International Management

Globalisation and International Business

Management
Learning objectives

 Understand what is meant by the term globalization.

 Recognize the main drivers of globalization.
 Describe the changing nature of the global economy.
 Explain the major arguments in the debate over the impact of
globalization.
 Understand how the process of globalization is creating
opportunities and challenges for business managers.
What Is Globalization?

• Globalization is a social, economic and legal operations

management paradigm shift towards a more integrated and
interdependent world economy.

• Globalization has three components:

The globalization/ Internalization of markets

The globalization/Internalization of production
The globalization/Internalization of management
Globalization of Production

• The globalization of production refers to the sourcing of

goods and services from locations around the globe to take
advantage of national differences in the cost and quality
of factors of production (such as labor, energy, land, and
capital).

• By doing this, companies hope to lower their overall cost

structure and/or improve the quality or functionality of their
product offering, thereby allowing them to compete more
effectively and efficiently.
Globalization / Internalization
of market environments
• The establishments of multinational cooperations
(MNCs), Foreign Direct Investment (FDIs),
international trade and international business
global operations are one the economic activities
of our economies to day. In the attempt to
legalize, regulate and effectively manage this
cross boarder economic activities some global and
international policies regulations and institutions
had to be created.
Globalization and International Management
• The idea Globalization and International
Management is to have one global marketplace with
no barriers to consumption, movement of capital and
people and technology.
• Removing barriers to cross-border trade have made it
easier to sell, buy, invest and manage internationally
• Tastes and preferences converge onto a global norm
• Firms produce massively and offer standardised products
and services worldwide creating a world market
The Emergence of Global Institutions
• Globalization has created the need for institutions to
help manage, regulate and police the global market
place.
• GATT -The General Agreement on Tariffs and
Trade (GATT)
• WTO
• IMF
• World Bank
• United Nations
 The General Agreement on Tariffs and
Trade (GATT)
• GATT -The General Agreement on Tariffs and
Trade (GATT) covers international trade in goods.
• The workings of the GATT agreement are the
responsibility of the Council for Trade in Goods
(Goods Council) which is made up of
representatives from all WTO member countries.
 World Trade Organization
• The WTO is run by its member governments. All major decisions are made by the
membership as a whole, either by ministers (who meet at least once every two years) or by
their ambassadors or delegates (who meet regularly in Geneva). Decisions are normally
taken by consensus.
• In this respect, the WTO is different from some other international organizations such as the
World Bank and International Monetary Fund. In the WTO, power is not delegated to a
board of directors or the organization’s head.
• When WTO rules impose disciplines on countries’ policies, that is the outcome of
negotiations among WTO members. The rules are enforced by the members themselves
under agreed procedures that they negotiated, including the possibility of trade sanctions.
But those sanctions are imposed by member countries, and authorized by the membership as
a whole. This is quite different from other agencies whose bureaucracies can, for example,
influence a country’s policy by threatening to withhold credit.
• Reaching decisions by consensus among some 150 members can be difficult. Its main
advantage is that decisions made this way are more acceptable to all members. And despite
the difficulty, some remarkable agreements have been reached. Nevertheless, proposals for
the creation of a smaller executive body — perhaps like a board of directors each
representing different groups of countries — are heard periodically. But for now, the WTO
is a member-driven, consensus-based organization.
The principles of International trading system
• The trading system should be ...
• Without discrimination — a country should not discriminate between its
trading partners (giving them equally “most-favoured-nation” or MFN
status); and it should not discriminate between its own and foreign products,
services or nationals (giving them “national treatment”);
• Freer — barriers coming down through negotiation;
• Predictable — foreign companies, investors and governments should be
confident that trade barriers (including tariffs and non-tariff barriers) should
not be raised arbitrarily; tariff rates and market-opening commitments are
“bound” in the WTO;
• More competitive — discouraging “unfair” practices such as export
subsidies and dumping products at below cost to gain market share;
• More beneficial for less developed countries — giving them more time to
adjust, greater flexibility, and special privileges.
Why do we have ‘Most-Favoured Nations’?
• This sounds like a contradiction. It suggests special treatment, but in the
WTO it actually means non-discrimination — treating virtually everyone
equally.
• This is what happens. Each member treats all the other members equally as
“most-favoured” trading partners. If a country improves the benefits that it
gives to one trading partner, it has to give the same “best” treatment to all the
other WTO members so that they all remain “most-favoured”.
• Most-favoured nation (MFN) status did not always mean equal treatment.
The first bilateral MFN treaties set up exclusive clubs among a country’s
“most-favoured” trading partners. Under GATT and now the WTO, the MFN
club is no longer exclusive. The MFN principle ensures that each country
treats its over—140 fellow-members equally.
• But there are some exceptions ..
Ethics and cooperate Social Responsibility
• Issues to consider:
• Bribery/corruption

