Chapter 1 We Live in a Global Economy

LESSON 1-1
The Foundation of International Business

What Is International Business?

All business activities needed to create, ship, and sell goods and services
across national borders
Also called

 Global business
 International trade
 Foreign trade

Why Is International Business Important?

 Materials, parts, and demand
 Global opportunities
 Improved political relations

When Did International Business Started?

 China, India, and Japan 15,000 years ago
 Africa and South America thousands of years ago
 Eleventh century
 Fifteenth and sixteenth centuries
 Colonization
 Selected Countries and Their Colonial Heritage
 Selected Countries and Their Colonial Heritage

LESSON 1-2
International Business Basics.

The Fundamentals of International Trade

 Import - products bought from the businesses in other countries
 Export – product sold in other countries
 Trade Barriers – restrictions that reduce free trade among countries.

Several Forms of Barriers

 Import Taxes increase the cost of foreign products
 Quotas restrict the number of imports.
 Law prevent certain products from coming into a country.

The International Business Environment

 Geographic conditions
 Cultural and social factors
 Political and legal factors
 Economic conditions
 The International Business Environment
 The Global Business World

International business skills

 History
 Geography
 Foreign language
 Cultural awareness
 Study skills

 The global citizen

 Global Business Problems

 LESSON 1.1 - GLOBALIZING BUSINESS

WHAT IS GLOBAL BUSINESS AND WHY STUDY IT?

IB is defined as business ( or firm) that engages in international ( cross border) economic

activities.

MULTINATIONAL ENTERPRISE ( MNE )

A firm that engages in foreign direct investment and operates in multiple countries.

FOREIGN DIRECT INVESTMENT (FDI)

Investment in, controlling and managing value added activities in other

INTERNATIONAL BUSINESS AND GLOBAL BUSINESS

International business - business (firm) that engages in international (cross-border) economic activities
or the action of doing business abroad

Global business - business around the globe, including both international (cross-border) activities and
domestic business activities.

Emerging Economy ( emerging market)

❑ a developing country

Gross Domestic Product (GDP)

❑ the sum of value added by resident firms, households and government operating in an
economy.

LO2: WHY STUDY GLOBAL BUSINESS?

Career Advancement:

Expertise in global business is often a prerequisite to join the top ranks of firms.

Globalization:

This is an age of extensive global interaction and competition.

LO3: THE FUNDAMENTAL QUESTION

LO4: THREE VIEWS ON GLOBALIZATION

LO4: SEMIGLOBALIZATION
Suggests that barriers to market integration at borders are high but not high enough to completely
insulate countries from each other

LO5: THE GLOBAL ECONOMY

International Business & Trade
Module 2 Globalizing Business

MODULE 2

GLOBALIZING BUSINESS

Module Author:
DR. MARIANE D. ATINAJA

Business Management Department

College of Business Administration and Accountancy
De La Salle University - Dasmariñas

TABLE OF CONTENTS

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 International Business & Trade
Module 2 Globalizing Business

GLOBALIZING BUSINESS

Learning Outcomes:
 Understand the importance of global business
 Explain the Characteristics of globalization and describe how it functions
 Identify how major international institution facilitates globalization
 Evaluates the need for strong and transparent institutions that can adapt to
global competition.

International business is defined as a business (or firm) that engages in international

(cross border) economic activities and/or doing business abroad.

The most frequently discussed foreign entrant is the multinational enterprise (MNE).
This is a firm that engages in foreign direct investment (FDI).
Foreign direct investment is investment in, controlling, and managing value-added
activities in other countries.

What is global business? Global business included both international business

activities covered by traditional IB books and also domestic business activities.

Emerging markets (same as emerging economies): A term that has gradually replaced
the term ‘developing countries’ since the 1990s.

GDP: Gross domestic product: The sum of value added by resident firms, households
and government operating in the economy. Another parameter is the purchasing
power parity, which is an adjustment to reflect the differences in cost of living.

PPP: Purchasing Power Parity is a conversion that determines the equivalent amount
of goods and services different currencies can purchase.

Important emerging economies: BRIC: This stands for Brazil, Russia, India and
China. As a group, they generate 28% of world GDP ( on a PPP basis ).

Difference between GNP (Gross national Product) and GNI (Gross national Income):

 GNP is the gross domestic product + income from nonresident sources abroad.
 GNI: Gross domestic product plus income from income from nonresident
sources abroad. GNI is the term used by the world bank and other international
organizations to supersede the term GNI.
GNI is the total income received by the country from its residents and businesses regardless of whether
they are located in the country or abroad. 4
GNP includes the income of all of a country's residents and businesses whether it flows back to the
country or is spent abroad. It also adds subsidies and taxes from foreign sources.
International Business & Trade
Module 2 Globalizing Business

The global economy can be viewed as a pyramid. The top consists of about one billion
people with per capita annual income of $20000. These are mostly people who live in
the developed economies in the Triad.

Triad: North America, Western Europe and Japan.

Second tier: 2000−2000−20000

Base of the pyramid: Economies where people make less than $2000,- a year.

There are 3 reasons why it is important to study global business:

 enhance your employability and advance your career in the global economy
 better preparation for possible expatriate assignments abroad
 stronger competence in interacting with foreign suppliers, partners, and
competitors and in working for foreign-owned employers in your own country

G-20: group of 19 major countries plus the EU whose leaders meet on a biannual
basis to solve global economic problems

Bi-annual means 2 times a year.

Expatriate manager(expat): a manager who works abroad

International premium: a significant pay raise when working overseas. So a

compensation for people when they work overseas.

Global business is a vast subject area. The study of global business is very
interdisciplinary.

What determines the success and failure of firms around the globe? This
fundamental question can be answered and determined with 2 different views:

1. First core perspective: an institution-Based view

An institution based view suggests that the success and failure of firms are enabled
and constrained by institutions. Institutions are rules of the game.

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International Business & Trade
Module 2 Globalizing Business
formal rules: laws

informal rules: values

Formal institutions include regulations and laws

Informal institutions include cultures, ethics, and norms.

Overall, an institution-based view suggests that institutions shed a great deal of

light on

what drives firm performance around the globe.

2. Second core perspective: a resource-Based view

The resourced based view has emerged to overcome this drawback. Although the

institution based view primarily deals with the external environment, the resource-
based

view focuses on a firms internal resources and capabilities.

Liability of foreignness: the inherent disadvantage that foreign firms experience in

host

countries because of their nonnative status.

This is a key theme of the resource-based view, which focuses on how winning
firms

acquire and develop such unique and enviable resources and capabilities and how

competitor firms imitate and then innovate in an effort to outcompete the winning
firms.

What is globalization?

Globalization is the close integration of countries and peoples of the world.

It is important that there are three ways of understanding globalization.

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International Business & Trade
Module 2 Globalizing Business
Depending on what sources you read, globalization could be:

Thee views, namely:

1. a new force sweeping through the world in recent time

2. a long run historical evolution since the dawn of human history

3. a pendulum that swings from one extreme to another from time to time

The pendulum view on globalization:

Most sense because it can help us understand the ups-and-downs of globalization.

The pendulum view suggests that globalization is unable to keep going in one
direction.

The recession and crisis reminds all firms and managers of the importance of risk
management.

Risk management: the identification and assessment of risks and the preparation
tominimize the impact of high-risk, unfortunate events.

As a technique to prepare and plan for multiple scenarios (either high risk or low
risk). Scenario planning is now extensively used by firms around the world.

Scenario planning: A technique to prepare and plan for multiple scenarios(either high
or low risk)

Despite the debate over the far-reaching impact of globalization, globalization is not
complete. Most measures of market integration have recently scaled new heights, but
still fall far short of a single , globally integrated market.

