Geography - Be able to recognize the following countries on a map: Canada USA Mexico Brazil Argentina Chile Colombia Ecuador Guatemala Haiti Peru Venezuela Panama Cuba Dominican Republic and be able to categorize any country in the Americas as South America, North America, Central America, or Caribbean Be familiar with the ways that density, distance, and division influence business, and recognize the influence of water, mountains, climate, location, time zone, and related factors on international business Be familiar with basic geopolitical relationships globally Understand overheads at http://ux1.eiu.edu/~djboggs/BUS3200/BUS3200.htm. Newer versions of the powerpoint slides from chapters 1-4 of your textbook are available until Tuesday at http://dl.dropbox.com/u/2032327/Wild_IB5e_PPT_Instructor_01.ppt http://dl.dropbox.com/u/2032327/Wild_IB5e_PPT_Instructor_02.ppt http://dl.dropbox.com/u/2032327/Wild_IB5e_PPT_Instructor_03.ppt http://dl.dropbox.com/u/2032327/Wild_IB5e_PPT_Instructor_04.ppt Know, understand, and be able to recognize and use examples for all of the following: Globalization – the shift towards a more integrated and interdependent world economy Pros of globalization exchange of ideas possibly greater variety of product and service availability economic efficiency (therefore living standards may rise) economies of scale increased competition access to resources more efficient allocation of capital possibly lower interest rates Cons of globalization Economic disruption Loss of jobs for some people; gains for others; pay increases or decreases; firm and factory relocations Increased anxiety and uncertainty (fear of losing jobs or fear of competitors) Loss of sovereignty, autonomy, and unique cultures Multinationals are companies that operate across country borders regional multinationals focus/operate/control focusing on a particular area of the world (e.g. latin america, w. europe) global multinationals view the world as one big market (commercial aerospace) “multinational” multinationals view each country market as unique and operate each of them independently Trade occurs when one nation exchanges with another (imports/exports) Foreign Direct Investment (FDI) is when a firm takes 10 percent or greater ownership of a foreign business (may influence operations) Greenfield FDI is a brand new business operation in a foreign country Acquisition FDI is buying an already-existing business in a foreign country Foreign portfolio investment is taking less than 10 percent ownership in a foreign business (generally for financial gains; no control) World trade and FDI has been rising consistenty over recent decades; the USA trades the most with Canada, Mexico, Japan, and China Socialism – a political/economic philosophy advocating substantial public involvement, through government ownership, in the means of production and distribution Communism (command, planned, or centrally planned economy)– a belief that socialism can be achieved only through revolution and totalitarian dictatorship; a nation owned by its government; no power of the people (North Korea is most extreme example today) Command Economy – the goods and services that are produced, the quantity that are produced, and the price at which they are sold are all planned by the government; businesses are state owned Capitalism (laissez-faire, free market, market economy, private ownership) - private citizens own means of production; supply and demand determines what and how much is produced. Mixed Economy – some sectors are publicly (state or government) owned and others are privately owned State-Directed Economy – the state directly influences the investment activities of private enterprise through “industrial policy” Totalitarianism - authoritatian, top-down, regime rules by force; may be secular (communism, dictatorships, authoritarian single-party regimes), or theocratic (e.g. Muslim authoritarianism) Democracies generally protect individual rights (civil liberties) such as the right to written and spoken expression/communication, worship, movement, economic freedoms, voting, print, media; in a democracy citizens should be involved in decision making (through voting) Representative democracy - free people elect officials to represent them in the government Totalitarianism – the rights of citizens are denied and those who choose to act against this are punished or worse Theocratic totalitarianism – a political system in which political power is monopolized by a party, group, or individual that governs according to religious principles Secular totalitarianism (Communism) – a version of collectivism that advocates that socialism can be achieved only through totalitarian dictatorship Tribal totalitarianism – a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power (Tribal leader, chief, etc.) Laws – Home Laws – laws of the domestic nation (United States) Host Laws – laws of a foreign country (China, India, Japan, etc.) International Treaties – treaties used to help regulate relations (business, trade, investment, security, environment, etc.) between two or more nations Legal Systems – Common Law – based on tradition, precedent, and custom Tradition refers to a country’s legal history Precedent refers to prior cases Custom refers to the ways the law was applied in situations Used in Great Britain’s former colonies (e.g. USA) Judges have the power to interpret the law Civil Law – based on a very detailed set of laws organized into codes 80% of countries use a civil law system Judges only have the power to apply the law Theocratic Law – based on religious teachings Based on morals and interpretation of scriptures rather than other laws Legal Issues – Contracts – a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved Contract law is the body of law that governs contract enforcement Parties turn to contract law when they feel a contract has been violated Property Rights – refer to the bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource Property rights can be violated in either: Private Action – refers to theft, piracy, blackmail, and the like by private individuals or groups Public Action (Corruption) – when public officials, such as politicians and government bureaucrats, extort income or resources from property holders Nationalization, Confiscation, Expropriation, Privatization, Deregulation Intellectual Property – refers to the property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula of a new drug Protection of intellectual property can be reached through copyrights, patents, and trademarks Product Safety Laws – set certain safety standards to which a product must adhere Tax Laws - Sales, income, VAT, Trade, Property, etc. and taxes credits, holidays, and incentives Product Liability – involves holding a firm and its officers responsible when a product causes injury, death, or damage Civil laws call for payment and monetary damages Criminal laws call for fines and/or imprisonment Corruption – when public officials, such as politicians and government bureaucrats, extort income or resources from business owners Foreign Corrupt Practices Act (FCPA) – passed in the United States during the 1970s following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts. This law prohibits bribing a foreign government official in order to obtain or maintain business over which that foreign official has authority, and the law requires all publicly traded companies to keep records that are detailed enough to allow someone reviewing the records to determine whether a violation of the act has occurred. Gross National Income (GNI) – measures the total annual income received by residents of a nation…GNI per capita means the average total annual income Gross National Product (GNP) – the market value of all the final goods and services produced by a national economy (measures the total value of goods and services produced annually)…does not account of cost of living differences Gross Domestic Product (GDP) – the market value of a country’s output attributable to factors of production located in the country’s territory Purchasing Power Parity (PPP) – an adjustment in gross domestic product per capita to reflect differences in the cost of living…(the base for PPP is the United States meaning that if GNI in the US was $34,000, the base PPP is $34,000 as well….also meaning that if the GNI of China was $1890 and the PPP of China is $7,260, $1890 in Chinese would buy $7,260 US and that China has a lower cost of living than US) Economic Conditions – most foreign countries have a lower (China; Argentina) or higher (Japan; Switzerland) cost of living than the United States China and India are poor countries, but have a relatively high GDP and very high GDP growth; they are fast growing economies Human Development Index (HDI) – measures the quality of human life in different nations based off of 3 factors life expectancy at birth (a function of health care) educational attainment (which is measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education) whether average incomes are sufficient to meet the basic needs of life (adequate food, shelter, health care) Political Freedom – based on the following free and fair election of the head of state & legislative representatives fair electoral laws and fair polling the right to organize different parties a parliament with effective power freedom from domination by the military, foreign powers, etc. a reasonable amount of self-determination for cultural, ethnic, and religious minorities Economic Freedom – based on 10 indicators such as the extent to which the government intervenes in the economy, trade policy, the degree to which property rights are protected, foreign investment regulations, and taxation rules. Ranges of 1-5 (1 most free and 5 least free)…USA is 7th on most free Civil Liberties - “civil liberties is the name given to freedoms that protect the individual from government. civil liberties set limits for government so that it would not abuse its power and interfere with the lives of its citizens.” “basic civil liberties include freedom of assembly, freedom of religion, and freedom of speech. there are also the rights to due process, to a fair trial, to privacy, and to self defense. many of the world's democracies, most especially the united states and europe, have constitutions, that guarantee civil liberties, and democratic states have assumed responsibility for the protection of such civil liberties, unlike authoritarian states.” (wikipedia.com). There are various business implications to civil liberties such as whether or how to operate in repressive/authoritatian/totalitarian states, and how creativity, information flow, ethics, and risk are