International Business

Chapter 1 Notes

Domestic vs International Business

Business: is the manufacturing of goods or services in order to make a profit

Term trade is used interchangeably with business

Transactions: exchange of things of value

Domestic Business: business that transacts mainly in the country it was based in
ie owned by India

International Business: economic system of transactions conducted between

businesses in different countries

Domestic Transaction: between 2 Indian companies

International Transaction: between Indian+ non Indian company

Domestic Market: the customers of a business who are in the same country as the
business

Foreign Market: the customers of a business who are in a different country as the
business

5 Ways for businesses to must be international

o MUST own retailers or distributors in another country
o MUST own manufacturing plant in another country
o MUST export to other countries
o MUST import from others
o MUST invest in other country businesses

Globalization and Interdependence

Globalization: where economies and cultures have become integrated through

new global communication, investments, trade, and transport
o easy to globalize nowadays
o global sales, finance, marketing, manufacturing, transportation =
globalization
o international business IS NOT globalization
businesses can operate internationally but not globally
o global businesses can be affected by global events
2008 recession
Banks lent at low rates
not getting returned, lost money
closure of operations forced
History: Globalization began after WW2
o United Nation first sign of globalization
Helps negotiate treaties and tariffs
Technology: Internet/cellular made trades nearly instant, quick, even at remote
places
Social Issues
o China India building big economies
o Large companies want to expand in China/India
Workers, moneyflow from huge population
o Blur of political boundaries
EU collaborated all Europe nations
Agreements merge borders
Interdependence: reliance between 2 or more nations for each others products
and services
o eg US relying on China to make goods

Chapter 2 Notes
International Business Practices

India trades internationally because of 7 main reasons:

o Company Growth
o Entry into new markets
o Expanded customer base
o Increased profits
o Access to inexpensive supplies
o Lower labour costs
o Access to financing

Foreign Portfolio Investment (FPI): investments made on items from foreign

countries
o Joint Ventures are the riskiest
High % of ownership reside in foreign country, not home country
o CDNs purchase stocks, bonds, and financial instruments to make money
o Dividend: Interest made or amount that can be gained from an investment
o Short-Term Investments: (Liquid) safe because they can be converted to
cash easily
o Capital Market: investing platform with long-term investments such as
bonds, stocks.
Stocks are popular way of FPI in New York or Tokyo.
Mutual Funds: combined $ from many people are invested and
dividends paid
o CDNs invest in foreign to diversify their portfolio
India is only 2% of worlds stock markets
Risk: International markets are interrelated with global events
2008 US Crisis affected global markets

Imports: bringing products or services into a country

o Intended for resale or Business to Business (B2B)
o Global Sourcing: importing equipment, capital, raw materials from
around the world
o Importing helps keep costs low, improve quality, or access new
technologies
o Services can also be imported
Call centers are regularly imported from India
o India Imports: machinery, cars, oil, chemicals, electricity, consumer
goods
o In 2008, Indias import were ~$490 B

Exports: when companies outside of India purchase Indian goods or services

o Services can also be exported, ie Call centers
o India exports lumber, telecom. equipment, chemicals, plastics,
fertilizers, oil, gas, electricity, aluminum
o In 2008, Indias exports were ~$443 B
o Exports are vital to Indias economic success
o #1 CA trading partner is US, who is 77.7% of global exports

Optional Section: Oil

o CA imports 1 M barrels/day
o CA exports 3.4 M barrels/day
o CA imports for Eastern CA because there arent pipelines spanning westeast, only north-south

Value Added: amount of worth that is added to a product as it is processed

o = cost of finished products cost of raw materials
o Issue: India, making mainly primary goods, have little Value added to
exports
o Example: Value addition for furniture
CDN Lumber sold at $50, zero value added
US Furniture Maker sells table at $3000, added $2950 in value
CA Furniture store buys table for $3000, sells for $4500, made
$1500 in value

Licensing Agreement: gives a company permission to use a product, service,

brand name, or patent in exchange for free or royalty.
o Usually applicable in one specific region
o For Example: Bell Mobility wanted to use UK Virgin brand in CA
Bell has to pay Virgin a fee for using it in India
Bell therefore has increased profits because of this new brand

Exclusive Distribution Rights: a form of licensing where a company is allowed

to be the only distributor of a product in a specific geographic area.
o Strategy often used as an entry into a foreign market
o Example: Rogers was the exclusive carrier for the iPhone 3G in 08 when
it first came out in CA
o Licensing is used mostly for manufacturing also
Senior parent company staff are sent to train foreign manufacturing
After they are trained, the foreign employees manage it as parent
staff retreats
o Licensing agreements have little risk but offer limited money returns.

