050.
All this research and development adds to the cost to the consumer. In
Australia, solar hot water and rainwater tanks are being marketed strongly
with the help of government subsidies. ‘Environmentally friendly’ products
and wind generated factories are becoming increasingly popular in Europe.
These ideas are being used as marketing tools to appeal to the social
conscience of the population in the same way that organic fruit and
vegetables appeal to the health conscious.
Discuss with your partner:
What efforts have some companies, industries, or the government done to

reduce pollution or become more environmentally friendly in your country?

What are some ways certain companies can change their products to
become more environmentally friendly?
Task 5.15 The companies listed below were all removed from the annually audited
FTSE4Good Index. Conduct research and complete the table below. Add
two additional examples of your own.
Were you surprised by any of the findings?
Company Home Business Reasons for Removal

Country Sector
Alcatel-Lucent France Technology Nuclear weapons
Viacom USA Media Environment
Beiersdorf Germany Personal goods Human and labour rights
The Swatch Group
Hitachi Metals
LMVH
NCR
Tate & Lyle
Brookfield Asset Management
Do you think any companies from your country may be excluded from the FTSE4Good Index? Which
ones? Why?

Approaches There are at least four approaches that organisations can take to
to the environmental issues:
Environment
Legal Stakeholder
Approaches to
Environmental
Issues
Market Activist
1. Legal approach
This means that the organisation simply follows the rules but is not
proactive in being ‘green’.
2. Market approach.
This means that the organisation responds to the environmental preferences
of their customers. For instance, if farmers want to use fewer chemicals on
their crops, a chemical company may develop a new herbicide to meet their
needs.
3. Stakeholder approach
Here the organisation responds to all its stakeholders, which could include
employees, suppliers, investors as well as the community. Compaq US
(computers) was one of the first companies to develop recyclable products
and minimise harmful emissions as well as reducing energy consumption.
4. Activist approach
Here the organisation looks for ways to respect and preserve the earth and
its natural resources. For example, the Belgian company Ecover produces
cleaning products from renewable raw materials and operates a near zero
emission factory.
These four approaches are inevitably linked to the marketing strategies of
the organisations themselves. However, there are several questions that need
to be considered:
How much of a social conscience do organisations actually have?

Are they genuinely concerned about the environment?
To what extent are their actions simply responses to media pressure on
them?
Is there any way of knowing?

Task 5.16 Consider Procter and Gamble (P&G) here.
First, watch the P&G Social Sustainability Video at the following site:
http://www.youtube.com/watch?v=Hy2yi7r5-Ts [Accessed 3 June 2015]
Then go to the company’s home page:

http://www.pg.com/en_US/index.shtml [Accessed 3 June 2015]
Click on: Sustainability
Click on: Overview and find information on its Strategy, Goals and
Progress
Make a Spider or Mind Map to summarise this page.
Also:
Click on: Brands and Innovation
Click on: Latest Innovations
Are their product and packaging innovations aligned with their
sustainability strategy?
Discuss in class.
International marketing has become more complicated than in the past.

Marketers have to monitor and adapt the ecological properties of their
products and packaging. Greening practices often result in higher consumer
prices, making their products/services harder to sell. This movement will
not be reversed, however environmental policies still vary from country to
country. For example, the Kyoto Accord on reducing greenhouse gases has
the full support of the EU but not of the whole world.
Task 5.17 Research the Kyoto Accord.

How did the Kyoto Accord get its name?
Who supports the Accord?
Why do you think some countries are not in support?
The following Web sites may be useful:

http://unfccc.int/kyoto_protocol/items/2830.php
http://www.ec.gc.ca/climate/kyoto-e.html
http://news.bbc.co.uk/2/hi/science/nature/4269921.stm
[All accessed 3 June 2015]
Be prepared to discuss your findings in class.

