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BGS Class Notes 9/27

by: Stephanie Scott

BGS Class Notes 9/27 BUS 311 10

Marketplace > Washington College > Business > BUS 311 10 > BGS Class Notes 9 27
Stephanie Scott
Washington College
GPA 3.92

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About this Document

Notes covering the impact of culture on global business, the different forms of economic markets, and the different types of legal systems.
Global Business Strategy
Dr. Drischler
Class Notes
Culture, command, economy, Norms, values, cross-cultural
25 ?




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This 5 page Class Notes was uploaded by Stephanie Scott on Thursday September 29, 2016. The Class Notes belongs to BUS 311 10 at Washington College taught by Dr. Drischler in Fall 2016. Since its upload, it has received 4 views. For similar materials see Global Business Strategy in Business at Washington College.

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Date Created: 09/29/16
Global Business Strategy Class Notes: 9/27 National Differences Overview 1. Why does culture matter? 2. Do we live in a globalized world? 3. Why do differences in political, economic, and legal systems between countries matter for firms? 4. What are the 3 most important types of economic systems? 5. What are the three major legal systems? 6. Why do investors care about a country’s legal system? 7. Why are property rights so important? Culture is..? - A system of values and norms that are shared among groups of people, that constitute a design for living - “how things are done around here” Values and Norms: Values= abstract ideas of what society thinks is right Norms= social guidelines that implement values - they shape the actions of people towards each other - example: in Japan, establishing a relationship between business managers is heavily valued, whereas the US emphasizes the need for contracts Culture - a complex whole of knowledge, beliefs, and morals o guides society - behavior is shaped to operate within this system Cross Cultural Risk - it’s one of the four major risks of international business… miscommunication - corporate business success dependent on successful crossing of cultural norms o failure often results because of language differences, custom differences, and expected behavior Importance? - Culture tells you how to proceed - cost rises exponentially with the increase in numbers of different cultures in an interaction - management writing often creates an enlightened ideal of world citizenship that is not realistic, much harder to cross these cultural barriers o most firms are deeply rooted in home country culture, as are customers, employees, and suppliers o to succeed globally requires cosmopolitan understanding of global differences, not assuming understanding in any interactions World 3.0 - rooted in cosmopolitanism o nations are not exactly distinct, home cultures matter but so do differences as ‘distance’ between nations shrinks and cultures collide more and more - firms need a strong grasp of their roots and openness to the roots of others Implications - political, economic, and legal systems all are impacted by culture and thus have significant differences that impact business - risk and return are all affected by those three aspects, and so risk and return are also inherently defined by culture Direct Impact - taxes - reputation - political stability Most Attractive - ‘best’ is representative democracy (view of the west) o need functioning market protecting property rights - East Asia is mostly state-directed systems o They are becoming increasingly democratic - Markets with wide, open participation are attractive to investors Economic Freedom - Extent of government interference in the economy o Regulation strictness o ease of interaction - more freedom is generally associated with greater economic growth o considered a cause of democracy by Western countries  when the middle class grows and income increases, people demand more rights  urbanization, technological improvements, infrastructure improvements, education and exposure to the global economy all favor political opposition  Example: China has experienced huge economic growth and will be the test case for demonstrating a correlation between economic growth and democracy China is Controlling… - Continuing to grow economically is necessary if the current government wants to stay in power; as long as people are making more money they will be fine with the government - If the economy starts to slow people will become fearful of unemployment and civil unrest will be generated - Political opposition will feed off this, and will point to the freedoms in other countries as an example of the failings of the Chinese government (human rights) Economic Systems Market= production of goods and services, quantity determined by Supply and Demand, signaled via price system (United States) Command= production and distribution defined by government Example: central planning (Former Soviet Union, North Korea) State-Directed= within market culture, state intervenes to create industry policy - State makes entry into certain sectors more attractive or competitive to benefit