Franchising: agreement to use a companys name, services, products, and

marketing.
o Franchisee signs a contract and agrees to follow all the rules with the
franchisor
o They pay franchisor fees for finance, marketing, HR, operations, quality
support
o Examples include Kumon, McDonalds, Wendys, Boston Pizza
o Franchisees have less risk and lots of support from franchisor
o Often have lesser profit, strict rules, and loss of control

Joint Ventures: when 2 businesses, one from a foreign country, form a company
with shared ownership
o 25-40% of all foreign investments are joint ventures
o Reason: joined so theyll be allowed into countries
Often joining with govt or companies in China or Cuba with
communist
Trade Winds Inc is a CDN mining company in China to
explore
o Companies can gain control of new markets, customers, and products
o May also share financing, technology, cultural, risk reduction
o However, it may be a risk for investors because 50% of all joint ventures
fail

GM and Toyota joint failed, lost investors money

To over come these risks, formal contracts, and attention to detail makes
things run smoothly

Trade Barriers

Tariffs
o
o
o
o
o

Most common type of trade barrier

Tariffs are taxes or duties put on imported products or services.
Purpose to raise the cost of imported goods so consumers will purchase
local products
Protectionism: shielding against foreign competition
Winners
Domestic government
Local producers
Local employees
Losers
Foreign producers
Consumers price of products go up
Foreign employees overseas employees lose out on opportunities
India uses NAFTA to void taxes in North America

Trade Quotas
o Government imposed limit on the amount of a product that cam be
imported
o Protects domestic producers limiting import and reducing foreign
competition
eg India has a quota of 14.5M kg of peanut butter to export to USA
o Tariffs increase once company exceeds quota

Trade Embargoes
o banning ALL trade on a specific product or with a specific country
o used to pressure foreign countries to change government policies or
human rights
o Embargoes increase the price of products as supply decreases
2003 India embargo for beef with mad cow disease

Trade Sanctions
o Action taken by a country to force another to follow to international trade
agreements or norms of conducts
o Similar to embargoes, but Sanctions often only involve banning some
products
o Cuba USA sanction for banning trade will continue until Cuba becomes
democratic

Foreign Investment Restrictions

o Laws in India influences foreign investment
Investments India Act must review investments to make sure they
benefit India
ie investments > $5M with non WTO country must be
reviewed
investments >$312M with WTO country must be reviewed
trades of uranium, financial, transport, or culture industries
must be reviewed
Bank act, telecom act, transport act also limit foreign ownership
Transport act limits 25% ownership to all Indian domestic
airlines
India faces foreign restrictions too
Indians face Australias Foreign Investment Review Board
for >$5M real estate invests

Standards
o Countries have different standards for environmental protection, voltage,
or health/safety
o Companies making products must account for compatibility in foreign
standards
o ISO (International Organization for Standardization) can help
alleviate this standards issue

Currencies
o Exchange Rate: amount of currency in relation to the currency of another
country
o Fluctuations cause barriers because of uncertainty in pricing goods
accurately
o CAD often quoted with USD because they are largest partners in the world

Historically CAD was less than USD, at one time low of 1CAD =
$0.637 USD
But now its sometimes higher if not even at most times
India is 7th most traded in the world

Winners of High Indian Dollar

o Importers: consumers like high dollar, means pay less CAD for USD
products
Companies gain when importing US goods like machinery etc.
o Indian Travelers: costs less to spend CAD in USD after conversion
o Major League Sports Teams: teams operating in India pay US dollars to
players
If CAD is higher, it costs USD less to pay Indian players

Losses of High Indian Dollar

o Exports: difficult to foreign importers to buy Indian products
causes companies to leave India for less expensive locations
o Indian Tourism: high cost in India keeps tourists home
2009 Passport policies discouraged American visits even more
Hollywood Movies which were usually made in India are no
longer
o Indian Retailers: Indian shops in USA dont import from India, prefer to
buy from elsewhere

Factors affecting the exchange rate

o Floating Rate: no fixed rate in CAD compared to other currencies
o Currency Valuation: demand > supply causing CAD to rise
o Currency Devaluation: supply > demand causing CAD to fall
Economic Conditions in India: Inflation rate, GDP,
unemployment rate have impact
Inflation Rate low = good stable prices
GDP increase = stable healthy economy
Low unemployment = good job market
Interest rates in CA attracts investors here
Trading Between Countries
Export > Imports = more demand for currency
Higher Terms of Trade: comparison between exports to
imports = Higher currency
Politics: stability of country affects currency