Emissions Emissions trading is just one of the major initiatives that organisations are
Trading developing in order to save the environment.
What is emissions/carbon trading?
Many companies now profit from weaving other sustainable practices into
their organisational cultures. Initiatives to preserve the environment include:
 TD Bank is working with The Nature Conservancy and the Nature

Conservancy of Canada to protect endangered North American forest
habitats. Their plan is to conserve areas the size of two football fields
every day. To date, they have preserved the equivalent of over 1,400
football fields of trees.
 Volkswagen has decided to make their entire plant in Chattanooga,

Tennessee, reusable and recyclable if it is demolished. The plant also
uses energy efficient devices and holds over 66-acres of solar panels.
 Nokia firmly believes in the benefits of recycling mobile devices,

batteries, and accessories. People are encouraged to stop by Nokia stores
and kiosks to recycle. In 2011, Nokia started the Nokia NEWTrees
program which is dedicated to planting one tree in South East Asia for
every phone that is brought back.
Source: Smart ways companies are helping the planet (n.d.), CNBC [online].
Available from: http://www.cnbc.com/id/102030053/page/1 [Accessed 6 June 2015]
Independent What are businesses in your country doing about preserving the
Study environment?
Research an organisation in your country that has a ‘green management’

approach and be prepared to discuss its strategies in class.
Task 5.18 Your teacher will now provide Case Study 4: Ethics and Airbus. Read the
Case case study and follow the instructions.
Study 4

Part E Unit Review
This unit has covered many different aspects of marketing on a global scale.
Take some time to reflect on the topics covered in this unit to ensure your
understanding prior to completing the case study in Appendix E.
Assessment Project - Written Report minimum of 1,250 words, and an Oral

Event 3 PowerPoint Presentation (45%).
Your Written Report and Oral PowerPoint Presentation for Assessment
Event 3 are due in the final week.
Independent Prepare the PowerPoint slides for your project oral presentation. Practise
Study delivering your presentation. If you have time, practise your presentation in
pairs so that you can give each other advice and practice asking and
answering questions.
Assessment The Business Terminology Logbook will be collected for marking at the
Event 4 end of this unit.

Task 5.19
Unit 5: International Marketing: Key Terms crossword puzzle.

each word:
 Across: 3, 17, 19
 Down: 1, 4, 8, 9, 11, 14, 16

Task 5.20 Summary

As in domestic marketing, international marketing is governed by the 4Ps, with the added
attention to _____________ and _______________.
International marketers need to consider the target market ______________. A Self-Reference

Criterion approach will not allow the company to cater to the local consumers’ needs because it
involves ____________ one’s own culture onto another. Some products are easier than others to
________________. For example, _____________ _____________ are generally easily
transferable, while food products less so. _____________ is the term used to explain the process
of new product adoption.
When considering ‘place’, international marketing may be helped by conducting a ____________

Analysis, which is a tool for evaluating the ______________, _______________, ____________
____________ and _______________ factors in the target market. International
promotion/communication is susceptible to ____________ differences, literacy levels, beliefs and
family values. There are ____________ foreign market _______________ ______________,
which loosely correspond to the five stages from a _______________ to ________________
organisation. International businesses can take on three methods of pricing strategies.
____________ ____________ is when companies lower their prices much lower than the
competition to drive-out competitors. ____________ ____________ can play a big role in
multinational business dealings.
____________ and environmental concerns are playing an increasing role in international

marketing. International watchdog groups ____________ to protect the environment. One success
story is the ______________ of CFC aerosol propellants.
Assessment Project - Written Report minimum of 1,250 words, and an Oral

Event 3 PowerPoint Presentation (45%) - is due now.
Assessment The Business Terminology Logbook will now be collected for marking.
Event 4

Student Manual GAC 022: Business III: International Business Studies
Glossary
Glossary
Glossary Accountable Being responsible for actions and/or decisions.

Appease To meet conditions considered acceptable by another person or
organisation.
ASEAN Association of Southeast Asian Nations.
Asset This is the term used to describe something of value owned by, or
owing to, a business that can be turned into money.
Asynchronous communication is communication taking place at different
times, not real time.
ATM Automated Teller Machine.
Authoritarian leadership is when a manager has one-way communication
with his employees, merely informing them what has to be done and not
expecting discussion.
Autocratic style This is a leadership style where a leader tends to
centralise authority and dictate work methods.
Autonomy This is the right or freedom to work independently of others.
Behavioural Theories These theories differentiate effective leaders from
ineffective leaders.
Buddhists Believers in Buddha.
Budget This is a numerical plan for allocating resources to specific actions.
Business This is any organisation or group formed to provide goods or
services to meet the needs and wants of others.
Caste System This is a hierarchical system with greatly divergent classes.
CER The Australia-New-Zealand Closer Economic Relations Agreement.
Cold War A period of rivalry between the USA and the former USSR and
their respective allies from 1946 to 1991.
Collectivism A culture in which people tend to belong to and focus on
group achievement.
Common Markets Markets which go further than customs unions in
standardising trade policies.
Consumerism Increasing needs and wants for goods and services.
Credit To sell goods or services now and receive the money later.
Conversely to buy goods and services now on credit and pay for them later.
Culture The culture of an organisation consists of patterns of behaviour,
beliefs and values that determine what shall be done and how it shall be
done.
Currency Conversions Converting one currency to another.
Customs Unions In Customs Unions there is some degree of unity in trade
policies with non-member countries.