Semi globalization is more complex than extremes of total isolation and total
globalization.

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Module 2 Globalizing Business
Semi globalization: A perspective that suggests that barriers to market integration at

borders are high, but not high enough to completely insulate countries from each
other.

Nongovernmental organizations(NGOs): organizations that are not affiliated with

governments

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 CHAPTER 2: Our Global Economy

LESSON 2-1
Economics and Decision Making
GOALS
 Describe the basic economic problem.
 List the steps of the decision-making process.
 The Basic Economic Problem
Scarcity
Economics.
 Making Economic Decisions
 Coping with scarcity
 Making choices
 The Decision-Making Process

LESSON 2-2
Basics of Economics

Price-Setting Activities
 Supply
 Demand
 Market price.

 Market Price Is Set by Supply and Demand

Changing Prices
 Inflation
Demand-pull inflation is inflation caused by an increase in aggregate demand. An expanding economy, increased government
 Demand-pull inflation spending, or overseas growth can cause demand-pull inflation.
 Cost-push inflation Cost-push inflation is the decrease in the aggregate supply of goods and services, often stemming from an increase in the
cost of production. An increase in the costs of raw materials or labor can contribute to cost-pull inflation.

LESSON 2-3
Economic Systems
GOALS
 Name the three main factors of production. land, labor, and capital
 Understand how different countries make economic decisions.

Economic Resources Satisfy Needs

 Natural resources
 Human resources
 Capital resources
 Natural Resources
 Human Resources
 Capital Resources
 Economic System
The economic choices of a country relate to three basic questions:

Types of Economic Systems

 Command Economies a centralized government controls the means of production and determines output levels
 Market Economies the production of goods and services are set according to the changing desires and abilities of the market
players.
 Private property
  Profit motive
 Free, competitive marketplace
 Mixed Economies

LESSON 2-4
Achieving Economic Development
GOALS
 Describe the factors that affect economic development.
 Identify the different levels of economic development.

Development Factors
 Literacy level
 Technology
 Agricultural dependency

Types of Development
 Industrialized countries
 Less-developed countries
 Developing countries

LESSON 2-5
Resources Satisfy Needs
GOALS
 Discuss economic principles that explain the need for international trade.
 Identify various measures of economic progress and development.

The Economics of Foreign Trade

 Absolute advantage ability to produce more or better goods and services
 Comparative advantage ability to produce goods and services at a lower opportunity cost

 Measuring Economic Progress

 Measure of Production
 Gross domestic product (GDP) value of the finished domestic goods and services produced within a nation's borders.
 Gross national product (GNP) value of all finished goods and services produced by a country's citizens, both domestically and abroad.
 International Trade Activity
 Balance of trade the purchase and sale of goods and services by companies in different countries
 Foreign exchange rate
 Foreign debt
 Other Economic Measurements
 Consumer price index (CPI)
 Unemployment rate
Measures of Production
 GDP
 GNP

 International Trade Activity

Balance of Trade
* trade surplus.
* balance of trade or trade deficit.
 Foreign Exchange Rate
 The value of one country’s money in relation to the value of the money of another country.
International Business & Trade
Module 3 Understanding Politics, Laws and Economics

MODULE 3

Understanding Politics,
Laws and Economics

Module Author:
DR. MARIANE D. ATINAJA

Business Management Department

College of Business Administration and Accountancy
De La Salle University - Dasmariñas

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics

Learning Outcomes:

After studying this chapter, you should be able to:

 Explain the concept of institutions and their key role in reducing

uncertainty
 Articulate the two core propositions underpinning an institution-based
view of global business
 Identify the basic differences between democracy and totalitarianism
 Outline the differences among civil law, common law, and theocratic law
 Understand the importance of property rights and intellectual property
rights
 Appreciate the differences among market economy, command economy,
and mixed economy
 Participate in three leading debates on politics, laws, and economics
 Draw managerial implications

Understanding institutions

Institutions: formal and informal rules of the game

Institutional transitions: Fundamental and comprehensive changes

introduced to the formal and informal rules of the game that affect firms as
players

Institution based view: A leading perspective in global business that suggests

that the success and failure of firms are enabled and constrained by institutions.

Institutional framework: forma land informal institutions governing individual

and firm behaviour.

Important for understanding institutions is to understand the institutional

framework.

Institutional framework: formal and informal institutions governing individual

and firm behavior.

Formal institutions include laws, regulations and rules.

Examples:

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
· laws

· Regulations

· Rules

Supportive pillars:

· Regulatory(coercive)(the coercive power of governments)

Informal institutions:

Examples:

· Norms

· Cultures

· Ethics

Supportive pillars:

· Normative: the mechanism through which norms influence individual and firm

behavior.

· Cognitive: the internalized (or taken for granted) values and beliefs that guide
individual and firm behavior.

What do institutions do?

Institutions reduce uncertainty! Important in international business is that

you get how institutions reduce uncertainty. Specifically, institutions influence
the decision-making process of both individuals and firms by signaling what
conduct is legitimate and acceptable and what.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
Without stable institutional frameworks, transaction costs may become
prohibitively high,to a extent that certain transactions simply would not take
place

Transaction costs: the costs associated with economic transactions or, more
broadly, the costs of doing business

An important source of transaction costs is opportunism.

Opportunism: the act of seeking self interest with guile Examples include
misleading, cheating, and confusing other parties in transactions that will
increase transaction costs.

An institution- based view of global business

An institution-based view of global business, focuses on the dynamic interaction

between institutions and firms and considers firm behavior as the outcome of
such an interaction.

It is important that the two core propositions can be identified that are
underpinning an institution based view of global business.

Proposition 1: managers and firms pursue their interests and make choices
rationally

within the form and informal constraints in a given institutional framework

Proposition 2: although formal and informal institutions combine to govern firm

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
behavior, in situations where formal constraints are unclear or fail, informal
constraints

will play a larger role in reducing uncertainty and providing constancy to

managers

and firms

The formal institutions:

Political systems: the rules of the game on how a country is governed politically.

What are the differences between democracy and totalitarianism?

· Democracy: is a political system in which citizen elect representatives to govern

the country on their behalf. A fundamental aspect of democracy that is

relevant to

global business is an individual’s right to freedom of expression and

organization.

In most modern democracies, the right to organize economically has been

extended not only to domestic individuals and firms, but also to foreign
individuals and firms that come to do business.

· Totalitarianism (dictatorship): a political system in which one person or party

exercises absolute political control over the population.

There are 4 types of totalitarianism namely:

1. Communist totalitarianism centers on a communist party

2. Right-wing totalitarianism is characterized by its intense hatred of

communism.

One party, typically backed by the military, restricts political freedom because
its members believe that such freedom would lead to communism.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
3. Theocratic totalitarianism refers to the monopolization of political power in
the hands of one religious party or group.

4. Tribal totalitarianism refers to one tribe or ethic group(which may or may

not be the majority of the population monopolizing political power and
oppressing other tribes or ethnic groups

Political risk: risk associated with political changes that may negatively impact
domestic and foreign firms.

Although the degree of hostility toward business varies among different types of
totalitarianism, totalitarianism in general is not as good for business as
democracy. Totalitarian countries often experience wars, riots, protests, chaos
and breakdowns, which result in higher political risk.

The most extreme political risk may lead to the nationalization (expropriation)
of foreign assets (activa). Firms operating in democracies also confront political
risk. However, such risk is qualitatively lower than that in totalitarian
states. In 1990 globalization took off, in this time the democracy expanded
around the world.

Legal systems: the rules of the game on how a country’s laws are enacted and
enforced. By specifying the do’s and don’ts, a legal system reduces transaction
costs by minimizing uncertainty and combating opportunism.

