Lecture 1

GLOBALIZATION
International Business BUSI
2490
 Objectives
qDefine International
Business
q Define “Globalization”

q Examine
“Globalization”
§ Areas; Drivers;
Reasons
 International
Business
q Definition:
 ANY COMMERCIAL
TRANSACTION
THAT CROSSES THE
BORDERS OF TWO
(OR MORE)
COUNTRIES
International
Business cont ’ d
qObjects?
§ Goods – Consumer & Industrial
goods
§ Services – Large variety
§“Invisibles” – Intellectual
property (licensing,
franchising), Management
Services, Tourism,
Transportation
§ Financing – Lending & Borrowing
International Business – cont ’ d

q Differences from
“domestic”
business ?
§Legal-political,
economic, social-
cultural,
technological
§Complexity, Size
 International Business – cont ’ d

q It involves us all! HOW?

 Imports are the source of things

we use (toys, education,

infrastructure)
 Foreign markets (i.e., exports)

are essential for our economic

wellbeing
 Companies we work for have

significant international
business activities
 We determine government
International Business BASIC
–
ACTIVITIES


q Export
q Import
q“International Trade” - for use or resale
qOriginating in North Africa – Middle East
2000 B.C.


qInternational Investments
(originating during colonialism)
qFDI – controlling assets, property
or companies in a “host” country
qPortfolio investments –
purchasing financial assets (not
for “control”)
 BASIC ACTIVITIES – cont ’ d


qGlobal Financial Services Industry

qBanking, Securities, Insurance, Credit
cards, etc.


qSpecial, modern activities

qLicensing – intellectual property for
royalty
qFranchising – know-how, logos, brand
names, etc. for royalty
qManagement contracts – operating
facilities for a fee
qOutsourcing – performing a business
function for a fee

 Facts of Small Biz Exporting

Most exporters Comprehensive

have help
fewer than 50 is available
employees

Most products do
Export financing not
is available need an export
license

Copyright © 2010 Pearson Education, Inc. publishing as

International
Prentice Hall
Business 5e Chapter 1 - 9
 Definition of

Globalization
qGlobalization is an ever
increasing relationship and
interdependency between
entities of various countries,
encompassing:
qBusinesses,
qAll types of organizations
qGovernments
qPeople
 in many areas of human
development:
qEconomic including financial
qSocial and cultural
qPolitical and legal
qTechnological and operational
 Areas of
Globalization r ge
q
t o l a
q
l i e s a nd
a p p i o n s
It
q Globalization of Markets i z a t
r g a n E s
q o S M
q Globalization of Production
q
q Globalization of Consumers
q
q Globalization of Financing
q

 Areas of Globalization
– cont ’ d
q

qGlobalization of Markets
qConsumer goods
qe.g., credit cards, burgers
qnot prevalent, still maintaining
“national” characteristics
qIndustrial goods
qmost global markets
qraw materials; aircraft;
computer software &
hardware; financial
instruments
q
Areas of Globalization
– cont ’ d
q

qGlobalization of
Production
qseeking competitive
advantage
qCost & Quality
qfor factors of
production
qLabour , Energy,
Land, Capital,
Expertise
Areas of Globalization
– cont ’ d


qGlobalization of Consumers
qcommunication
technology provides
organizations consumers
from any place on earth
qtastes, habits,
preferences of
consumers have become
more and more similar
qtechnology has created a
well informed “global”
 Drivers of
Globalization
qGlobal Institutions
qDeclining (or removal
of) Trade and
Investment Barriers
qTechnological Change
qOther
q



 Drivers of
Globalization
qGlobal Institutions
qGATT – to reduce trade
barriers
qWTO – to police the world
trade system
qIMF – to maintain order in
the international monetary
system
qThe World Bank – to
promote economic
 Drivers of
Globalization
qDeclining/removal of
Trade and Investment
Barriers through
qmultilateral agreements
on the free flow of
goods, services & capital
qregional & bilateral
agreements on cross-
border trade and
resource movement
 Drivers of
Globalization
qTechnological Change
qTransportation
qCommunications
qInformation processing
 Drivers of
Globalization
qOther
qPolitical changes
qEmergence of “mini-
Multinationals”
qThe effects of expanding
FDI
qDevelopment of services
dedicated to the global
business
qEver increasing
competition
 Are “ Globalization ” and
“ International Business ” one and
the same phenomenon?