Glossary
Delegation A group of individuals representing a company, government or

organisation; or, the act of getting someone else to perform a task.
Demand Refers to the amount of goods or services needed or wanted by
consumers.
Democracy A system of government that is elected by its people.
Democratic style A management style where a leader involves employees
in decision making and gives employees a voice.
Developed countries They are also called industrialised/post-
industrialised/First World countries. They are usually democracies, operate
free market/mixed economies and fight corruption.
Developing countries They are also called less-developed/Third
World/non-industrialised/emerging countries. They have a lower standard
of living and lower levels of productivity than in developed countries.
Dictatorship A system of government where one leader is in control, but
does not necessarily represent the population.
Diffusion process A process by which innovation is communicated
through certain channels over time among members of a social system
(Rodrigues, 2001, p160.)
Differentiated Marketing The development of separate marketing mixes
for each market.
Distributors Individuals or organisations that distribute goods, making
them available to consumers.
Duties Taxes that are collected when goods are shipped internationally, by
the receiving country.
Economy The sum total of available resources that a society uses to
produce and distribute goods and services among its people.
E-business A type of organisation where business is conducted by using
the Internet in order to achieve its goals.
E-commerce The buying and selling of goods over an electronic network.
Economic Unions The most integrated of economic blocs. In addition to
standardised laws, member countries have a common currency.
Ethics A system of moral principles.
Environmental scanning This is the process of screening large amounts of
information to anticipate changes in the environment.
Ethnic Racial, religious, political or linguistic characteristics of a group of
people.
Ethnocentric belief A belief that one’s way of doing things is superior to
that of other countries.
Emissions trading A system whereby greenhouse gas emitters may
buy/sell permission to pollute.
Euro Currency common to all members of the European Union.
European Union (EU) Is a union of European nations created as a unified
economic and trade entity.

Glossary
Exchange rates The rates of exchange paid when converting one currency
to another.
Expenses These are costs incurred by a business in the process of earning
revenue or income (e.g. wages, telephone, rent and bank charges).
Exporting This is an approach to going global that involves making
products at home and selling them overseas.
External environment This is comprised of the outside organisations or
forces that can potentially affect an organisation’s performance. These
forces are beyond the control of the organisation.
Factor endowments A country’s amount of land, labour, and capital it
possesses for manufacturing.
Financial risk This refers to any uncertainty with respect to financial
matters. The primary areas of risk in the financial arena are: default (bad
debts), interest rates changes and exchange rate movements.
Foreign Direct Investment This is when the home country company
invests in plant, machinery and labour in the overseas market to the value of
at least 10% of its subsidiary.
Forex market A market where people can buy and sell foreign currencies.
Franchise This is a business arrangement under which one party allows
another to operate its business using its logo and under strict compliance
regulations.
Free Trade Area An area where all members have equal treatment: no
trade barriers among themselves and reduced non-tariff barriers.
FTSE4Good Index It lists all companies that meet certain corporate social
responsibility standards.
G8 A free trade group comprised of the eight most industrialised countries
in the world: France, the United States, the United Kingdom, Russia,
Germany, Japan, Italy and Canada. Member countries enjoy freer trade.
G-20 A group composed of the finance ministers of 20 economies: 19
countries + the EU Its objective is to steady the global financial market.
GATT General Agreement on Tariffs and Trade.
Geocentric beliefs Geocentric management strives to achieve a fully
globalised market.
Global Financial Crisis The financial crisis which reached a peak in 2008
and pushed the global economy into a severe downturn.
Globalisation This describes the increasing interdependence of business
activity throughout the world. Business firms sell their products in 'global'
markets, just as though each country's market were part of a single world
market.
Goals These are clear statements about what the business sets out to
achieve.
Goods are items that we need or want (e.g. food, clothing, accommodation,
etc.).
Green management is the process of business leaders addressing
environmental issues and fostering sustainable practices.