· Civil law: a legal tradition that uses comprehensive statutes and codes as a

primary means to form legal judgments. Civil law is less confrontational because
comprehensive statutes and codes serve to guide judges

Common law: A legal tradition that is shaped by precedents and traditions from

previous judicial decisions. Common law is more confrontational because

plaintiffs and defendants must argue and help judges to favorably interpret the
law largely based on precedents.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics

So, common law has more flexibility because judges have to resolve specific
disputes based on their interpretation of the law, and such interpretation may
give new meaning to the law, which will in turn shape future cases.

· Theocratic law: A legal system based on religious teachings

Overall, legal systems are a crucial component of the institutional

framework because they form the first, regulatory pillar that supports
institutions. They directly impose the do’s and don’ts on businesses around the
globe

What are property rights and why are these rights such important?

One fundamental economic function that a legal system serves is to

protect property rights.

Property rights: the legal rights to use an economic property(resource) and to

derive income and benefits from it. Examples include homes, offices and
factories.

When a legal system is stable and predictable, tangible property also makes
other, less tangible economic activities possible. For example, property can be
used as collateral for credit.

What the developing world lacks and desperately needs is formal protection of
property

rights in order to facilitate economic growth.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
Although the term ‘property’ traditionally refers to tangible pieces of property,
such as land, intellectual property specifically refers to intangible property that
is a result of intellectual activity (such as books, videos and websites).

Intellectual property: intangible property that is the result of intellectual

activity

Intellectual property rights: rights associated with the ownership of

intellectual

Property. Examples:

· Patents: exclusive legal rights of inventors of new products or processes to

derive

income from such inventions. The inventors are given exclusive (monopoly) rights
to derive income from such inventions through activities such as manufacturing,
licensing or selling.

· Copyrights: exclusive legal rights of authors and publishers to publish and

disseminate their work. Good example is this book.

· Trademarks: exclusive legal rights of firms to use specific names, brands, and

designs to differentiate their products from others.

Overall, an institution based view suggests that the key to understanding IPR
violation is realizing that IPR violaters are not amoral monster, but ordinary
people and firms.

IPR need to be asserted and enforced through a formal system, which is designed
to

punish violators and to provide an incentive for people and firms to innovate.

IPR: Intellectual property rights.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics

Economic systems: Rules of the game on how a country is governed

economically

At the two ends of a spectrum, we can find a market economy and

a command economy.

 Market economy: an economy that is characterized by the invisible

hand of market forces. All factors of production should thus be privately
owned. Lassez-faire.
 Command economy: an economy that is characterized by government
ownership and control of factors of production. All factors of production
should be owned and controlled by the government.
 Mixed economy: an economy that has elements of both a market
economy and a command economy.

No country has ever had a complete command economy, and no country

has ever

completely embraced lassez faire (total market economy).

Conclusion: most economies are mixed economy.

Debates and extensions

Drivers of economic development: culture, geography, or institutions?

· The culture side argues that rich countries tend to have a smarter rand harder
working population driven by a stronger motivation for economic success. This
line of thinking, bordering on racism, is no longer acceptable in the 21st
century.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
· The geography school of thought in this debate suggests that rich countries
tend to be well endowed with natural resources. This argument is not convincing
either. Geography is important, but not destiny.

· Institutional scholars argue that institutions are ‘the basic determinants of

the performance of an economy’. Rich countries are rich because they
havedeveloped better market supporting institutional frameworks.

1. It is economically advantageous for individuals and firms to grow and

specialize in order to capture the gains from trade.

2. A lack of strong formal market supporting institutions forces individuals

to trade on an informal basis with a small neighboring group and forces

firms to remain small, thus foregoing the gains from a sharper division of

labor by trading on a larger scale with distant partners.

3. Emergence of formal, market supporting institutions encourages individuals

to specialize and firms to grow in size to capture the gainrom complicated long
distance trade.

4. When formal market supporting institutions protect property rights, they

fuel more innovation, entrepreneurship, and thus economic growth.

These arguments are the backbone of the institution based view of global
business.

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International Business & Trade
Module 3 Understanding Politics, Laws and Economics
Private ownership versus state ownership

Washington consensus: a view centered on the unquestioned belief in the

superiority of private ownership over state ownership in economic policy making,
which is often spearheaded by two Washington based international
organizations: the international monetary fund and the world bank.

Despite noble goals to rescue the economy, protect jobs and fight recession,
government bailouts serve to heighten moral hazard.

Moral hazard: recklessness when people and organizations (including firms and
governments) do not have to face the full consequences of their actions.

13
 International Business Chapter 1 Quiz
Study online at https://quizlet.com/_5bb17m

International business refers to Any commercial transaction that crosses

________. the borders of two or more nations
Multinational corporations are key play-
Have direct investments in the form of
ers in international business and
marketing or manufacturing subsidiaries
can be described as companies that
abroad in multiple countries
__________.
A company that adopts a global perspec-
tive and engages in international busi-
Born Global Firm
ness from or near its inception is known
as a(n) ____________.
________ is the name we give to the
trend toward greater economic, cultural,
political, and technological interdepen- Globalization
dence among national institutions and
economies.
The convergence in buyer preferences in
countries around the world is referred to Globalization of markets
as ________.
Companies that sell global products can
standardize certain market activities in Reduce marketing costs
order to ________.
Globalization of markets can benefit
companies that sell a global product
and creates new market opportunities Is small or becoming saturated
abroad especially if their home market
_________.
A firm that produces a product with uni-
versal but seasonal appeal and is trying
to level its income stream and reduce
International Sales
or eliminate wide variations in domestic
sales can supplement its domestic sales
with ________.
The benefit of serving the customers with
A firm is less likely to offer a standardized
an adapted product may outweigh the
product globally when __________.
benefit of a standardized product

1/3
 International Business Chapter 1 Quiz
Study online at https://quizlet.com/_5bb17m
Which one of the following best de-
scribes the sourcing of key production in-
puts, such as raw materials or products, Globalization of Production
for assembly as well as the international
outsourcing of services?
Why do companies typically produce
To reduce their overall labor costs
goods and services abroad?
Japan's largest paper company, Nippon
Seishi, has decided to own huge forests
and corresponding processing facilities Guarantee a steady flow of its wood pulp
in Australia, Canada, and the U.S. so it
can ________.
________________are the two main
Falling barriers to trade and investment
forces that underlie the globalization of
and technological innovation
markets and production.
The revision in 1994 of the GATT clearly
Give more protection to copyrights,
defined intellectual property rights in or-
trademarks, and patents
der to ________.
Which of the following is a major flaw of
It lacked the power to enforce trade rules.
the original GATT?
The power of the WTO that sets it
Penalize offending nations and the pow-
apart from the GATT is its capability to
er to settle trade disputes
______________.
The ____________ is an agency that
was created to regulate fixed exchange
International Monetary Fund (IMF)
rates and to enforce the rules of the in-
ternational monetary system?
The main purpose for establishing re-
Foster trade and boost cross-border in-
gional trade agreements such as NAFTA
vestment
and APEC is to ________.
Operating across borders and time
zones could complicate the job of co-
Accelerate the use of technology, email,
ordinating and controlling international
video conferencing, the Internet, and in-
business activities especially for smaller
tranets.
firms. To operate more efficiently, inter-
national companies tend to ________.
2/3
 International Business Chapter 1 Quiz
Study online at https://quizlet.com/_5bb17m

Some of the critics of globalization ar-

gue that the relentless pursuit of low-cost Sending manufacturing jobs abroad
goods has led to ________.
Globalization supporters argue that
globalization increases wealth and
Openness to international trade increas-
efficiency in both developed and
es national production
underdeveloped nations because of
______________.
The opponents of globalization argue Close factories in high-wage-area de-
that freer trade and investment allows veloped nations and move them to
international companies to ________. low-wage developing countries
The globalization impact on the gap
between rich and poor nations varies.
One group of nations, such as China
and India, is closing the gap with rich
The level of embracing globalization by
economies while a second group of poor
developing countries
countries is falling further behind, such
as most countries in Africa. On closer
inspection this is due to which one of the
following?
Opposition groups allege that globaliza-
tion empowers organizations erodes the Sovereignty of a nation
________.
They recognize that healthy future mar-
Why do most international firms today kets require a sustainable approach to
support reasonable environmental laws? the business expansion for future local
markets for their goods and services.