influenced. Economies in Transition – Deregulation – involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate Privatization – transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction Risk – Political Risk – the likelihood that political forces will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a particular business enterprise Political risk is higher in countries with social unrest Economic Risk – the likelihood that economic mismanagement will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a particular business enterprise Inflation is a key indicator Legal Risk – the likelihood that a trading partner will opportunistically break a contract or expropriate property rights Culture and Competitive Advantage When doing business internationally, companies should work on building trust and loyalty to help gain a competitive advantage against other foreign businesses Individualism is key to entrepreneurship, which explains why Americans have a competitive edge in entrepreneurship over Japan and other countries due to those countries having more of a collectivism background Culture – the complex whole that includes knowledge, belief, art, morals, law, custom, and other capabilities acquired by a person as a member of society; culture can be in the way we speak, how we dress, etc. but more importantly in how we think Elements of Culture – Social Structure - refers to its basic social organization The extent to which society is group or individually oriented The degree of stratification into castes or classes Social mobility – refers to the extent to which individuals can move out of the strata into which they are born Significance to business? Religion – shared beliefs and rituals that are concerned with the realm of the sacred Language – Spoken and unspoken (verbal cues, body language, personal space...) Language structures perception of world Education – learning language, conceptual, and mathematical skills Communicating across cultures (high/low context, touching, conversational distance, "silent" or nonverbal communication, use of English, showing emotion, saving "face", translations) Hofstede's elements of culture (power distance; individualism; masculinity-femininity; uncertainty avoidance; long-term orientation). "Power Distance Index (PDI) that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that 'all societies are unequal, but some are more unequal than others'. Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are inte-grated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world. Masculinity/Achievement (MAS) versus its opposite, femininity/affiliation, refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. The IBM studies revealed that (a) women's values differ less among societies than men's values; (b) men's values from one country to another contain a dimension from very assertive and competitive and maximally different from women's values on the one side, to modest and caring and similar to women's values on the other. The assertive pole has been called 'masculine' and the modest, caring pole 'feminine'. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men's values and women's values. Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; 'there can only be one Truth and we have it'. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions. Long-Term Orientation (LTO) versus short-term orientation: this fifth dimension was found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one's 'face'. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; however, the dimension also applies to countries without a Confucian heritage." (http://www.geert-hofstede.com/) Hofstede’s cultural dimensions – Individualism vs. Collectivism Focuses on the individual and his or her fellows (Individualism) Individual achievement and freedom were highly valued (Collectivism) look over your “collective”, not just yourself Masculinity (achievement-focused) vs. Femininity (nurturing and relationship-focused/affiliation) Focuses on the relationship between gender and work roles In masculine cultures, sex roles were sharply differentiated and traditional “masculine values” such as achievement and effective exercise of power, determined cultural ideas In feminine cultures, sex roles were less sharply distinguished , and little differentiation was made between men and women in the same job Uncertainty-Avoidance – Measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement, etc. Lower uncertainty avoidance cultures were greater risk takers and less emotional resistance to change Power Distance Focuses on how a society deals with the fact that people are unequal in physical and intellectual capabilities High power distances were found in countries that let inequalities grow over time into inequalities of power and wealth Low power distance cultures were found in societies that tried to play down such inequalities as much as possible Basics of Religion –how affect business??? consider emphasis on work/diligence, intellectual property, saving and investment patterns, authority relationships, honesty, concern for the needy, justice, (e.g. protestant work ethic, “shinto work ethic”) Christianity Most widely practiced in the world (traditionally dominate in Europe & Americas; growing in developing countries) Monotheistic (believe in one God revealed in three persons