Glossary
Gross Domestic Product (GDP) This is the value of all final goods and
services produced within a country within a given time period, usually one
year. GDP thus includes the production of foreign-owned firms within the
country, but excludes the income from domestically-owned firms located
abroad.
Gross National Product (GNP) This measures economic output based on
ownership. If the resources that produce the economic output are owned by
an American entity - even if the output is produced overseas - they are
included in the GNP.
Gross Profit This refers to the excess of the selling price over cost.
Home Country Nationals These are expatriate managers who are citizens
in the country where the multinational has its headquarters.
Host Country Nationals These are local managers hired by a MNC.
Human Development Index A UN measure which takes into account how
income is turned into education and health opportunities.
IMF International Monetary Fund
Importing This involves selling products in the domestic market that are
made overseas.
Indigenous This term means native to a place, for example, indigenous
people.
Individualism This means focusing on the self rather than on the
collective, e.g. individualistic people or individualistic societies, such as
Western societies.
Innovative This means to be inventive, or to find new ways to do or use
things.
Interdependence This means the relationship between government and
business where one cannot exist without the other.
Interest This is the money you are charged for borrowing money, for
example.
Intergovernmental Organisations are alliances between governments
established by treaties.
International business The transnational commerce of goods and services.
International economics The study of international trade in goods and
services and the implications of international investment.
International finance A macroeconomic approach to understanding the
international economy. It includes studying the connection between
transnational economic indicators.
International Law These are laws that are agreed to by member nations in
groups such as the United Nations, and spelled out in agreements such as
the Geneva Convention.
International trade Takes a microeconomic approach to understanding the
effects of the international economy. It includes analysing supply and
demand and evaluating competition.
Interpersonal skills This is the ability to work with other people or groups
effectively.

Glossary
Joint Ventures An alliance between two companies: one in the host

country, the other in the home country.
Leader This is someone who can influence others in their thinking or
behaviour.
Liability This is an obligation normally resulting from a past transaction
that requires the business to pay money, provide goods, or perform services
in the future.
Licensing The right to conduct a business e.g. McDonald’s franchise or
licensed user of a trademark.
Loss This is when the expenses of running a business exceed the revenue
received. It is the opposite to profit.
Macro This is the overall view of something.
Management This involves planning, organising, directing and controlling
an organisation’s resources to achieve its goals.
Market-Based Economy This in an economy in which the free market
guides the economy, free of external controls.
Mediation In the event of disputes, mediators help opposing sides reach
agreements and solve disputes.
Micro This is a view which focuses on the details.
Motivate To motivate someone means to encourage them.
Muslims Believers in Islam and followers of the teachings of the Koran.
Market research This is the systematic gathering of information for the
purposes of making a decision.
Mission Statements Statements which outline how a business intends to
achieve its purpose (see Vision).
Multinational Corporations (MNCs). Corporations which conduct
business in more than one foreign country.
NAFTA North American Free Trade Agreement. Links Canada, the USA
and Mexico.
NATO North Atlantic Treaty Organization.
Negotiations Discussions which are undertaken by two or more parties to
achieve a specific outcome. Trade discussions are an example.
Networking This is the process of expanding your sphere of influence by
increasing your number of contacts.
Non-traded goods The non-raw materials costs associated with making a
product, for example energy bills, rent, personnel etc.
NYSE New York Stock Exchange.
Objectives These are measurable outcomes a business is trying to achieve.
OECD The Organisation for Economic Co-operation and Development
OPEC Oraganization of Petroleum Exporting Countries.
Opportunity cost It is the cost paid when giving up one investment in
favour of another.