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 International Business Chapter 2 Quiz
Study online at https://quizlet.com/_bw7a81

There have been five phases of global-

ization since the 1800s. The most current
phase was triggered by ________.

A. a focus on industrializing
the rise of digital technologies
B. the growth of emerging markets
C. increased steel production
D. an increase in multinational enterpris-
es
E. the rise of digital technologies
________ refers to the gradual integra-
tion and growing interdependence of na- globalization of markets
tional economies.
Which of the following is a societal con-
sequence of globalization?

A. Growth of global investment and finan-

cial flows
B. Offshoring and the flight of jobs
Offshoring and the flight of jobs
C. Worldwide reduction of barriers to
trade
D. Integration and interdependence of
national economies
E. New risks and intense rivalry from for-
eign competitors
________ is the sequence of val-
ue-adding activities performed to devel-
value chain
op, produce, market, and service a prod-
uct.

Which of the following is a likely cause of

globalization?

A. Trade barriers have been added world- Many emerging markets are now val-
wide. ue-adding producers
B. Many emerging markets are now val-
ue-adding producers.
C. Developing economies lack competi-
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 International Business Chapter 2 Quiz
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tive producers.
D. Countries have avoided adding
free-market reforms.
E. The World Trade Organization has in-
creased trade barriers.
Which of the following drivers of glob-
alization has MOST helped change
low-value-adding commodity producers
to competitive producers?
Industrialization, economic develop-
A. Advances in technology
ment, and modernization
B. Reductions in barriers to trade
C. Market liberalization
D. Industrialization, economic develop-
ment, and modernization
E. Integration of world financial markets
What is one reason why regional eco-
nomic integration blocs have developed?

A. Free-market reforms
Decreased trade barriers
B. Modernization
C. Decreased trade barriers
D. Market liberalization
E. Industrialization
________ have opened up one-third
of the world to increased international
trade, including many Asian economies
such as India and South Korea.
Free market reforms
A. Investment barriers
B. Foreign currency transactions
C. International commercial banks
D. Free market reforms
E. Cross-border transactions
One of the tasks of the World Trade Or-
ganization (WTO) is to ________.

A. advocate for advances in technology

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 International Business Chapter 2 Quiz
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B. facilitate a reduction in trade barriers
C. liberalize markets
facilitate a reduction in trade barriers
D. raise capital
E. integrate world financial markets
Advances in ________ have resulted in
an expansion of the global marketplace
for small- and medium-sized enterprises
(SMEs).
communication technologies
A. manufacturing
B. banking
C. communication technologies
D. transportation
E. distribution
Nigeria's telecom infrastructure has in-
creased telephone usage to over 30
million cellular subscribers. What is the
most likely benefit Nigeria will realize
from adding telephones?

A. Improved living standards

Improved living standards
B. Increased tourism
C. Less fulfillment of social responsibili-
ties
D. A slowdown in productivity and com-
merce
E. Decreased access to education and
healthcare services
What technology has had the greatest
mobile phones
effect in developing economies?
What is one reason companies use so-
cial media such as Snapchat and Twit-
ter?
To communicate with connected individ-
A. To develop infrastructure uals in new markets
B. To lessen the impact of globalization
C. To restrict access to information
D. To accelerate social movements like
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 International Business Chapter 2 Quiz
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the Arab Spring
E. To communicate with connected indi-
viduals in new markets
Which of the following is NOT an eco-
nomic integration bloc?

A. Asia Pacific Economic Cooperation

zone (APEC)
WTO
B. World Trade Organization (WTO)
C. North American Free Trade Agree-
ment (NAFTA)
D. Mercosur
E. European Union (EU)
Globalization of services can be
seen in the international expansion of
________.

A. offshore manufacturing the banking, hospitality, and retailing in-

B. the banking, hospitality, and retailing dustries
industries
C. capital
D. the bond market
E. standardized parts and components
Why can many global products and ser-
vices be standardized?

A. Institutions such as the World Bank

and the International Monetary Fund
have reduced trade barriers.
B. Consumers want products and ser- There is a convergence of consumer
vices that fit their values. lifestyles and preferences worldwide
C. Global consumers can communicate
about products using social media.
D. There is a convergence of consumer
lifestyles and preferences worldwide.
E. Consumers want goods tailored to
their local needs.

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 International Business Chapter 2 Quiz
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Globalization has created rivalry be-
tween U.S. firms and foreign competi-
tors, which has resulted in ________.

A. price increases in the United States

B. increased unemployment in the Unit-
foreign cars outselling domestic cars in
ed States
the United States
C. foreign cars outselling domestic cars
in the United States
D. the quality of goods declining in the
United States
E. more money in circulation in the Unit-
ed States
________ takes place when a com-
pany delegates performance of a val-
global outsourcing
ue-adding activity to a firm located
abroad.
What is one of the most typical reason for
locating value-chain activities abroad?

A. To reduce the costs of R&D and pro-

duction To reduce the costs of R&D and produc-
B. To raise the standard of living in devel- tion
oping nations
C. To develop new markets
D. To be socially responsible
E. To reduce globalization
In South Carolina, Jackson Mills, a long-
standing textile plant, shut down and
thousands of workers lost their jobs.
Jackson Mills learned that it could source
textiles of equal quality at a lower price
relocating value-adding activities to
from suppliers in Asia. This is an example
achieve cost advantages
of ________.

A. relocating value-adding activities to

achieve cost advantages
B. relocating to attract global customers
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C. accessing customers abroad
D. conducting cross-border transactions
E. establishing a factory abroad
Which of the following is NOT a firm-level
consequence of market globalization?

A. Greater emphasis on proactive inter-

nationalization
Offshoring and the loss of jobs
B. Countless new opportunities for busi-
ness
C. Internationalization of the value chain
D. New risks from foreign competition
E. Offshoring and the loss of jobs
Contagion is ________.

A. the tendency of a financial crisis in

one country to spread quickly to other
countries
B. often criticized for generating low
the tendency of a financial crisis in one
wages and exploiting workers
country to spread quickly to other coun-
C. a major cause of pollution, habitat de-
tries
struction, and deterioration of the ozone
layer
D. creating countless new jobs and op-
portunities around the world
E. the ability of a nation to govern its own
affairs in global relation
What is the effect of globalization on na-
tional culture?

A. Global customers buy products over

the Internet. Local consumers become familiar with
B. Local merchants experience a loss of global brands and previously unknown
business. products
C. Local consumers become familiar with
global brands and previously unknown
products.
D. The prices of new products decline.
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E. Local values change to reflect global
concepts.
Globalization can threaten national sov-
ereignty by interfering with a country's
________.