• Child/forced/bonded labour

• Working conditions/remuneration

• Product safety/environmental concerns

 The Friedman Doctrine aka The Stockholder
Theory
“The Social Responsibility of a Business is to Increase its Profits”.
A business is an artificial person and has no responsibilities.
The executives are employees of the business and has
responsibility to the owners.
As the owners tend to want their business to make as much
money as possible, this should be the responsibility of the
executives.

Source: Friedman, M. (1970) “A Friedman doctrine. The Social Responsibility of a Business is to Increase Its Profits” New York Times, Sep 13.
 Philosophical Approaches to Ethics:
Utilitarian and Kantian Ethics

• Utilitarian approaches to ethics hold that the moral worth of

actions or practices is determined by their consequences
• An action is judged to be desirable if it leads to the best possible balance of good
consequences over bad consequences
• One problem with utilitarianism is in measuring the benefits, costs, and risks of an
action
• The second problem related to utilitarianism is that it does not consider justice, so
the minority will always be at a disadvantage
 Philosophical Approaches to Ethics:
Rights Theories
• Rights theories recognise that human beings have
fundamental rights and privileges which transcend
national boundaries and cultures

• Rights establish a minimum level of morally

acceptable behaviour
 Philosophical Approaches to Ethics:
Rights Theories
• United Nations Universal Declaration of Human Rights
• All human beings are born free and equal in dignity and rights
• They are endowed with reason and conscience and should act towards one
another in a spirit of brotherhood
• Everyone has the right to work, to free choice of employment, to just and
favorable conditions of work, and to protection against unemployment
• Everyone, without any discrimination, has the right to equal pay for equal work
• Everyone who works has the right to just and favorable remuneration ensuring
for himself and his family an existence worthy of human dignity, and
supplemented, if necessary, by other means of social protection
• Everyone has the right to form and to join trade unions for the protection of his
interests

The Universal Declaration of Human Rights . United Nations. Available at: http://www.un.org/en/documents/udhr/history.shtml
 Philosophical Approaches to Ethics:
Justice Theories
• Justice theories focus on the attainment of a just distribution of economic goods
and services
• Valid principles of justice are those with which all persons would agree if they
could freely and impartially consider the situation
• Impartiality is guaranteed by a conceptual device called the veil of ignorance
• Under the veil of ignorance, everyone is imagined to be ignorant of all of his
or her particular characteristics
• race, gender, intelligence, nationality, family background, and special
talents

Source: Rawls, J. (1971) A Theory of Justice, Harvard University Press.

 Philosophical Approaches to Ethics:
Justice Theories
• Rawls argues that under the veil of ignorance people would unanimously agree on
two fundamental principles of justice
• Each person be permitted the maximum amount of basic liberty compatible with a
similar liberty for others
• Once equal basic liberty is assured, inequality in basic social goods is to be
allowed only if such inequalities benefit everyone
• Difference principle states that inequalities are justified if they benefit the
position of the least-advantaged person
• Moral philosophers have a problem with Rawls’ concept of the veil of ignorance
because decisions generally include some of the factors
 Corruption
• Difficult to define.

