GLOBAL AND BUS PRACTICES
GLOBAL AND BUS PRACTICES BUSA 3000
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Chapter 6 0 Country risk 0 Exposure to potential loss or adverse effects on company operations and pro tability caused by developments in a country s political and or legal environments 0 Political Systems 0 totalitarianism I Seeks to control not only all economic and political matters but the attitudes values and beliefs of its citizenry Led by a dictator I Either theocratic religionbased or secular I Power sustained via secret police propaganda regulation of free discussion and criticism I Middle East and Africa 0 socialism I Capital and wealth vested in the state and used primarily as a means of production for use rather than for pro t I Group welfare gt Individual welfare I Gov controls the basic means of production distribution and commercial activity I Social Democracy West Europe Brazil India frequent gov intervention in the private sector higher corporate income tax 0 democracy 2 key features I Private Property Rights the ability to own property and assets and to increase one s assets base by accumulating private wealth Gov devise laws that protect property rights and therefore encourage individual initiative ambition and innovation I Limited government Gov perform only essential functions that serve all citizens such as national defense maintaining lawamporder foreign relations providing basic infrastructure I Democracy greater economic freedom higher economic living standards 0 How political systems in uence economic systems I command economycentrally planned economy totalitarianism 0 State make all decisions regarding what goods and services quantity prices amp distribution the country produces 0 State owns all property and allocates resources based on which industries they wanna develop 0 Central planning is less ef cient than market forces in getting supply and demand 0 China India Russia Eastern Europe Middle East I market economy socialism 0 Decisions result from the interaction of supply and demand 7 market forces 0 Individuals and rms are decisionmakers Gov intervention is limited I mixed economy democracy 0 Has features of both command amp market economy 0 Combine state intervention and market mechanisms 0 Legal Systems 0 CommonCase Law England Australia Canada USA I Basic of law is tradition past practices and legal precedents set by courts via interpretation of statutes legislation and past rulings I Judges have much power to interpret laws based on circumstances of indv Cases gt common law is relatively exible 0 Civil Law France Germany Italy Japan Turkey much of Latin America I Based on an allinclusive system of laws that have been codi ed 7 clearly written I Laws are more cast in stone gt less exible Key Difference civil law is judicial in origin amp based on court decisions civil law is legislative in origin amp based on legislatures 0 Religious Theocratic Law Hindu Jewish Islamic law In uenced by religious beliefs ethical codes moral values Most Muslim countries maintain a dual system religious amp secular courts coexist o Socialism Law China former Soviet Union few Africa Based on Civil Law with elements of socialist principles that emphasize state ownership of property Loose treatment of property and intellectual property rights 0 Mixed Systems combine 2 or more legal systems 0 Actors in Political and Legal Systems Government public sector operating at federal amp local levels International Organizations World Trade Organization United Naations World Bank Regional Economic Blocs EU NAFTA ASEAN Special Interest Groups labor unions environmental groups Competing Firms locals oppose foreign and lobby their governments 0 Types of Country Risk Produced by the Political System 0 Government takeover of Corporate Assets 0 O O O O Con scation seizure of foreign assets without compensation Expropriation seizure of foreign assets with compensation Nationalization seizure of an entire industry with or without compensation Privatization selling of stateowned enterprises to private interests 0 Embargoes and Sanctions often during wartime Sanctions ban on international trade Embargoes official bans on exports or imports o Boycotts voluntary refusal to engage in commercial dealings against Firms or Nations 0 War Insurrection and Revolution 0 Terrorism 0 Types of Country Risk Produced by the Legal System 0 Country risk arising from the host country legal environment Foreign investment laws Nations impose restrictions on inward F DI which affect the type of entry strategy operations and performance Controls on operating forms and practices Marketing and distribution laws determine which practices are allowed in advertising promotion amp distribution Laws regarding income repatriation limit the amount of net income that firms can transfer back to home country Environmental laws to preserve natural resources fight pollution ensure healthampsafety Contract laws 5 types sale of goods or services distribution via foreign intermediaries licensing and franchising FDI joint ventures Internet and ecommerce regulations new frontier in legal systems 0 Country risk arising from the home country legal environment Extraterritoriality application of homecountry laws to persons or conduct outside of national borders The Foreign Corrupt Practices Act 1977 made it illegal to offer bribes to foreign parties Definition of bribe is unclear Foreigners are not so constrained Antiboycott regulations prevent companies from participating in restrictive trade practices or boycotts imposed by foreign countries Accounting and reporting law differ widely around the world Transparency degree to which firms regularly reveal substantial