A. religious beliefs ability to control its own economy

B. ability to control its own economy
C. values
D. political system
E. ability to enforce laws
In Africa, the majority of people live on
less than $5 a day. According to the au-
thor of the text, what is one of the most
effective ways to reduce African poverty?
Develop more business-based models of
A. Develop more business-based mod-
development
els of development
B. Develop commercial infrastructure
C. Fight government corruption
D. Gain access to foreign capital
E. Reduce the level of illiteracy

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 International Business and Trade Chapter 3
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refers to the ability of the country or

company to offer greater value to cus-
tomers, putting the country or company Competitive Advantage
in a favorable or superior business posi-
tion than its competitors.
evolved with the growth of multinational
Modern Firm-Based Theories
companies (MNCs)
in his book, The Competitive Advantage
of Nations, introduced Porter's diamond
that shows the four determinants that will Michael Porter
help nations gain a competitive advan-
tage
speak of differences in resources and
demand or supply conditions as a nec-
Traditional trade theories
essary condition for trade between coun-
tries.
is built upon similarities or identical fea-
tures of nations for them to trade with Country Similarity Theory
each other.
The country similarity theory, de-
veloped by Swedish economist
_________________, tried to explain
Steffan Linder
the concept of intra-industry trade be-
tween and among countries with identi-
cal characteristics
is the exchange of goods produced in
Inter-industry trade
different industries among countries.
is the exchange of goods produced in the
Intra-industry trade
same industry.
To determine the similarity of countries,
the _____________________ is a tool
Geert-Hofstede model
that was developed to compare coun-
tries

Life cycle

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 International Business and Trade Chapter 3
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is the series of stages through which a
living thing passes from the beginning of
its life until its death
refers to the length of time a product is in-
troduced in the market until it is removed Product life cycle
from the shelves.
The product life cycle theory is
a marketing strategy developed by
_________________________ in 1966
Raymond Vernon
to explain the pattern of international
trade and foreign direct investment that
follows the product life cycle.
is the process of managing a product's
life cycle from inception, through de-
Product life cycle management (PLM)
sign and manufacturing, to sales, ser-
vice, and eventually retirement.
the underlying goal is to gain widespread
product and brand recognition, and big
money is spent on distribution and pro- introduction stage
motion, but sales are low and profitability
is negative.
is charging an initially high price and
gradually reducing the price as the mar- Price skimming
ket grows.
is charging a low price to "penetrate" the
Price penetration
market and capture market share.
sales usually grow exponentially and
growth stage
profitability reaches the highest level.
sales increase continues in a decreas-
ing pattern, product differentiation and
generating brand awareness become a maturity stage
must, and retaining customer brand loy-
alty is the key.

A product enters the _______________

decline stage
when no amount of marketing or promo-
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 International Business and Trade Chapter 3
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tion can prevent the sales figures from
declining
is a way that a firm can obtain a sustain-
able edge over competitors and break
Competitive advantage
down the barriers to entry in a particular
industry.
is a theory forwarded in 1980 by econ-
omists Paul Krugman and Kelvin Lan-
caster that focused on multinational cor-
Global strategic rivalry theory
porations (MNCs) and how they get a
competitive advantage over other firms
in their industry.
refer to the obstacles a new firm may
face when trying to enter an industry or a
new market, and these barriers to entry Barriers to entry
are the exact means by which compa-
nies can gain a competitive advantage
are activities engaged in by companies
for the invention of new products or ser- Research and development (R&D)
vices to remain competitive.
is a creation of the mind, a work or inven-
tion that is the result of creativity, such as
a manuscript (book) or a design, to which
intellectual property
one has rights and for which one may
apply for a patent, copyright, trademark,
brand name, and the like
is an exclusive right granted for a new,
inventive, and useful product, process,
patent
or technical improvement to an existing
invention.
is a word, a group of words, a sign, a
symbol, or a logo that distinguishes your
trademark or brand name
business's goods or services from those
of other traders

Economies of scale
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 International Business and Trade Chapter 3
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mean a proportionate saving in costs
(cost advantage) gained by an increased
volume of production.
refer to economies that are unique to a
Internal economies of scale
firm.
refer to economies of scale enjoyed by
External economies of scale
an entire industry.
produces a competitive advantage over
those without experience in any endeav- Experience
or.
show how a firm can gain a competitive
Modern international trade-based theo-
advantage over others in different coun-
ries
tries
stated that a nation's competitiveness in
Porter's National Competitive Advantage
an industry depend on the capacity of the
Theory
industry to innovate and upgrade
happens when a specific market no
longer demands a product or service or
Market Saturation
when the entire market has no new de-
mand

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 lOMoARcPSD|31851739

International Business and Trade Quiz 1

Accounting (Far Eastern University)

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 lOMoARcPSD|31851739

1.Globalization can take place in terms of

(1/1 Points)
markets
distribution
production
all of these
2.Which is NOT a nonfinancial gain motivation for international
business ?
(1/1 Points)
Triple bottom line
Corporate social responsibility
Cultural immersion
Political favor
3.____ means that a firm is investing assets directly into a foreign
country’s buildings, equipment, or organizations.
(0/1 Points)
Globalization
Foreign direct investment
Multinational Corporation
International Trade
4. ______ include better access to raw materials, less costly labor, key
suppliers, key customers, energy, and natural resources.
(1/1 Points)
Globalization
Location advantages
Trade
Foreign direct investment
5.National governments also participate in international treaties
related to :
(1/1 Points)
trade
environment
labor
all of these
6.Globalization 2.0 is characterized by:

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 lOMoARcPSD|31851739

(0/1 Points)
advances in sea and rail transportation
by how much industrial power countries could produce and apply.
advances in global electronic interconnectivity
a and c
7.In _______ Theory , a country should increase its holdings of gold and
silver by promoting exports and discouraging imports.
(0/1 Points)
Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin
8.The _______ theory states that trade between countries shouldn’t be
regulated or restricted by government policy or intervention.
(1/1 Points)
Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory
9.In _______ theory ,production would become more efficient, because
there would be an incentive to create faster and better production
methods to increase the specialization.
(0/1 Points)
Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory
10.The ______, stated that countries would produce and export goods
that required resources or factors that were in great supply and,
therefore, cheaper production factors.
(1/1 Points)
Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory

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 lOMoARcPSD|31851739

11.A. The firm-based theories evolved with the growth of the

multinational company (MNC). B. International trade theories referred
to as modern are firm-based or company-based.
(1/1 Points)
Both are true
Both are false
A is true
B is true
12.A. Governments can increase the competitiveness of firms and
occasionally entire industries. B. The government as a stakeholder is
responsible for protecting the environment.
(0/1 Points)
Both are true
Both are false
A is true
B is true
13.A. Firms will encounter global competition in their industries and in
order to prosper, they must develop absolute advantage. B. The Global
Strategic Rivalry Theory focused on MNCs and their efforts to gain a
competitive advantage against other global firms in their
(1/1 Points)
Both are true
Both are false
A is true
B is true
14.A. Smith’s theory stated that a nation’s competitiveness in an
industry depends on the capacity of the industry to innovate and
upgrade. B. Ricardo’s Theory theory focused on explaining why some
nations are more competitive in certain industries.
(0/1 Points)
Both are true
Both are false
A is true
B is true
15.A. The Global Strategic Rivalry Theory states that barriers to entry
that corporations may seek to optimize include research and
development and the ownership of intellectual property rights. B. Local

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 lOMoARcPSD|31851739

market resources and capabilities, and local market demand conditions

are determinants why some nations are more competitive in certain
industries.
(0/1 Points)
Both are true
Both are false
A is true
B is true

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 Theories
Study online at https://quizlet.com/_8shbrl

Globalization 2.0 is characterized by:

A. advances in sea and rail transporta-

tion
A. advances in sea and rail transporta-
B. by how much industrial power coun-
tion
tries could produce and apply
C. advances in global electronic in-
ter-connectivity
D. a and c
The _______ theory states that trade
between countries shouldn't be regulat-
ed or restricted by government policy or
intervention.
C. Absolute Advantage
A. Mercantilism
B. Comparative Advantage
C. Absolute Advantage
D. Heckscher-Ohlin Theory
A. The Global Strategic Rivalry Theory
states that barriers to entry that corpo-
rations may seek to optimize include re-
search and development and the owner-
ship of intellectual property rights.
True, True
B. Local market resources and capabili-
ties, and local market demand conditions
are determinants why some nations are
more competitive in certain industries.
Which is NOT a non-financial gain moti-
vation for international business ?