Glossary
Participative leadership A leadership style which combines a work-

centred and employee-centred approach. Control is decentralised in favour
of the employees.
Performance Indicators These are used to measure the extent to which a
business objective is achieved.
PEST Analysis PEST stands for Political, Economic, Socio-Cultural and
Technological. It is a tool for examining the external environment.
Planned Economy A government-controlled economy.
Polycentric beliefs This is when the MNC places local nationals in key
positions and develops marketing strategies for the local market.
Power distance This is the extent to which less powerful members accept
that power is distributed unequally.
Process conflict A conflict arising from the way in which work is
undertaken.
Profit is the term used in business to describe the excess of revenue earned
during an accounting period (say 12 months) over the expenses incurred in
earning that revenue during the same accounting period.
Purchasing Power Parity It is based on the Law of One Price. It states
that a particular good should cost the same price in a given currency no
matter the country in which it is sold.
Regiocentric Beliefs A belief in organising the business according to
industry or product groups rather than by country.
Relationship conflict A conflict between differing personalities.
Revenue A business earns revenue (or income) by providing goods or
services to customers in exchange for money or other assets.
SA8000 It is a recognised reference for social accountability standards for
international companies.
Self-reference criterion When someone (often unconsciously) judges host
country culture according to home country cultural standards.
Services These are provided by people who offer assistance or help (e.g.
lawyers, doctors, accountants, hairdressers, electricians, transport
companies, etc.).
Standardisation The process of creating a uniform/standard product.
Strategic plans These are plans that specify the goals of the organisation
and how they will be achieved in a broad sense.
Supply This is the willingness and the ability of a producer to offer a
product or a service for sale at a particular price.
Tariffs Taxes and duties imposed.
Task conflict A conflict which arises from differences in opinion about the
aims, objectives and nature of a job.

Glossary
Theory of Absolute Advantage A country is said to have an absolute

advantage over a trading partner when it produces more of a good/service
with the same assets, or when it needs fewer assets to produce an equal
amount of a good/service.
Theory of Comparative Advantage A country is said to have a
comparative advantage when the opportunity cost of producing a
good/service is lower than that of a trading partner.
Theory X The belief that people are basically lazy and need to be directed.
Theory Y The belief that with the right conditions, people will work hard
to achieve their goals.
Theory Z The belief in team work and providing autonomy to their staff.
Trading Blocs These are groups of countries trading with each other.
Transfer pricing The moving around of profits between MNC subsidiaries
in different countries.
Transition This is the move from one stage to another. For example, a
move from an industrial based economy to a manufacturing based economy.
Transnational MNC This is a multinational corporation that views the
whole world as one large market.
Uncertainty Avoidance denotes how much risk and uncertainty a group
will tolerate.
United Nations (UN) This is a global association of governments
facilitating cooperation in international law, security, economic
development and social equity.
UN Global Compact A CSR organisation which has over 3,000
companies from 116 countries.
Vision A view of some desired future state that seeks to improve on the
present.
Workforce diversity This is a workforce that reflects differences in gender,
race, age, ethnicity, etc. within the society.
World Bank An organisation which promotes the development of poorer
countries by providing financial and technical assistance.
World Trade Organization (WTO) An organisation which started in 1995
to replace the GATT. It has power to enforce rulings in trade disputes.

Student Manual GAC 022: Business III: International Business Studies
Appendix A: Tips for Oral Presentations
Appendix A: Tips for Oral Presentations
Throughout your life at university or work you will be asked to make presentations. Successful
managers should spend much of their time talking to people as they explain their ideas and plans for
the future. Therefore to be confident in making an oral presentation is an important skill to develop.
The three basics of presenting are:
 skill
 knowledge
 practice
In particular to be confident the key is preparation and practice so that the presentation gives the
impression of smoothness and lack of effort.
Follow these steps summarised from Carlopio et al, 2001, pp. 562-586 or read more about how to
make effective presentations:
1. Identify your purpose
 What are you trying to achieve? To inform, demonstrate or motivate? This should affect
your style and tone
 Prepare your notes
2. Develop a clear structure
 You need to grab your audience’s attention so give them a reason to listen in your
introduction
 Develop a ‘road map’ to guide your audience through your presentation with slides to
identify the main points
 Close your talk with a summary of your main points
3. Use visual aids as support
 Take care that you do not have too many slides
 Ensure they are large and easy to read
 Ensure they do not distract the audience from what you have to say
 Practice to make sure the slides are in the correct order and you are relaxed with the
technology
4. Practice your delivery
 Practice, practice, practice
 Be enthusiastic
 Involve your audience with eye contact and questions
 Time your presentation

Appendix B: Cultural Quiz
How important is culture in a business context? Well, the truth is that business can succeed or fail as
a result of how well a manager understands the culture in which he or she is working. As we have
discussed, globalisation has made the world smaller, thus making it critical that managers today
become increasingly aware of the differences between countries and cultures so that they do not
inadvertently make mistakes that could negatively affect their business.
Task How culturally aware are you?

