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SBU International Business Exam 1
Terms in this set (40)
}A business firm that engages in cross-border activities.
}The action of doing business abroad or outside of the organization's country of origin.
}Tended to ignore domestic business enterprises that compete and collaborate with foreign entrants in their markets. Domestic firms may also sell goods and services in other countries.
}FDI is investing in, controlling and managing value-added activities in other countries.
Domestic business activities.Many domestic markets are now globalized
Developed & Emerging Economies
}Emerging economies - 48% of world trade, attract 60% of foreign domestic investment (FDI) inflows, and generate 40% of FDI outflows.
}Contribute about 50% of global Gross Domestic Product (GDP) after adjusting for purchasing power paridy (PPP).
}May be divided as BRIC (Brazil, Russia, India, and China) and other emerging economies.
}BRICS is the addition of South Africa.
}BRICS has 40% of world's population, 25% of the world's land area, and contribute more than 25% of global GDP after adjusting for purchasing power parity.
}Great Transformation - shift in economic weight and engines of growth toward emerging economies and BRIC(S) in particular.
Purchasing Power Paridy
}Purchasing power parity (PPP) is a conversion that determines the equivalent amount of goods and services that different currencies can purchase.
}Gross domestic product (GDP) - Sum of value added by resident firms, households and governments operating in an economy.
}World population around 7 billion.
}5 billion people with per capita GNI less than $2,000 U.S. termed Base of the Pyramid (BoP)
}1 billion people with per capita GNI $2,000 to $20,000 termed Second Tier.
}1 billion people with per capita GNI greater than $20,000 termed Top Tier.
}Innovation - usually top tier down, more reverse innovation coming from bottom to second tier up. Lower tier not just low-cost production locations or attractive new markets.
Structure of Text
}First core perspective: An institution-based view
◦The rules of the game that govern competition in various countries.
◦Formal rules such as laws, regulations, and rules.
◦Informal rules such as values, cultures, ethics, and norms.
◦Success or failure largely determined by the external environment.
Structure of Text (contin)
}2nd core perspective: A resource-based view
◦Focuses on firm's internal resources and capabilities.
◦Valuable and unique firm-specific resources and capabilities that are not shared by competitors.
◦Liability of foreignness is the inherent disadvantage that foreign firms experience in host countries because of their non-native status.
◦Long-run historical evolution
◦Pendulum that swings from one extreme to the other. Author thinks makes most sense.
}Barriers to market integration at borders are high, but not high enough to insulate countries from each other completely.
◦Localization (or isolation) - treating each country as a unique market.
◦Total globalization - treat the entire world as one market.
◦Semiglobalization is in the middle where there is not just one correct strategy resulting in a wide variety of experimentations.
Hebrews 12:11 (paraphrased)
All discipline for the moment seems to be of little joy or even to be painful but in the end it yields the peaceable fruit of righteousness.
}Institution-based view or the "rules of the game". Institutional framework made up of formal and informal institutions governing human behavior.
}Formal institutions - laws, regulations, and rules. The regulatory pillar is the coercive power of governments.
}Informal institutions - norms, cultures, and ethics.
Roles of Institutions
}Key role of institutions is to reduce uncertainty.
◦Reduces transaction costs or the costs of doing business.
◦Opportunism defined as self-interest with guile.
◦Spelling out the rules of the game so that opportunism may be dealt with objectively.
◦Transition economies emerging economies moving from central planning to market competition. Rules of the game rapidly changing.
Institution-Based View of Global Business
}Two core propositions
◦Firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework.
◦Formal and informal institutions combine to govern firm behavior. Where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy.
}Political changes that may negatively impact domestic and foreign firms.
}An extreme political risk may lead to nationalization of foreign assets.
◦Recent election in Great Britain the Labor Party candidate stated he wanted to nationalize major firms.
◦These had been privatized under Margaret Thatcher during the 1980's.
}Property Rights - the legal rights to use an economic property/resource and to get income and other benefits from it.
}Intellectual property (IP) - property the result of intellectual activity. Intellectual property rights (IPR) rights associated with IP.
}Patents - legal rights awarded by govt. authorities to inventors of new products or processes, monopoly rights, for a certain period of time, from such inventions. Different time periods in different countries.
}Copyrights - exclusive legal rights of authors and publishers.
}Trademarks - exclusive legal rights of firms to use specific name, brands, and designs to differentiate their products from others.
Economic Systems - How a country is governed economically.
Economic Systems - How a country is governed economically.
Economic Systems (contin)
}Planned Economy or Command Economy
◦Factors of production, government or state owned, and all supply, demand, and pricing are planned by the government (central planning agency).
◦Central planning agency - what to produce, how to produce it, and how to distribute.
Economic Systems (contin)
◦Elements of both a market economy and a command economy.
◦Most economies are mixed economies.
Informal institutions - institutions represented by cultures, ethics, and norms
Where do they come from? Socially transmitted information and are a part of the heritage that we call cultures, ethics, and norms.
In the book, "The Tipping Point" by Malcolm Gladwell he indicates that identical twin studies attribute about 50% of what a person becomes to genetics and 50% to environment.