A. Triple bottom line C. Cultural immersion

B. Corporate social responsibility
C. Cultural immersion
D. Political favor

In _______ theory, production would

become more efficient, because there
1 / 10
 Theories
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would be an incentive to create faster
and better production methods to in-
crease the specialization.
C. Comparative Advantage
A. Mercantilism
B. Absolute Advantage
C. Comparative Advantage
D. Heckscher-Ohlin Theory
Globalization can take place in terms of:

A. Markets
D. All of the above
B. Distribution
C. Production
D. All of the above
A. Firms will encounter global competi-
tion in their industries and in order to
prosper, they must develop absolute ad-
vantage.
False, True
B. The Global Strategic Rivalry Theo-
ry focused on MNCs and their efforts
to gain a competitive advantage against
other global firms in their industry.
A. Smith's theory stated that a nation's
competitiveness in an industry depends
on the capacity of the industry to inno-
vate and upgrade.
False, True
B. Ricardo's Theory theory focused on
explaining why some nations are more
competitive in certain industries.
A. The firm-based theories evolved with
the growth of the multinational company
(MNC).
True, True
B. International trade theories referred
to as modern are firm-based or compa-
ny-based.
2 / 10
 Theories
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______ include better access to raw ma-

terials, less costly labor, key suppliers,
key customers, energy, and natural re-
sources.
C. Location advantages
A. Globalization
B. Trade
C. Location advantages
D. Foreign direct investment
In _______ Theory , a country should
increase its holdings of gold and silver
by promoting exports and discouraging
imports.
C. Absolute Advantage
A. Mercantilism
B. Comparative Advantage
C. Absolute Advantage
D. Heckscher-Ohlin Theory
The ______, stated that countries would
produce and export goods that required
resources or factors that were in great
supply and, therefore, cheaper produc-
tion factors.
D. Heckscher-Ohlin Theory
A. Mercantilism
B. Absolute Advantage
C. Comparative Advantage
D. Heckscher-Ohlin Theory
____ means that a firm is investing
assets directly into a foreign country's
buildings, equipment, or organizations.
C. Multinational Corporation
A. Globalization
B. Foreign direct investment
C. Multinational Corporation
D. International Trade

3 / 10
 Theories
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A. Governments can increase the com-
petitiveness of firms and occasionally
entire industries. True, True

B. The government as a stakeholder

National governments also participate in
international treaties related to:

A. trade D. all of the above

B. environment
C. labor
D. all of the above
The first and largest database com-
posed of answers that matched employ-
ee samples from forty different countries
to the same survey questions focused on
____________________.
A. Attitudes and beliefs
A. Attitudes and beliefs
B. Traits and practices
C. Rituals and traditions
D. Behavior and values
In a high-context culture—Japan or the
Philippines, for example— "yes" may
mean ____________. The meaning is in
the physical context, not the verbal.
D. All of the above
A. Yes
B. Okay
C. Maybe
D. All of the above
We learn and acquire culture as the grow
up.

A. Not right or wrong C. Not inherited

B. Not about individual behavior
C. Not inherited
D. Not about the country
4 / 10
 Theories
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A global company, which follows

_________, perceives world as a single
market.
C. Geocentric orientation
A. Ethnocentric orientation
B. Polycentric orientation
C. Geocentric orientation
D. Monocentric orientation
Some factors that constitute a culture are
these except.

A. Manners D. Environment
B. Mindset
C. Rituals
D. Environment
Cross-cultural understanding requires
that we
____________________________,
but______________________________.
A. Re-orient our mindset, but we do not
A. Re-orient our mindset, but we do not
necessarily change it.
necessarily change it.
B. Orient our mindset, but we do change
it.
C. Orient our mindset, but we do not
necessarily change it.
It indicates to what extent a culture pro-
grams its members to feel either uncom-
fortable or comfortable in unstructured
situations.
C. Uncertainty avoidance
A. Individualism
B. Masculinity
C. Uncertainty avoidance
D. Long-term orientation
The belief in the inherent superiority of
one's own ethnic group or culture.
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 Theories
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A. Ethnocentric orientation
B. Polycentric orientation A. Ethnocentric orientation
C. Geocentric orientation
D. Monocentric orientation
Refers to how a message is communi-
cated.

A. Context A. Context
B. Space
C. Time
D. Content
Diverse ethnic groups view the world
separately.

A. Not right or wrong A. Not right or wrong

B. Not about individual behavior
C. Not inherited
D. Not about the country
A. Cross-cultural risk is a situation or
event where a cultural miscommunica-
tion puts some human value at stake.
True, False
B. Arises when we enter environments
characterized by familiar languages and
unique value systems, beliefs, attitudes,
and behaviors.
A. Gift giving is routine in the United
States except during the winter holidays,
and involves a modest expression.
True, True
B. In Asia, gift giving is so ingrained in the
culture, particularly in Japan and China,
that it is formalized and structured.
Gives insight on shared values.
B. Not about individual behavior
A. Not right or wrong
6 / 10
 Theories
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B. Not about individual behavior
C. Not inherited
D. Not about the country
"Break a leg" Idioms
Corporate social responsibility (CSR) is
defined as "___________________."

A. Corporate conscience A. Corporate conscience

B. Corporate awareness
C. Corporate obligation
D. Corporate sensibility
Whether consciously or unconsciously,
we all establish a comfort zone when
interacting with others.
C. Space
A. Content
B. Time
C. Space
D. Context
Well known for his pioneering research
on cross-cultural groups and organiza- Geert Hofstede
tions.
Asians with better math ability and
African Americans with greater athletic Stereotypes
ability.
Refers to whether a culture has strategic
orientation.

A. Individualism D. Long-term orientation

B. Masculinity
C. Uncertainty avoidance
D. Long-term orientation
He was a respected anthropologist who
applied his field to the understanding
Edward T. Hall
of cultures and intercultural communica-
tions.

7 / 10
 Theories
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"It's raining men." Metaphor
Culture is the art and manifestations in-
tellectual achievements such as...(

A. Beliefs D. All of the above

B. Behavior patterns
C. Collective programming
D. All of the above
In these cultures, gender roles are usu-
ally crisply defined.

A. Individualism B. Masculinity
B. Masculinity
C. Uncertainty avoidance
D. Long-term orientation
It is a branch of philosophy that seeks to
address questions about morality—that
is, about concepts such as good and
bad, right and wrong, justice, and virtue.
A. Ethics
A. Ethics
B. Culture
C. Values
D. Tradition
It indicates that there is a greater im-
portance placed on attaining personal
goals.
B. Individualism
A. Power distance
B. Individualism
C. Masculinity
D. Uncertainty avoidance
A. Political, economic, and social
philosophies have no impact the way
people's values are shaped. False, True

B. Cultures within one border can turn

8 / 10
 Theories
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up within other geographic boundaries
looking different or the same.
A company that adopts the practices and
beliefs of the host country is said to be
exhibiting a
B. Polycentric orientation
A.Ethnocentric orientation
B. Polycentric orientation
C. Geocentric orientation
D. Monocentric orientation
Northern Europe and North America,
_________ is a means of imposing or-
der. People are expected to arrive as
scheduled whether it is a board meeting
or a family picnic.
C. Time
A. Context
B. Space
C. Time
D. Content
In Japan or Mexico, senior persons are
father figures and are respected is an
example of this dimension.
A. Power distance
A. Power distance
B. Individualism
C. Masculinity
D. Uncertainty avoidance
In global business ethics, people try
to understand what the ethical ac-
tion is and what the normal prac-
tice might be. If these are not consis-
tent, the _________________________ B. focus is placed on how to encourage
______________________________. ethical actions.