qInternational Business and

Globalization influence and
facilitate each others’
evolution
ut


s i s a b o
b u s i n e s
a t i o n a l t i o n ”
Int e r n i o n a l i za
r n a t
“inte g r e a t er
s a b o u t &
za ti o n i n a ti o n s
G l o b a l i m o n g
d e n c e a a t i on ”)
e r d e p e n a ti o n a l iz
int ie s (“ d e n
e c o n o m
 Reasons for
Globalization
qTo decrease cost, improve quality and
increase productivity e.g., by avoiding
costly and risky transportation systems
and using less costly inputs
qTo obtain new markets and reduce marketing
costs (Bombardier)
qTo acquire inputs, resources and expertise
(Mittal)
qTo access information
qTo leverage core competencies (banks)
qTo minimize risks (level income streams,
complement business cycles from market to
market)
qTo become more competitive – including by
 The Debate on
Globalization
Ø Globalization Costs Jobs &
Lowers Wages
Ønew jobs in host country =
lost jobs in home country
v Globalization Creates Jobs
and Boosts Wages
vefficiencies create
savings, new investments
& wealth
q
v

 Jobs and Wages

Opponents Supporters

ê Eliminates jobs in é Increases wealth and

developed nations efficiency everywhere
é
ê
ê Lowers wages in
é Generates labor market
developed nations flexibility in developed
ê countries
é

ê Exploits workers in é Advances economies

developing nations of developing nations

Copyright © 2010 Pearson Education, Inc. publishing as

International
Prentice Hall
Business 5e Chapter 1 - 23
The Debate on
Globalization
Ø Globalization Has a Negative
Impact on Labour and
Environmental Regulations
Øfirms move to countries with low
labour and environmental
standards
v Globalization brings positive
influences to Labour &
Environmental regulations
vthere is evidence contradicting
the critics’ claims regarding
labour standards, including new
labour legislation adopted by
many emerging markets
vgovernments of emerging nations
 Labor, Environment, &
Markets

Opponents Supporters

– Globalization lowers + Investment raises

labor standards labor standards

– Weakens protection of + Open economies most

the environment environment friendly

– Exploits workers in + Companies concerned

poor nations for future markets

Copyright © 2010 Pearson Education, Inc. publishing as

International
Prentice Hall
Business 5e Chapter 1 - 25
The Debate on
Globalization
Ø Globalization is a threat to
Democracy and National
Sovereignty
ØSupranational institutions
with appointed officials
dictate the actions of
sovereign nations
v Globalization has helped the
worldwide spread of democracy
vmore democracies than ever
vsometimes, the loss of
“sovereignty” (e.g., in
 National Sovereignty

Opponents Su p p or t e r s

Supranational
Globalization has
institutions reduce
benefited societies by
autonomy of national,
helping to spread
regional, and local
democracy worldwide
governments

Copyright © 2010 Pearson Education, Inc. publishing as

International
Prentice Hall
Business 5e Chapter 1 - 27
The Debate on
Globalization
ØGlobalization has a negative
impact on culture
ØCultural diversity is
destroyed and small
local business is wiped
out
vGlobalization protects the
deep moral and cultural
norms, allows countries to
export their cultural goods
and to trade for goods that
 Impact on Culture

Opponents Supporters

• Destroys cultural • Specialize and trade

diversity to obtain other
goods
• Homogenizes our
world • Import cultural
goods from other
• Bankrupts local nations
small businesses
• Protects deeper
moral and cultural
Copyright © 2010 Pearson Education, Inc. publishing as
International
Prentice Hall
norms
Business 5e Chapter 1 - 29
The Debate on
Globalization
 Globalization leads to a high
costs for economic growth and
income inequality


vGlobalization - a major reason for the

unprecedented economic growth
worldwide
vhigh costs - temporary; investments =
huge benefits
vexpanding middle-classes and high
standard of living
vincome inequality is influenced more by
technology and politics than globalization
vcountries open to trade and investment
grow faster
 Income Inequality
In com e In e q u a lit y
debate
1 Inequality within nations
Poor people in developing
nations benefit most from
an open economy