• Certain acts/gestures/favours may be construed as bribery,

nepotism or corrupt practices in some countries but not others.
• Examples: gift giving, use of networks (guanxi in China, wasta in the
Arab countries)

Hutchings, K. and Weir, D. (2006) Guanxi and Wasta: A Comparison. Thunderbird International Business Review , 48, pp.141-156
Corruption

• The United States passed the Foreign Corrupt Practices Act (FCPA) to fight
corruption
• Outlawed the paying of bribes to foreign government officials to gain business.

• In 1997, the trade and finance ministers from the member states of the Organization
for Economic Cooperation and Development (OECD) followed the U.S. lead and
adopted the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions
• Obliges member states to make the bribery of foreign public officials a criminal
offense
 MNCs Legal cases of unethical and socially
irresponsible.
•MNCs continue to be accused of being unethical and socially
irresponsible.

•Some well-known cases include:

• Shell in Nigeria,
• Union Carbide in India
 Shell in Nigeria Case
• Royal-Dutch Shell had oil exploration rights in Nigeria.
• The Movement for the Survival of the Ogoni people represented the interests of
the minority Ogoni people who lived in the area called Ogoniland.
• Accusation that the Niger Delta was being polluted and the rights of the Ogoni ppl
were not being protected.
• After numerous attempts to silence Ken Saro-Wiwa, the Nigerian government of
Gen Abacha arrested Ken.
• On 10 Nov 1995 Ken and 8 other supporters were executed.
• In 1996 Ken’s family started legal proceedings against Shell in the USA.
• In June 2009 (before the trial commenced) an out of court settlement was
reached (US$15.5 million).
 Union Carbide India Limited case
• 1969: Union Carbide India Limited (subsidiary of US based Union Carbide-UCC)
builds a pesticide factory in Bhopal, capital city of the State of Madhya Pradesh.
• 2 December 1984: a deadly gas is released due to a suspected leak in the plant.
• Official figures: 3,500 deaths within days and more than 15,000 deaths since then.
• Campaigners claim the figures are close to 25,000 deaths.
• 1989 UCC pays the Indian government US$470 million in an out of court settlement.
Part of this amount when distributed to the half a million victims by the Indian
government totalled 200 rupees per month (roughly US$4)
• 1999: UCC became a wholly owned subsidiary of Dow Chemicals (US$11.6 billion).
• June 2010: The Indian court hands down final verdict. Convicts 8 of the accused (all
Indian nationals). All released on bail of 100,000 rupees each (US$2125).
Ethics and Advertising
• More prohibition on promoting products now than ever before (for
example, tobacco).

• Information readily available: cannot make unsubstantiated claims.

• How can companies continue to promote such products?

Intellectual Property Protection
• World Intellectual Property Organization (WIPO) convention (
www.wipo.int)
• 188 member states. Part of the United Nations
• Members are expected to protect IP: both industrial property
(inventions, trademarks, industrial designs etc) and Copyrights (art,
literary work, music).
 End of Topic 1
Write short notes on the following concepts used in
international management.

a)International trade (2 marks)

b)Foreign direct investment (FDI) (2 marks)

c)Globalizationof production (2 marks)

d)Regional cooperation (2 marks)

Group 1 Assignment.
Think Like an international Manager

•Hisense CEO Zhou Houjian led his company to become one of

China’s top-selling electronics manufacturers using a strategy of
rapid innovation and low-cost manufacturing. If you were given
the chance to run a leading electronics company in your country,
would you use a similar approach to grow your brand? Or would
you devote more time to research and development and produce
fewer products at a higher price point?

1.What is our thinking as an international manager?

2.Discuss this managerial challenge with a view of market

differences.
Group 2 Assignment
International management, Jobs,
and Income
• Critics of globalization worry that national jobs of developed
countries are being lost to low-wage nations while Supporters of
globalization argue that free trade will result in countries
specializing in the production of those goods and services that
they can produce most efficiently, while importing goods and
services that they cannot produce as efficiently.

1.Discuss the social economic benefits enjoyed by multinational

enterprises or a national enterprise. (5marks)
2.What are some of international management strategies
employed by Multinational enterprises to achieve their business
operations efficiency? (5marks)