financial amp account info Differ widely The higher the better Ethical values and practices Ethics refers to moral behavior Corruption is an extreme form of unethical behavior Bribery Common in developing countries 0 Managing Country Risk OO 00 O Proactive Environmental Scanning best scanning is employee working in the host country Strict Adherence to Ethical Standards Corporate social responsibility operating a business in a manner that meets the ethical legal commercial and public expectations of stakeholders Allying with Quali ed Local Partners Protection through Legal Contracts legal contract spells out the rights and obligations of each party 3 approaches for resolVing contractual disputes I Conciliation common in China friendly manner negotiation I Arbitration neutral third party decide I Ligitation one party les lawsuit against each other Common in the US Safeguarding Intellectual Propelty Rights legal claim that rms and indiViduals hold on their proprietary assets Chapter 7 Government Intervention in International Business 0 O O O Protectionism I National economic policies designed to restrict free trade and protect domestic industries from foreign competition I Sometimes make the industry less competitive and reduce prospects for selling products in the world markets Tariffs I Tax imposed by a government on imported product Nontariff trade barrier I Government policy regulation or procedure that impedes trade through means other than explicit tariffs Customs I Checkpoints at the ports of entry in each country where government of cials inspect imported products and levy tariffs Rationale for Government Intervention O O Defensive Rationale I 4 motives protection of the nation s economy protection of an infant industry national security national culture amp identity I Export control protect national security government measures intended to manage or prevent the export of certain products or trade with certain countries Offensive Rationale I 2 motives national strategic priorities increasing employment Instruments of Government Intervention O O OO O O 00 Different kinds of tariffs I Export tariffs import tariff specific tariff revenue tariff protective tariff prohibitive tariff tariff so high that no one can import Quota restrict the physical volume or value of products that rms can import into a country Import license permission to import which restricts imports similar to quotas Usually rst come rst serve Currency control restrict the out ow of hard currencies Subsidies monetary or other resources a gov grants to a rm to ensure their survival and encourage exports Countervailing duties duty imposed on products imported into a country to offset subsidies given to producersexporters in the exporting country Cancel out subsidy Dumping pricing exported products at less than their normal value Unfair competition Antidumping duty tax imposed on products deemed to be dumped Investment incentives similar to subsidies Transfer payments or tax concessions made directly to individual foreign rms to ensure them to invest in the country Government Intervention Economic Freedom and Ethical Concerns O O 0 Economic freedom freemostly freemostly unfreerepressed Gov intervention raise ethical concerns poor countries face higher tariffs Gov intervention offset harmful effects trade barriers to create or protect jobs for the poors Evolution of Government Intervention O O 0 General Agreements on Tariffs and Trade GATT in 1947 gt WTO I Reduce tariffs I Watchdog agency I Forum for resolving trade disputes Import Substitution substitute local govemmentsupport enterprises for imports Failed Export led I 39 the d 39 I of exportintensive industries Win o How Firms Should Respond to Government Intervention 0 Strategies for Managers Research to gather knowledge and intelligence Choose the most appropriate entry strategies Take advantage of foreign trade zone 0 Foreign trade zone area within a country that receives imported goods for assembly or other processing and subsequent reeXport o Maquiladoras exportassembly plants in northern Mexico that produce nished products destined for the US Seek favorable customs classi cations for exported products Take advantage of investment incentives amp other gov support Lobby for freer trade and investment Chapter 8 Regional Integration and Economic Blocs O O 0 Regional Economic Integration growing economic interdependence that results when countries within a geographic region form an alliance aimed at reducing barriers to trade and investment 40 of world trade Regional Economic Integration bloceconomic bloc geographic area that consists of 2 or more countries that agree to pursue economic integration Free trade agreement arrangement between 2 or more country to reduce or eliminate tariffs quotas and other barriers Types of Regional Integration 0 O O O 0 Free trade area simplest most common Member agree to gradually eliminate tariffs and non tariff trade barriers but maintain their own barriers with non member NAFTA ASEAN Custom Union similar to free trade area but common external tariffs to nonmember MERCOSUR Common Market similar to custom union except product services and factors of production capital labor techcan move freely among members Prel992 European Economic Community Economic Union members also aim for common fiscal and monetary policies standardized commercial regulations and social policy European Union EU Political Union perfect unification remains an ideal yet to be achieved Leading Economic Blocs O O 0 000000 The European Union 27 members I Market access tariffs and most nontariff barriers eliminated I Common market barriers of factors of production capital labor tech removed I Trade