3.12
Answer the following questions by yourself first, then compare your answers
with your partner.
1. What does it mean if potential Mexican client arrives 45 minutes late for a business
meeting?
a He/she has arrived late on purpose to show that they are the party in the driving seat.
b He/she has simply arrived late as punctuality is taken lightly in Mexico.
c He/she has arrived late to let you enjoy your surroundings before discussing business.
2. There are three of you interviewing an Afghani man for a position in your company. Of
the interviewers, two of you are women. The interviewee only ever makes eye contact
with the man and never to the women. What does this mean?
a He is nervous around women.
b He is showing respect.
c He sees women as second-class citizens.
3. You are making a proposal to a group of Japanese executives when you notice a few of
them sat with their arms folded and eyes closed. Why are they doing this?
a Listening intently.
b Tired and catching up on some sleep.
c Pretending to be asleep to show you that they think your presentation is poor.
4. In India holy men usually wear white. True or False?

a TRUE
b FALSE
5. In Thailand a pale face is a sign of beauty in a woman. True or False?

a TRUE
b FALSE
6. You are asking a question of a junior Japanese colleague and he/she looks down and
answers you. What does this mean?
a He/she has something to hide and is looking for answer to cover their back.
b He/she is paying your respect.
c He/she doesn’t like you.
7. Arabs expect gifts to be opened in front of the giver. True or False?
a TRUE
b FALSE

8. In Spain, what is the main purpose of a business meeting?

a To make decisions by discussing in the length the pro's and con's of an issue.
b To reach agreements by consensus.
c To brief the team on a decisions already taken.
9. Your German colleague says about a proposal you have put together, “No offense but
this idea is ridiculous." What does this mean?
a He/she is merely expressing their opinion and means no harm.
b He/she is being blunt and has no etiquette.
c He/she is being rude to undermine your position .
10. British people drink more than 200 million cups of tea a day. True or False?
a TRUE
b FALSE
11. Eating with your hands is rude in Malaysia. True or False?

a TRUE
b FALSE
12. You are the new manager in an Indian office. You ask one of your supervisors to move
a desk and place it in another corner of the office. The next day you notice it has not yet
been done. Why?
a The supervisor was offended you asked him/her and refused to do anything about it.
b The supervisor could not find a labourer to move it and would not do so him/herself.
c Because things get done slowly in India.
13. Eating with left hand is taboo in Saudi Arabia. True or False?
a TRUE
b FALSE
14. In Japan, you will only see white flowers at funerals. True or False?
a TRUE
b FALSE
15. In Mexico, you are supposed to keep their hands on the table during a meal. True or
False?
a TRUE
b FALSE
16. During a break for a meeting between you and a group of Saudis, you walk into the men's
room to find a few of them washing their feet in the sink. Why are they doing this?
a They must have had smelly feet .
b They are simply freshening themselves up.
c They are preparing to read their prayers.
17. While in South Korea, you present a gift to a new client to thank him for his hospitality
and to cement your business relationship. He/she refuses to accept the gift. What should
you do?
a Apologise for offending him/her .
b Insist he/she takes it until it is accepted.
c Offer it to someone else from his/her company.

18. You are beginning negotiations with a Chinese company. From the start of the meeting
the Chinese team show great humility and deference. You should think:
a Such behaviour is a ploy designed to gain concessions.
b Such behaviour is just the way Chinese people are.
c Such behaviour shows these negotiations will be easy.
19. Lithuanian is a Slavic language. True or False?

a TRUE
b FALSE
20. Italian executives often come to business meetings in designer sports jackets and
flannels. True or False?
a TRUE
b FALSE
Source: adapted from Cultural Awareness Quizzes, Kwintessential [online]. Available from:
http://www.kwintessential.co.uk/resources/cultural-awareness-quizzes [Accessed 4 June 2015]