the priorities of the government (like technology and military oriented goods) - Creates ‘national champs’ and subsidizing them so they can compete more on an international level - (east Asian countries) Command Economy - economic decisions from the state (Zimbabwe and some countries in the Caribbean) o prices are set by Planners, not markets, also determines quantity produced and sold - as economy modernizes it tends to decentralize, top-down format becomes distorted and inefficient (can’t react quickly enough) - planners have to try and predict what prices people will buy things at and what goods will be wanted o hard to get information in ‘real time’ - struggle to match top-down centralized apparatus with decentralized modern economy 3 Key Problems with Command: - not possible to get enough information - no private property, no incentive for people to innovate (innovation driven by resulting monetary gain) - arbitrary pricing and subsidies creates large market distortions Market Economy - market forces (Smith’s Invisible Hand) determine production and consumption, along with investment and saving o government’s only role is to protect property rights, and to enforce laws and contracts Market Economy Strengths: - allocates resources efficiently - competition supports the strong and promotes innovation in order to survive o last thing you want as a manager is to fall behind in innovation, fear of competition works as a motivator Weaknesses: - speculative excess, overshoot prices - subject to panics, manias, and crashes (Great Depression, 2008 Housing Bubble) - focus on efficiency and production at the expense of equity and distribution (not fair) - ignores social and cultural diversity, solely focused on profits o these weaknesses are the reasoning behind a mixed market economy state role= sets legal system for private property and contracts - also addresses inequalities and prevents system collapse o example: credit crisis State-Led Economy: - east Asian model= best example of a modernization format (ideal for late industrializers to use to jump levels in the industrialization process) - state directed market oriented towards developing regimes o pushes competition into priority areas - closer to market than command format o generally, users promote strong protectionism because of infant industries o pursue development of industry and technology and try to keep employment within borders o export-led  Japan and China, companies like Honda and Sony Shift to Market Economy - Global trend aside from the 2008 crisis has been a shift towards a market economy - Deregulation and privatization (= the transfer of ownership from state to private companies, exit of government from different sectors) and strengthening legal systems to support a market economy have been the general trend o Greater legal restrictions to allow private enterprise to feel secure in its rights and more open to risk Rule of Law - State bound by rules fixed and written beforehand - Players have certainty of its use for coercive power and organize accordingly - Firms make decisions with this framework in mind Legal System Legal system= system for interpreting and enforcing laws - Sets rules of the game o Norms for conduct - Differ greatly across borders - Firms must observe home and host country laws and treaties as well as international laws and treaties o Example: multiple tax levels, can violate laws in multiple states at once 3 Types of Legal Systems Common Law= “cases” build up laws and legislation, primarily judicial (examples include Great Britain and the United States) Civil= “codes”, have an overarching code of laws Theocratic= law based on religious teaching, for example; Saudi Arabia and Iran use the Quran and the Hadith - These law systems regulate business practices - Set the rights and obligations of those involved in transactions Issues: - For contract law, property rights, intellectual property and product safety Intellectual property= ideas with commercial potential, protected by patents and copyrights Recap 1. Tells how to proceed, do and not do things, and can make or break financial operations a. One of the four biggest risks to global economics 2. No, partial trends dominate but there are still very strong national differences a. Management requires knowledge of home and host markets 3. Assessment of risk a. Need to know tax structures, how to avoid legal and ethical issues, trade-offs for participation 4. Market, command and state-led (mixed) a. Market is determined by supply and demand b. Command is controlled by the state c. State-led is a market system with the state as a guide 5. Common, civil, and theocratic a. Common= case-based b. Civil= code based c. Theocratic = religion based 6. Rules of the game, greatly influences outcome a. Varies in importance depending in the strength of the legal system and the flexibility of the culture/its presence in the market 7. Need to know if you have legal resources to protect promised future returns, evaluation of risk a. Need to insure that people feel secure in their ownership, there’s no point in saving or taking risks if there is no kind of guarantee of any return


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