Ethnocentrism is the tendency for those in a society to perceive their own culture, ethics, and norms as "natural, rational, and morally right."
}Culture could be defined as a way of thinking.
}Text: "The collective programming of the mind which distinguishes the members of one group or category of people from another."
◦No one-to-one correspondence between cultures and nation-states.
◦Subcultures in multiethnic countries.
◦Corporate culture or organizational culture.
}Not "one" national culture but we will use culture and national culture interchangeably.
}Language - Chinese 20% world population, English 8%, Spanish 7%, Hindi 6%
◦English global business language. English-speaking countries 1/3 of global output (largest)
◦Globalization calls for one common language.
◦Expatriate managers at disadvantage if only know English and not the local language - miss cultural subtleties.
}Underlying idea - people and firms are more comfortable doing business with other countries within the same cluster/civilization.
}Common language, history, religion(s), and customs
}Reduces the liability of foreignness
}Underlying background upon which interaction takes place
}Low context cultures - Face value without much reliance on unspoken context.
◦North American and Western European countries.
◦Reduce agreement to writing, lawyers involved.
◦Body language. Words say one thing, body language something else, 75% believe body language.
}High context cultures - rely a lot on the underlying unspoken context.
◦Asian and Arab countries
◦Initial rounds of negotiations create context for trust/friendship.
◦Straightforward communications/confrontation may baffle.
}Groups countries that share similar cultures together as a cluster.
}Three different sets of clusters:
◦Ronen & Shenkar, management professors
◦GLOBE Clusters, management professor
◦Huntington Civilizations, political scientist
}Underlying idea: That people/firms are more comfortable doing business with countries within their same cluster.
}Five dimensions (Hofstede Dimension of Culture)
1.Power distance - extent to which less powerful members within a country expect and accept that power is distributed unequally
2.Individualism vs Collectivism
3.Masculinity vs Femininity
}Principles, standards, and norms of conduct that govern individual and firm behavior.
◦Ethics may also affect formal laws and regulations.
◦Laws may be minimum standards of conduct.
◦What is legal may NOT be ethical.
◦Code of conduct - set of guidelines for making ethical decisions.
Ethics and Corruption
}Abuse of public power for private benefits.
}Corruption distorts the basis of competition.
}Misallocation of resources and slowing economic development.
}Corruption discourages foreign direct investment (FDI).
}Some evidence that US firms have higher level of corruption than other developed economies.
}Individual's ability to understand and adjust to new cultures.
1.Awareness - recognize the pros and cons of your way of thinking and the appreciation of people from other cultures.
2.Knowledge - identify the symbols, rituals and taboos of other cultures
3.Skills - good practice based on awareness and knowledge of other cultures
}Total immersion is the best way to understand a culture.
Resource Based View
}(Internal) Strengths, Weaknesses, (External) Opportunities and Threats or SWOT analysis
◦Emphasizes internal strengths and weaknesses.
◦Formal and Informal Institutions addressed the external opportunities and threats.
}Value, Rarity, Imitability, and Organization (VRIO) is a newer framework for analyzing resources and capabilities.
}Basic proposition of resource-based view - a firm consists of a bundle of resources and capabilities.
Tangible & Intangible Resources
}Tangible resources/capabilities - assets that are observable and easily quantified. Financial, physical, technological, and organization.
}Intangible resources/capabilities - assets that are hard to observe and difficult to quantify. Human, innovation, reputational resources and capabilities.
}Value Chain - a stream of activities from upstream to downstream that add value.
}Value chain analysis forces us to think about resources/capabilities at the micro, activity-based level.
}Benchmarking - examining if firm has resources/capabilities to perform a particular activity superior to competitors.
}Unsatisfactory result - is this something that must be done in house.
In-House or Outsource
}Outsourcing - turning over an activity to an outside vendor that will perform it on behalf of the local firm.
}A process of market competition where unique products that command high prices and high margins gradually lose their ability to do so, becoming commodities.
}Organizations must maintain differentiation, which is difficult as an industry or product matures.
}Fear that if outsource proprietary processes could lose uniqueness.
Types of Outsourcing
}Offshoring - outsourcing to an international or foreign firm.
}Onshoring - outsourcing to a domestic firm.
}Captive sourcing - setting up subsidiaries abroad so that the work done is in-house but the location is foreign. Also known as foreign direct investment (FDI)
Offshoring vs Not Offshoring
}Business Process Outsourcing (BPO) - outsourcing business process to third-party.
◦Proponents - creates value for firms and economies.
◦Critics - could eliminate domestic firm, domestic job losses, nurtures rival organizations, firm may lose identity and become global, commoditize the domestic firm.
}The OEMs to ODMs to OBMs progression
Possible Offshoring Progression
}The OEMs to ODMs to OBMs progression
◦Original equipment manufacturers (OEMs) execute designs provided by Western firms.
◦Original design manufacturers (ODMs) are foreign firms that want at part of the design functions.
◦Original brand manufacturers (OBMs) are firms that design, manufacture, and market branded products.
}Reshoring - moving formerly offshored activities back to the home country of the focal firm.
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