A. focus are in individuals.

B. focus is placed on how to encourage
ethical actions.
9 / 10
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C. focus on differing views and ideas.
D. focus in individual's social standing.

10 / 10
International Business & Trade
Module 4 Emphasizing Culture, Ethics & Norms

MODULE 4

Emphasizing cultures,
ethics, and norms

Module Author:
DR. MARIANE D. ATINAJA

Business Management Department

College of Business Administration and Accountancy
De La Salle University - Dasmariñas

1
International Business & Trade
Module 4 Emphasizing Culture, Ethics & Norms

TABLE OF CONTENTS

Title Page

I Gospel

II. Learning Outcomes

III. Learning Materials

IV. Enabling Assessment

2
International Business & Trade
Module 4 Emphasizing Culture, Ethics & Norms

GOSPEL:

“Take care, then, how you hear. To anyone who has, more will be
given, and from the one who has not, even what he seems to have
will be taken away.” Luke 8:18

Do you have much? Or little? According to Jesus’ words, if you have much,
then you will receive much more; but if you have little, then you will lose even
what you have. Does this seem fair?
Of course, our Lord is not speaking in worldly terms. He’s not saying that if
you have much money, then you will gain more, or if you are poor, then you
will become poorer. Instead, Jesus is speaking about the grace that comes
from understanding His holy Word. Notice that the passage above begins by
saying, “Take care, then, how you hear.”
To “hear” the Word of God implies that you truly receive what Jesus teaches.
Hearing is not just hearing the words spoken with your ears. One early Church
Father, Saint Bede, explains that truly hearing the Word of God with our
minds leads us to love that Word, and loving the Word leads to understanding.
This is not accomplished by an intellectual exercise alone, as if our natural
gifts are the primary means by which we comprehend all that Jesus teaches.
Rather, it comes through spiritual insight gained by the supernatural gift of
the Spirit Who teaches us all things.
If you want “more” understanding of the mysteries of God, then commit
yourself to engaging the holy Scriptures with your mind. Read the Scriptures,
ponder them and pray with them. It’s easy to forget that the Word of God is a
Living Word. This means that when we prayerfully immerse ourselves in the
Scriptures, we are prayerfully encountering God Himself. God is alive in His
holy Word. We meet Him, personally, and this happens only by a special grace
that we must be open to receive.
The beautiful aspect of this teaching of Jesus is that the more we understand
His Word by this grace, the more we will immerse ourselves in it, and it will
continue to grow within us. If, however, we devote little time to engaging the
Word of God in prayer, we will begin to “forget,” so to speak, the spiritual
depths of the wisdom of God. We will lose the little understanding we have
and when this happens, we will be prone to engaging and accepting the many
confusions and deceptions alive in our world.
Reflect, today, upon your practice of prayerfully meditating upon the
Scriptures. If this is not your current practice, resolve to make it so. Perhaps
3
International Business & Trade
Module 4 Emphasizing Culture, Ethics & Norms

start with one of the Gospels and commit yourself to prayerfully reading it
little by little every day. The goal is not to get through the books of the Bible.
The goal is to enter into each book. Every chapter and every line provides us
with a depth of spiritual insight and understanding just waiting to be given
and received. Commit yourself to this holy practice, and you will be amazed at
the spiritual riches our Lord bestows upon you.
Living Word of God, my Lord and my King, I thank You for the way in which
You come to me and all Your children through Your written Word. Fill me
with a love for that Word so that I will daily engage my mind in the deep
truths revealed within it. May I meet You, dear Lord, and grow in an
understanding of Who You are and what You wish to reveal to me. Jesus, I
trust in You.

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Module 4 Emphasizing Culture, Ethics & Norms

Learning Outcomes:

After studying this chapter, you should be able to:

 Explain where informal institutions come from

 Define culture and articulate its two main manifestations
 Articulate three ways to understand cultural differences
 Explain why understanding cultural differences is crucial for global
business
 Explain why ethics is important
 Identify ways to combat corruption
 Identify norms associated with strategic responses when firms deal with
ethical challenges
 Explain how you can acquire cross-cultural literacy

Where do informal institutions come from?

Informal institutions primarily come from socially transmitted

information and are a part of the heritage that we call cultures, ethics and
norms.

Ethnocentrism: a self-centered mentality held by a group of people who

perceive their own culture ethics and norms as natural, rational end morally
right.

Culture

Definition of culture: Culture is the collective programming of the mind that

distinguishes the members of one group or category of people from another.

First, no strict one to one correspondence between cultures and nation states
exists.

Second, culture has many layers.

Language

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Lingua franca: a global business language. Yet, the dominance of English as a
global business language.

Managers and firms ignorant of foreign languages and religious traditions

may end up with embarrassments and, worse, disasters when doing business
around the globe.

Important for firms: Know the lingua franca!

First, English speaking countries contribute the largest share of global output.

Second, recent globalization has called for the use of one common language.
On the other hand, the dominance of English may also lead to a disadvantage.

Religion: Religion is another major manifestation of culture.

Approximately, 85% of the world’s population reportedly have some
religious belief.

The four leading religions are Christianity, Islam, Hinduism, and Buddhism.

Because religious differences have led to numerous challenges, knowledge

about religions is crucial even for non religious managers.

Overall, managers and firms ignorant of religious traditions and

differences may end up with embarrassments and, worse, disasters.

Social structure refers to how a society broadly organizes its members

withrigidity or flexibility. Two terms are key to this discussion.

1. Social stratification: the hierarchical arrangement of individuals into

socialcategories such as classes, castes, or divisions within a society

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2. Social mobility: the degree to which members from a lower social category
can rise to a higher status.

Social structure is the outcome of a society’s formal and informal rules of the
game that give birth to its norms and values.

MNEs operating in highly socially stratified countries need to be

sensitive to local hiring and staffing norms. The most suitable person for a job
may not necessarily be the most technically qualified individual.

Education

Education is an important component of any culture. From an early age,

schools teach children the mainstream values and norms and foster a sense of
cultural identity.

In collectivistic societies, schools oftern foster collectivistic values and

emphasize the ‘right’ answers in learning.

In individualistic societies, school emphasize individual initiatives and

encourage more independent thinking, emphasizing questions with no right or
wrong answer’

In socially rigid societies, education(especially access to a small number of

elite schools and universities) is one of the primary means to maintain social
stratification.

On the other hand, in socially mobile societies, education is typically one of

the leading forces in breaking down social barriers.

Overall, the dramatic expansion of higher education around the world in

the postwar decades has increased social mobility.

In addition to language, religion, social structure, and education, culture is

manifested in numerous other ways.

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Cultural differences:

The context approach

Context: the underlying background upon which social interaction takes

place. Of the three main approaches probing into cultural differences, the
context approach is the most straightforward, because it relies on a single
dimension.

Low context culture: A culture in which communication is usually taken at

face value without much reliance on unspoken text. No means no. Western
countries

High context culture: A culture in which communication relies a lot on the

underlying unspoken context, which is as important as the word used. No does
not necessarily mean no.

