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Globalization
Globalization refers to the shift towards a more integrated and interdependent world economy. The globalization of markets implies that national markets are merging into one huge marketplace. Two factors seem to underlie the trend towards globalization: declining trade barrier and changes in communication, information and transportation technologies. The development of microprocessor and related development in communication have helped firms to link their world wide business operation. In 1960s, the U.S. economy was dominant in the world. Roughly they dominated nearly half the world. By mid 1990s the U.S. share of world output cut into half, shared by western European and Southeast Asian economies Collapse of communism in Eastern Europe created enormous long-run opportunities for international business. China & Latin America is creating opportunities (and threats) for Western international businesses. Benefits and cost of emerging global economy debate focuses on the impact of globalization on jobs, wages, the environment, working conditions and national sovereignty. Managing international business is different the managing domestic business for at least four reasons Countries are different Range of problems in much wider in international business then domestic Managers in an international business must find ways to work within the limits imposed by governments intervention in the international trade and investment system International transaction involve converting money into different currencies
Risk of doing business in a country tend to be greater in countries that are Politically unstable Subject to economic mismanagement Lacking a legal system to provide adequate safeguard in the case of contract or property rights violation
Difference in Culture
Culture is a complex whole that includes knowledge, beliefs, art, morals, law, customers and other capabilities acquired by people as members of society. Values and norms are the central components of a culture. Values are abstract ideals about what society believes to be good, right and desirable. Norms are social rules and guidelines that prescribe appropriate behaviour in particular situation. Values and norms are influenced by political and economic philosophy, social structure, religion, language and education. Individual and Group: In some societies, the individual is the basic building block of social organization. Such societies emphasize individual achievements above all else. In other societies, the group is the basic building block of social organization. These societies emphasize group achievements above all else. Stratification: All societies are stratified into different classes. Classconscious societies are characterized by low social mobility and a high degree of stratification. Less class-conscious societies are characterized by high social mobility and a low degree of stratification. Religion may be defined as a system of shared beliefs and rituals that is concerned with the realm of the scared. Ethical systems refer to set of moral principle or values that are used to guide and shape behaviour. The value systems of different religious and ethical systems have different implications for business practice. Language is one defining characteristics of a culture. It has both spoken and unspoken dimensions. In countries with more then one spoken language, we tend to find more then one culture.
Education plays an important role in the determination of national competitive advantage. Culture is not a constant: it evolves. Economic progress and globalization seem to be two important engines of cultural change. One danger confronting a company that goes abroad for the first time is being ill-informed. To develop cross-cultural literacy, international businesses need to employ host-country nationals, build a cadre of cosmopolitan executives and guard against the dangers of ethnocentric behaviour. The value systems and norms of a country can affect the cost of doing business in that country.
Common ethical issues in international business involve employment practices, human rights, environmental regulation, corruption and the moral obligation of multinational corporations. Cultural Relativism contends that one should adopt the ethics of the culture in which one is doing business. Ethical Relativism: A self interest approach: 6
It holds that no universal standards or rules can be used to guide or evaluate the morality of an act that is what is right for you may be wrong for me. Utilitarianism: Consequentiality (result based) approach: An action is judged as right or wrong on the basis of its consequences. An action is morally right if it produces the greatest good for the greatest number of people affected by it. Universalism: A Deontological (duty based) approach: It holds that the means justify the ends of an action, not the consequences. Deontological is derived from a Greek word Deon mean duty. This approach is based upon universal principles such as justice, rights, fairness, honesty and respect. Justice: Procedures, compensation, retribution: The principle of justice deals with fairness and equality. Richard Deterge identifies four types of justice Compensatory justice concerns compensating someone for a past harm Retributive justice means serving punishment to someone who has inflicted harm on another Distributive justice refers to the fair distribution of benefits and burdens Procedural justice designates fair decision practices, procedures and agreement among parties
Porters theory states that national competitive advantage suggests that the pattern of trade is influenced by four attributes of a nation
Factor endowments Domestic demand conditions Relating and supporting industries Firm strategy, and rivalry
Theories of international trade are important to an individual business firm primarily because they can help the firm decide where to locate its various production activities. Firms involved in international trade can and do exert a strong influence on government policy towards trade. With government support business firms can promote free trade, or trade restrictions.