2 Inequality between nations

Nations open to world trade 3 Global inequality
and investment grow faster Inequality has fallen, but
than rich nations experts disagree on the
extent of the decline

Copyright © 2010 Pearson Education, Inc. publishing as

International
Prentice Hall
Business 5e Chapter 1 - 31
 Recap of
Objectives
qDefine International
Business
q Define “Globalization”

q Examine
“Globalization”
§Areas, Drivers &
Reasons
 LECTURE 2
CROSS-CULTURAL
BUSINESS
International Business BUSI 2490
 
Objectives
q Examine some definitions of
“culture”
q Identify components of culture
q Discuss two frameworks for
classifying culture
q Evaluate implications of
cultural differences for
international business
management
 What Is Culture?

Set of values, beliefs, rules, and

institutions held by a specific
group of people

© Prentice Hall, 2008 International Business 4e Chapter 2 - 35

 More definitions
q CULTURE (Diana Kendall, et al, Sociology in our
times, 3ce)
qthe knowledge,
language, values,
customs and material
objects that are passed
from person to person
and from one generation
to the next in a human
group of society;
qin other words: ideas,
behaviour AND material
possessions common to a
 More definitions
q
qCULTURE = Tradition (collective
programming of the mind) –
making the members of one group
distinct from others.
qCulture is a society’s (or a group’s)
system of shared and learned
values and norms; as a whole,
these VALUES and NORMS are
the society’s (or the group’s)
design for living
q
qValues: abstract ideas about the
good, the right, the desirable
qNorms: social rules and guidelines;
determine appropriate behaviour
in specific situations
 Components of Culture

Aesthetics
Physical Values &
environme attitudes
nts

Education
Cultu Manners &
customs
re
Personal Social
communic
ation structure
Religion

© Prentice Hall, 2008 International Business 4e Chapter 2 - 38

 Aesthetics

Music
Painting
Dance
Drama
Architecture

© Prentice Hall, 2008 International Business 4e Chapter 2 - 39

 Values and Attitudes

Values
Values Attitudes
Attitudes
The ideas, beliefs, and Positive or negative
customs to which evaluations, feelings, and
tendencies people hold
people are emotionally toward objects or concepts
attached
• Freedom • Time
• Responsibility • Work
• Honesty • Cultural change

© Prentice Hall, 2008 International Business 4e Chapter 2 - 40

 Manners and Customs

Manners Customs
Appropriate behavior, Traditional ways or behavior
speech, and dressing in in specific circumstances
general

© Prentice Hall, 2008 International Business 4e Chapter 2 - 41

 C E O N:
Physical INFLU E N
p r od uc t i on&
Agri-food
and co n s um p t i on
o n & l iving
o n s truc ti
Material Culture Ho u s e c
s
condition tion
r an s p o r ta
T
These influence a culture’s development and pace of change

Topography
Physical features characterizing the surface of a geographic region

Climate
Weather conditions of a geographic region

Material Culture
Technology used to manufacture goods and provide services

© Prentice Hall, 2008 International Business 4e Chapter 2 - 42

 Social Structure

Social structure
Culture’s groups, institutions, social
positions, and resource distribution

Social stratification
Process of ranking people into social layers

Social mobility
Ease of moving up or down a culture's
"social ladder"

© Prentice Hall, 2008 International Business 4e Chapter 2 - 43

Slide
3-3

Social Structure and Culture

 TWO MAIN CRITERIA TO COMPARE
CULTURES
• whether the unit of social organization is the
individual or the group
• the degree to which a society is stratified
into classes or castes

McGraw-Hill Ryerson © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide
3-4

Business implications of Individual vs.

Group Societal Characteristics
• Individual • Group
– Managerial – Loyalty and
mobility commitment to
between company
companies – In-depth knowledge
– Economic of company
dynamism, – Specialist skills
innovation – Easy to build teams,
– Good general collaboration
skills – Emotional
– Teamwork difficult, identification with
group or company
non- –
collaborative  e.g., Japanese
– Exposure to companies
McGraw-Hill Ryerson
different ways © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide

Social Stratification
3-4

Family Background, Occupation, Income

Social Mobility
 Significance


• Caste system • Class

– Position consciousness
determined by – Relationships
family are based on
– Change not class
usually possible backgrounds
• Class system – Mutual
antagonism
– Position at birth
even hostility
can be changed
by luck or – Raises cost of
achievements doing
business
© 2006 The McGraw-Hill –
McGraw-Hill Ryerson Companies, Inc., All Rights Reserved.
 More on Social Class
i.a.w. the relation
 “ M u ltid im e n sio n a l“
to a p p ro a ch to so cia l
Means of
 stra tifica tio n ( Max Weber )

qW E A LT H
Production (Karl
qP O W E R
Marx):

qCAPITALISTS qP R E S T IG E
- own & control E x a m p le o f cla sse s :
the means of U p p e r ( upper -upper , lower -
production; u p p e r)
achieve wealth
through capital M id d le (upper-middle, lower
middle)
qWORKING Working class
CLASS Working poor
(PROLETARIAT) Underclass
– own and sell
 World Religions

Christianity
Islam
Hinduism
Buddhism
Confucianism
Judaism
Shinto Origin
Origin of
of
Human
Human Values
Values

© Prentice Hall, 2008 International Business 4e Chapter 2 - 48

Slide

Religion, Ethics, and Culture

3-5

• Religion = system of shared beliefs about the sacred

• Ethical systems = moral principles or values that
shape & guide behaviour; often, products of
religion
• Economic characteristics of major religious groups:
– Christianity - Protestant work ethic
– Islam – similar principles with those in
Judaism and Christianity
– Hinduism - anti-materialistic, socially
stratified
– Buddhism - anti-materialistic, social
equality
– Confucianism - hierarchy, loyalty, honesty
– Shinto – loyalty, respect, enjoyment of life
 All have significant sub-sets
McGraw-Hill Ryerson with distinct
© 2006 The McGraw-Hill Companies,beliefs and
Inc., All Rights Reserved.
 Education

Cultures pass on traditions, customs, and values through

schooling, parenting, group memberships, etc.

Education level
Well-educated attract high-paying jobs, while poorly educated
attract low-paying manufacturing jobs

Brain drain
Departure of highly educated people from one profession,
geographic region, or nation to another

© Prentice Hall, 2008 International Business 4e Chapter 2 - 50

 Layers of Culture
qLayers
qValues, Rituals, Heroes, Symbols =>
Practices
qLevels of layers*
qNational level – the nation as a
whole
qRegional level – ethnic, linguistic,
religious differences within a
nation
qGender level – female vs. male
qGeneration level – parents &
children, parents & grandparents
qSocial class level – differences in
occupation, educational
* Source: www.tamu.edu/classes/cosc/choudhury/culture.html
 Cultural Literacy
Detailed knowledge of a culture that enables
a person to function effectively within it
√
Ethnocentrism Polycentrism
Belief that one’s own ethnic Adapt to the
group or culture is superior “local” culture

X
to that of others

Geocentric Approach

© Prentice Hall, 2008 International Business 4e Chapter 2 - 52

Classifying
Cultures
 Kluckhohn-Strodtbeck Framework

Relation to nature
Material or spiritual
WHO CONTROLS WHOM

Time orientation
FOCUS ON Responsibility to others
PAST, PRESENT, FUTURE?

Trust and control View of personal space

CAN PEOPLE WORK/LIVE
BE TRUSTED? IN PRIVATE OR PUBLIC?
© Prentice Hall, 2008 International Business 4e Chapter 2 - 54
 Hofstede Framework

Power
Power distance
distance
Individualism
Individualism Accepting
Acceptingsocial
social
vs.
vs. collectivism
collectivism inequality
inequality
Achievement
Achievement
vs.
vs. nurturing
nurturing

Uncertainty
Uncertainty Long-term
Long-term
avoidance
avoidance orientation
orientation

Copyright © 2010 Pearson Education, Inc. publishing

International
as Prentice
Business
Hall 5e Chapter 2 - 55
 Power Distance &
Individualism vs. Collectivism

© Prentice Hall, 2008 International Business 4e Chapter 2 - 56

 Power Distance & Uncertainty
Avoidance

© Prentice Hall, 2008 International Business 4e Chapter 2 - 57

 Looking forward
q
q Please Read: CHAPTERS 3
and 4
qHOMEWORK!
q Presentation assignments!
q Keep up with MESP
requirements for Term
Projects