Context is important because failure to understand the differences in

interaction

styles may lead to misunderstanding. In high context countries, initial

rounds of negotiations are supposed to create the ‘context’ for mutual trust and
friendship.

The cluster approach: The cluster approach groups countries that share
similar cultures together as one cluster.

Cluster: countries that share similar cutures

Cultural clusters:

1. Ronen and shenkar cluster

2. GLOBE clusters

3. Huntington civilizations

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Civilization: the highest cultural grouping of people and the broadest levelof
cultural identity people have.

We do need to appreciate the underlying idea that people and firms aremore
comfortable doing business with other countries within the same
cluster/civilization. This is because common language history religion and
customs within the same cluster reduce the liability of foreignness when
operating abroad

The dimension approach: although both the context and cluster approaches
are interesting, the dimension approach is more influential. The reasons for
such influence are probably twofold.

Why?

- First: Insightful as the context approach is, context only represents one
dimension.

- Second, the cluster approach has relatively little to offer regarding differences
between countries within one cluster.

Hofstede and his colleagues have proposed five dimensions:

1. Power distance

Power distance is the extent to which less powerful members within a country
expect and accept that power is distributed unequally.

2. Individualism

Individualism is the idea that an individual’s identity is fundamentally hisor

her own, whereas collectivism is the opposite.

Collectivism is the idea that an individual’s identity is fundamentally tied

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to the identity of his or her collective group.

In individualistic societies ties between individuals are relatively loose

andindividual achievement and freedom are highly valued.

In collectivist societies, ties between individuals are Nongovernmental

organizations(NGOs): organizations that are not affiliated with governments are
often sought after.

3. Masculinity versus Femininity

Masculinity: a relatively strong form of societal-level sex role differentiation

whereby men tend to have occupations that reward assertiveness and women
tend to work in caring professions.

Femininity: a relatively weak form of societal-level sex role differentiation

whereby more women occupy positions that reward assertiveness and more
men work in caring professions.

4. Uncertainty avoidance

Uncertainty avoidance refers to the extent to which members in a

cultureaccept or avoid ambiguous situations an uncertainty.

Members of high uncertainty avoidance cultures place a premium on

jobsecurity and retirement benefits. They also tend to resist change, whichoften
creates uncertainty. A good example is Greece.

Low uncertainty avoidance cultures are characterized by a greaterwillingness

to take risk and less resistance to change. A good example is Singapore.

5. Long term orientation

Long term orientation: dimension of how much emphasis is placed on

perseverance and savings for future betterment.

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Members of short term orientation societies prefer quick results and instant
gratification.(Pakistan)

Culture and global business.

Overall, there is strong evidence pointing out the importance of culture.

Sensitivity to cultural differences does not guarantee success but can at least
help to avoid blunders.

A great deal of global business activity is consistent with the context,

cluster, and

dimension approaches to cultural differences. Firms are a lot more serious

in preparation when doing business with countries in other clusters compared
to how they deal with fellow countries within the same cluster.

Individualism and collectivism also affect business activities. Likewise,

masculinity and

femininity affect managerial behavior. Managers in low uncertainty avoidance

countries such as Britain rely more on experience and training , whereas
managers in high uncertainty avoidance countries such as china rely more on
rules. Managers in high power distance countries such as France have a
greater penchant for centralized authority.

Ethics refers to the principles, standards, and norms of conduct that govern
individual and firm behavior.

Code of conduct: a set of guidelines for making ethical decisions.

Three views:

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1. A negative view suggest that firms may simply jump onto the ethics
bandwagon under social pressure to appear more legitimate without
necessarily becoming better.

2. A positive view maintains that some firms may be self-motivated to do

thing right regardless of social pressure.

3. An instrumental view believes that good ethics may simply be a useful

instrument to help make money.

Perhaps the best way to appreciate the value of ethics is to examine what
happens after some crisis.

Managing ethics overseas is challenging because what is ethical in one country

may be unethical elsewhere.

There are 2 schools of thoughts

1. Ethical relativism: a perspective that suggests that all ethical standardare

relative.

2. Ethical imperialism: a perspective that suggests that ‘there is one set

ofethics and we have it’

In practice neither of these schools of thought is realistic.

Three middle of the road guiding principles are:

1. Respect for human dignity and basic rights should determine the
absolute, minimal ethical thresholds for all operations around the world

2. Respect for local traditions.

3. Respect for institutional context calls for a careful understanding of local

institutions. Codes of conduct banning bribery are not very useful unless
accompanied by guidelines for the scale and scope of appropriate
giftgiving/receiving

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Ethics and corruption

Ehtics help to combat corruption.

Corruption: the abuse of public power for private benefits usually in the form
of bribery.

Competition should be based on products and services, but corruption distorts

that basis, causing misallocation of resources and slowing economic
development

Foreign corrupt practices act (FCPA): a US law enacted in 1977 that bans
bribery of foreign officials.

Overall, the FCPA can be regarded as an institutional weapon in the global

fight against corruption.

Corruption and poverty go together. Some evidence indicates that corruption

discourages foreign direct investment. However there are exceptions.

Norms and ethical challenges: How firms respond to ethical challenges is often
driven, at least in part, by norms. Four broad strategic responses are:

Four broad strategic responses:

 Reactive is passive: Deny responsibility: do less than required

 Defensive: focusses on regulatory compliance, Admit responsibility but
fight it; do the least that is required
 Accommodative: Accept responsibility; do all that is required
 Proactive: Anticipate responsibility; do more than is required

Companies can change their strategic response.

Overall, although there is probably a certain element of window dressing in

proactive strategies, the fact that proactive firms go beyond the current
regulatory requirements is indicative of the normative and cognitive beliefs held
by many managers at these firms on the importance of doing the right thing.

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Management savvy

What is cultural intelligence and what are the five profiles of cultural

Cultural intelligence: an individual’s ability to understand and adjust to new

cultures.

Five profiles: (3.6)

1. The local: a person who works well with people from similar backgrounds
but does not work effectively with people from different cultural backgrounds.

2. The analyst: a person who observes and learn from others and plans a
strategy for interacting with people from different cultural backgrounds

3. The natural: a person who relies on intuition rather han on a systematic

learning style when interacting with people fomr different cultural backgrounds

4. The mimic: a person who creates a comfort zone for people from different
cultural backgrounds by adopting their general posture and communication
style.

This is not pure imitation, which may be regarded as mocking

5. The chameleon: a person who may be mistaken for a native of the

foreigncountry. He/she may achieve results that natives cannot, due to his/her
insider

skills and outsider perspective. This is very rare.

Implications for action (3.7): six rules of thumb when venturing overseas

· Be prepared

· Slow down

· Establish trust

· Understand the importance of language

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· Respect cultural differences

· Understand that no culture is inherently superior in all aspects

The institution based view emphasizes the importance of informal institutions

in

propelling or constraining business around the globe. The institution based

view argues that firm performances is determined by the informal cultures,
ethics, and norms governing firm behavior

For savvy managers around the globe the emphasis on informal institutions
suggests to broad implications. First, it is necessary to enhance cultural
intelligence. Acquisition of cultural intelligence passes through three phases:

 Awareness refers to the recognition of both the pros and cons of your
‘mental software’ and the appreciation of people from other cultures.
 Knowledge refers to the ability to identify the symbols, rituals, and
taboos in other cultures, also known as cross-cultural literacy.
 Skills are based on awareness and knowledge, plus good practice.

Second, managers need to be aware of the prevailing norms and their

transitions globally.

The best managers expect norms to shift over time and constantly decipher
thechanges in the informal rules of the game and take advantage of new
opportunities.

Although skills can be taught, the most effective way to gain cultural
intelligence is total immersion within a foreign culture. Culture is not
everything but it is very important

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