rules Customs procedures and regulations eliminated Standards harmonization harmonizing tech standards regulations Common fiscal monetary taxation social welfare policies longrun I New members from Eastern bring lowcost manufacturing sites but take decades to catch up to wealthier countries levels European Free Trade Association EFTA Iceland Leichtenstein Norway Switzerland I Free trade and strengthens economic relations with other countries North American Free Trade Agreement NAFTA I Was facilitated by the maquilladora program I Greatly benefited Mexico El Mercado Comun del Sur MERCOSUR I Launched in 1991 4 largest members Argentina Brazil Paraguay Uruguay account for 80 of South America s total GDP The Caribbean Community CARICOM Comunidad Andina de Naciones CAN Association of Southeast Asian Nations ASEAN large economic differences between members Asia Paci c Economic Cooperation APEC Australia and New Zealand Closer Economic Relations Agreement CER Economic Integration inthe Middle East and Africa Why Countries Pursue Regional Integration 0 O O 0 Expand market size Achieve scale economies and enhanced productivity Attract investment from outside the bloc Acquire stronger defensive and political posture Success Factors for Regional Integration 0 Economic similarity 0 Political similarity o Similarity of culture and language 0 Geographic proximity Drawbacks and Ethical Dilemmas of Regional Integration 0 Trade diversion more trade inside the bloc less outside the bloc 0 Reduced global free trade 0 Loss of national identity 0 Sacri ce of autonomy 0 Transfer of power to advantaged rms failure of small or weak rms less protection 0 Corporate restructuring and job loss Management Implications of Regional Integration 0 Internationalization by rms inside the economic bloc o Rationalization of operations 0 Mergers and acquisitions 0 Regional products and marketing strategy 0 Internationalization by rms from outside the bloc best way to enter a bloc is via F DI 0 Increased collaborative ventures Chapter 9 O O O OO 0 o What 0 o o O O O Risks The Distinction between Advanced Economies Developing Economies and Emerging Markets Advanced economies postindustrial countries characterized by high percapita income highly competitive industries welldeveloped commercial infrastructure Australia Canada US Western European Developing economies lowincome countries characterized by limited industrialization and stagnant economies Africa Latin America Asia High birth rates debt Emerging market economies a subset of former developing economies that have achieved substantial industrialization modernization improved living standards and remarkable economic growth 27 countries Brazil India Russia China Attractive destinations for exports FDI sourcing Lowcost labor lowcost capital New global challengers 100 companies from Emerging markets poised to become MNEs Transition economies countries transformed from centrally planned economies into liberalized markets Czech Hungary Poland China Russia Privatization transfer of stateowned industries to privateowned Makes Emerging Markets Attractive for International Business Emerging Markets as Target Markets I Growing middle class Largest emerging markets have doubled their share of world imports Excellent targets for manufactured products and technology Textile machinery industry in India Oil and gas in Russia agriculture in China Governments and state enterprises are major targets for sale of infrastructurerelated products and services machinery transportation hightechnology Emerging Markets as Manufacturing Bases I Lowwage highquality labor Large reserve of raw materials n natural resources South AfricadiamondBrazilbauxite Emerging markets also enjoy considerable success in certain industries Emerging markets as Sourcing Destinations I Outsourcing procurement of valueadding activities from independent suppliers Helps rms to concentrate on their core competences gt more efficient competitive adv Global sourcing offshoring outsourcing but from foreign locations Estimating the True Potential of Emerging Markets Using percapita income I Per capital GPD adjusted for Purchasing power parity PPP more realistic Represents the amount of products that consumers can buy in a given country using their own currency and standard of living Caution of using percapita income as an indicator in emerging amp developing econs o Informal economy economic transactions that are not officially recorded Majority of the population is on the low end of the income scale Household income is times larger than percapita income Gov underreported so they can qualify for loans and aids Consider the size and growth rate of the middle class because of their interdependence and increasing consumption Comprehensive set of indicators Emerging Market Potential Index EMPI I Market size population market growth rate GDP growth rate market intensity private consumption and GNI market consumption capacity share of income held by middle class commercial infrastructure economic freedom degree of gov intervention country risk market receptivity inclination to trade and Challenges of Doing Business in Emerging Markets 0 Political Instability I Absence of reliable gov authorities corruption weak legal frameworks 0 Weak Intellectual Property Protection 0 Bureaucracy delay business activities Red Tape and Lack of Transparency less accountable and corruption 0 Partner Availability and Quali cations alliances are critical but are not readily available Dominance of Family Conglomerates I Family conglomerate large privatelyowned company that is highly diversi ed enjoy government suppor access to capital amp market knowledge 0 Strategies for Doing Business