References
References
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https://g20.org/about-g20/
About LG (n.d.), LG [online]. Available from: http://www.lg.com/global
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http://www.oecd.org/about/_
About SAI (n.d.), Social Accountability International [online]. Available from:

http://www.sa-intl.org/index.cfm?fuseaction=Page.ViewPage&pageId=472
About SWIFT (n.d.), SWIFT [online]. Available from:

http://www.swift.com/about_swift/index.page?lang=en
About Us (n.d.), UN Global Compact [online]. Available from:

https://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html
About (n.d.), World Bank [online]. Available from:

http://www.worldbank.org/en/about
Absolute and Comparative Advantage (August 22, 2008), YouTube [online]. Available from:
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Asian Development Bank [online]. Available from:

http://www.adb.org/
Association of Southeast Asian Nations [online]. Available from:

http://www.asean.org/

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Australian Government Department of Foreign Affairs and Trade [online]. Available from:
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Beauchamp, T. L. (ed.) (1998), Case Studies in Business, Society and Ethics, 4th ed., Prentice Hall,
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Best and Worst Marketing Ideas…Ever (January14, 2009), USNEWS [online]. Available from:
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and-worst-marketing-ideas----ever.html
Beyond Greening: Strategies for a Sustainable World (1996), [online]. Available from:
http://www.stuartlhart.com/sites/stuartlhart.com/files/Beyond%20Greening%20PDF_0.pdf
Big companies Weaving Green Initiatives into Corporate Culture (November 30, 2007), Houston
Business Journal [online]. Available from:
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Blake, R. & Mouton, J. (1985), The Managerial Grid III, Gulf Publishing Co., Houston
Blanchard, K. Carlos, P. & Randolph, A. (1995), Empowerment Takes More Than a Minute, Berett-
Koehler, San Francisco
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Global Assessment Certificate: Level III Module 22: GAC022 Business III: International Business Studies

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Global Assessment Certificate: Level III Module 22: GAC022 Business III: International Business Studies

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Date of Issue: October 2015

UNIT 1: INTRODUCTION TO INTERNATIONAL BUSINESS .................................................. 1

UNIT 2: EXTERNAL INFLUENCES ON INTERNATIONAL BUSINESS:

UNIT 3: ADDITIONAL EXTERNAL INFLUENCES ON INTERNATIONAL BUSINESS .... 53

UNIT 4: INTERNAL INFLUENCES ON INTERNATIONAL BUSINESS ................................ 79

UNIT 5: INTERNATIONAL MARKETING................................................................................ 113

©ACT Education Solutions, Limited Page I

By the end of this module you will be able to:

1. Describe and analyse key concepts around globalisation

Page II ©ACT Education Solutions, Limited

Unit Unit Title Description

Introduction to  The History of Globalisation

 Foreign Market Entry Modes

 Future Trends in International Business

2 External Influences on  International Economic Systems

3 Additional External  The Political Environment

 The Socio-Cultural Environment

4 Internal Influences on  Leadership Styles

 Communication and Culture

 Ethics and Social Responsibility

5 International Marketing  International Marketing and Culture

 International Marketing and the 4Ps

 International Marketing and Ethics

©ACT Education Solutions, Limited Page III

Suggested Delivery Schedule

Week 1 Overview of module

Assessment Event 4: Business Terminology Logbook - first submission

Assessment Event 2: In-class Test – Short Essays + Case Study Test

Draft Assessment Event 3: Project – Written Report

Week 12 Module Review

Assessment Event 3: Project - Written Report to be submitted

Page IV ©ACT Education Solutions, Limited

Assessment Assessment Event Weighting

1 In-class Test – Multiple Choice and Short Answer Test 15%

2 In-class Test – Short Essays + Case Study Test 30%

3 Project: Project Report and Oral PowerPoint Presentation 45%

4 Course Work 10%

b) Completion of assigned Independent Study Tasks.

c) Completion of a Business Terminology Logbook which is

Development of a Business Terminology Logbook which is collected

©ACT Education Solutions, Limited Page V

Hints and Cautions

Page VI ©ACT Education Solutions, Limited

Unit 1: Introduction to International Business

Part A Unit Introduction

Part B The History of Globalisation

Part C Beliefs which Shape International Business

Part D Foreign Market Entry Modes

Part E Future Trends in Internationalisation

Part F Unit Review

Part A Unit Introduction

Overview In this unit you will learn to:

 describe the history of globalisation, its key motivators, current global

 discuss the forces driving globalisation

©ACT Education Solutions, Limited Page 1

Before Turn to a partner and brainstorm a response to the following questions:

International International business is the transnational commerce of goods and services,

Some international business activities are conducted by governments but, for

It is hard to imagine now a world without international business. Everything

Globalisation Globalisation is far more wide-reaching than international business.

Countries and people are becoming increasingly interconnected through