called the trinity-Father, Son/Jesus, Holy Spirit) 3 major divisions (Roman Catholic, Orthodox, & Protestant) Protestant (many denominations such as Presbyterian, Baptist, Methodist, & Anglican; dominates USA and northern Europe) Orthodox (e.g. Greek or Russian) dominates Eastern Europe Catholic (dominates Latin American and Southern Europe) Islam 2nd largest religion; Shia and Sunni Referred to as Muslims Islam views Jesus Christ as one of God’s prophets, and Mohamed as greatest prophet Monotheistic (believe in Allah, aka God, who is considered unknowable) Do not eat pork, drink alcohol, and have women dress a certain way Islamic scripture is the Koran 5 pillars of Islam Hinduism Large percentage of Indians (India) World’s oldest major religion No single sacred book such as Bible or Koran Not linked to a “founder” Believe in dharma (right way of living), nirvana (ultimate enlightenment/peace/no more desires/spiritual perfection), reincarnation, and karma (affected by the way he/she lives past and present) Buddhism Founded in India by Gautama (eventually named Buddha) Central & SE Asia, China, Japan, & Korea Believe in nirvana Stress afterlife and spiritual achievement rather than involvement in the current life Confucianism Formed by Confucius Used to be strictly observed by China Still observed slightly by China, Japan, & Korea Personal salvation through right action Basics around ethical principles Not concerned with the afterlife Judaism – (some info from wikipedia) "judaism is the religion of the jewish people. it is one of the first recorded monotheistic faiths and one of the oldest religious traditions still practiced today. the values and history of the jewish people are a major part of the foundation of other abrahamic religions such as christianity, islam, as well as samaritanism and the bahá'í faith. as of 2006, adherents of judaism numbered around 15 million followers,[1], making it the world's eleventh-largest organized religion."…"judaism in all its variations has remained tightly bound to a number of religious principles, the most important of which is the belief that there is a single, omniscient, omnipotent, omnibenevolent, transcendent god, who created the universe and continues to be involved in its governance. according to traditional jewish belief, the god who created the world established a covenant with the jewish people, and revealed his laws and commandments to them in the form of the torah. the practice of judaism is devoted to the study and observance of these laws and commandments, as written in the torah."…torah = old testament Animism (some info from wikipedia)-from animus, or anima, mind or soul, originally means the doctrine of spiritual beings; it is often extended to include the belief that personalized, supernatural beings (or souls) endowed with reason, intelligence and volition inhabit ordinary objects as well as animate beings, and govern their existence (pantheism or animatism). more simply, the belief is that "everything is alive", "everything is conscious" or "everything has a soul". it has been further extended to mean a belief that the world is a community of living persons, only some of whom are human. it also refers to the culture or philosophy which these types of animists live by, that is, to attempt to relate respectfully with the persons (human, rock, plant, animal, bird, ancestral, etc.) who are also members of the wider community of life. one author and self-proclaimed animist, daniel quinn, argues that at its most fundamental, it's the belief that "the earth is sacred and we belong here". "animism" can refer to the religion or beliefs or philosophy of the above interpretations. it can also refer to the culture and practices related to animism. "animism" was the term used by anthropologist, sir e. b. tylor, as a proposed theory of religion, in his 1871 book, primitive culture. he used it to mean a 'belief in spirits' (i.e. mystical, supernatural, non-empirical or imagined entities)… today animists live in significant numbers in countries such as zambia, the democratic republic of the congo, gabon, the republic of guinea bissau, indonesia, japan, laos, myanmar, papua new guinea, peru, the philippines, canada, russia, sweden, thailand, and the united states.” Cultural Change – Cultures can change over time; for example: women’s role in business has changed over the last 45 years political states of countries are changing Basics of Managing Cross-Cultural Literacy cross-cultural means becoming acquainted with foreign cultures in order to do business properly businesses should possibly hire local citizens of the country to help them run their business Ethics and International Business – sometimes giving a gift of thanks to another international business may be looked upon as a bribe or supporting corruption it may be best before sending a gift to first study and find out how to show thanks in the other country before sending such a gift an American business should only take part in another countries’ ethics when the other countries’ ethics are still legal and logical in our thinking Milton Friedman – ethical responsibility of corporations is to obey laws and maximize profits Carroll – ethical responsibility of firms is to make profits, obey laws, and also participate in ethical or discretionary acts of corporate social responsibility