in Emerging Markets 0 Partnering with family conglomerates I reduce the risks time and capital requirements of en I tering target markets I develop helpful relationships with governments and local key players I target market opportunities faster and more effectively I overcome infrastructurerelated hurdles I leverage FC s resources and local contacts I Exp Ford Kia Digital Equipment Corporation Tatung Taiwanese 0 Marketing to Governments in Emerging Markets I Gov buy huge quantities of products and services I State enterprises in railways airlines banking oil chemical amp steel buy from foreign I Public sector in uences activities of various private corporations I Tenders bid formal offers made by a buyer to purchase Request for proposals 0 Skillfully challenge emerging market competitors I Advanced economy firms vs new global challengers 0 Catering to Economic Development Needs of Emerging Markets and Developing Economies o Fostering Economic Development with Profitable Projects help economies grow and make profits 0 Microfinance to facilitate Entrepreneurship I M icro nance providing smallscale financial services to help entrepreneurs to start business in poor countries lt100 0 Chapter 10 Currencies and Exchange Rates in International Business 0 Currency risk the risk that arises from changes in the price of one currency relative to another complicating international transaction Exchange rate the price of one currency expressed in terms of another Convertible and Nonconvertible Currencies I Convertible Currency can be exchanged by other currencies Most convertible hard currencies US dollar Jap yen Canadian dollar british pound euro I Nonconvertible currency domestic transactions not acceptable internationally I Capital ight sale of holdings in a nation s currency into a foreign currency 0 Foreign exchange all forms of money that is trade internationally Foreign exchange market global marketplace for buying and selling national currencies No xed location 0 Exchange rates are in constant ux I Example Before 240 yen 1 US Dollar Now 120 yen 1 USD Dollar gt The Yen appreciates its value increases because less Yen can buy 1 dollar From the US point of view export to Japan increases cheaper for Japanese to buy US products imports of Japanese products ie Jap export to US decreases 1 dollar can buy less Japanese stuff now Exchange rates are determined by supply and demand greater supply lower price greater demand higher price Factors 0 Economic Growth increase in value of goods and services produced by an economy I Measured as annual increase in real GDP I Central bank monetary authority that regulates the money supply issues currency manages exchange rate 0 Interest Rates and In ation I In ation occurs when demand grows more rapidly than supply amp central bank increases money supply faster than output I Interest rates amp In ation are positively related high in ation high I oversupply of money rising in ation falling currency 0 M arketPsychology unpredictable behavior of investors I Investors engage in herding behavior mimic each others actions copying andor momentum trading buy stocks whose prices have been rising and sell stocks whose prices have been falling o GovernmentAction I Trade surplus exports gt imports net in ow of foreign exchange I Trade de cit imports gt exports net out ow of foreign exchange I Devaluation government action to reduce the value of its currency by buying and selling currencies in foreign exchange market Aim to reduce the trade de cit I Balance of payments annual quot of all 39 quot Development of the Modern Exchange Rate System 0 Bretton Woods Agreement 1944 US government agreed to buy and sell gold to maintain the xed exchange rates and minimize currency risk Broke down Created IMF and World Bank 0 The Exchange Rate System today I Floating exchange rate system value of currency oats daily according to market forces supply and demand little government intervention Europe Japan US I Fixed exchange rate system the value of a currency is set at a speci ed rate to the value of another currency China African Government intervention used in Bretton Woods Agreement The Intemational Monetary and Financial Systems 0 International Monetary system institutional framework rules and procedures by which national currencies are exchanged for one another 00 O of a nation 0 Global nancial system collection of nancial institutions that facilitate and regulate the ows of investment and capital funds incorporating banking systems stocldbond markets market of bank deposits I Contagion tendency of a nancial crisis in one country to spread to others SE Asia 0 Key Players in the Monetary and Financial Systems 0 O O O 00 The Firm National Stock Exchanges and Bond Markets Commercial Banks I Investment banks merchant banks private banks offshore banks commercial banks Central Banks I Buying and selling money in the banking system I Control interest rates I Conduct monetary intervention buying and selling government securities to maintain a certain exchange rate The Bank for International Settlements supporting stability International Monetary Fund I International agency that attempts to stabilize currencies by monitoring exchange systems of member countries and by lending money to developing I Special Drawing Right SDR unit of accountreserve asset a type of currency used by central banks to supplement their existing reserves in transactions with the IMF I Play an important role in addressing currency crisis currency depreciates sharply banking crisis losing con dence gt widespread withdrawals from banks foreign debt crisis World Bank provides loans and technical assistance to low and middle income countries reduce poverty