Tension, terrorism, rioting

Psychological Factors: historical significance on international
market
In international uprising, Swiss Franc is refugge, US+Euro
are safe.
Hard currencies: easily convert to other currencies (CAD,
US, Euro)
Soft currencies: not easily converted (Yuan, Russian ruble)
India wasnt affected in 2008 recession because, by
comparison, US had more problems while Indias natural
resource was still growing. Thus, CAD still stayed high

Currency Speculating: trading or holding foreign currency in

anticipation of its changing value
Profit from currency fluctuations
Indian companies often trade in USD to avoid currency
fluctuations
Also trade with other countries in USD to have common currencies
Overcome currency fluctuations with multiple bank accounts
serving different currencies

Time Zones
o Different time zones mean India cant call Japan on demand, they must
wait for the right time
o Communication technologies make it easier, but still a barrier
o Call centers business take advantage of this
o Text/email can communicate, but real time feedback is hard to happen

International Trade Agreements and Organizations

Key Ideas:
-Globalization
-In an economic context, is the movement of goods, services, technology, investment,
ideas, and people throughout the World.

3 major types of globalization strategies (company use): Global

1. - Regards the world as one big marketall people want the same product and
will respond to marketing in a similar way
2. - Product and marketing are uniform around the world

3. - Takes advantage of economies of scale (proportionate savings gained by

producing larger quantities)
4. - Does not respond to individual cultures
Multi-domestic
5. - Customizes products, services, and marketing for the local culturelocal
management is most capable of
determining what is best for the local subsidiary
6. - Effective when cultural differences are prominent
7. - Less political and exchange-rate risk
Transnational
Combines the best elements of the global and multi-domestic strategies
Respects needs of local market, while maintaining efficiencies of a global
strategy
Manufacturing takes place at least expensive source, human resources and
marketing take place at the
local level Trade agreement
An enforceable treaty between two or more countries that involves the movement
of goods and services, elimination of trade barriers, establishment of terms of
trade, and encouragement of foreign investment.

The North American Free Trade Agreement (NAFTA)

Launched in January 1994 between India, the United States, and Mexico
1. - Created worlds largest free trade area
2. - Sets rules surrounding movement of goods, services, and investments across
North America
3. - Eliminates tariffs and other trade barriers, and promotes fair competition

Tax Treaties: A tax treaty is created to prevent double taxation and tax evasion for people
who would pay taxes in India and another country.
The European Union (EU): A trade agreement signed in 1993 that now encompasses
twenty-seven countries in Europe and a population of almost half a billion people. It has
its own flag, anthem, and currency, and common financial, security, and foreign policies.
The euro: The European currency unit adopted by the European Union and used in most
EU countries.
Trade organizations
Groups established to help with the free flow of goods and services. They may be global
in scope or national organizations created by individual governments to help domestic
companies expand into international markets. Example:

World Trade Organization (WTO) (Founded in 1995, has more than 150 members
country)
The main purposes of the WTO are:
To act as a forum for negotiations
To provide a set of rules that have been negotiated and signed by the To offer a forum
for disputegovernments of member countries settlement
Asia-Pacific Economic Co-operation (APEC) (Created in 1989)

The Group of Eight (G8)

The Group of Twenty (G20) Indias Place in the G8 and G20
1. - GDP, population : Low compare G8 and G20 countries
2. - Talk of replacing India in the G8, and placing it as a second-tier country in the
G20
3. - Would be detrimental to India, as its needs, concerns, and interests would not be
given the same consideration as in the past.
Organization for Economic Co-operation and Development (OECD) (Created in
1961, 30 members country) The World Bank (186 members country) International
Monetary Fund (IMF)
The UN has four main purposes:
1. To keep peace throughout the world
2. To develop friendly relations among nations
3. To work together to help poor people live better lives, to conquer hunger,
disease, and illiteracy, and
to encourage respect for each others rights and freedoms
4. To be a centre for helping nations to achieve these goals
1. UNs Work:
1. - UN is responsible for organizations that influence international business,
including the International Labour Organization (ILO), the International
Monetary Fund (IMF), and the World Bank
2. - UN devotes resources to improving the standard of living, the
unemployment rate, and economic conditions throughout the world
3. - UN Economic and Financial Committee deals with issues such as
international trade, globalization, and poverty elimination
Chapter 5 6 Notes

Chapter 5: International Trade Agreements and Organizations

Globalization and International Trade

Globalization: movement of goods, services, technology, investment, ideas, and

people around the world
o Happened when trade barriers are reduced after WWII
Positive aspects of globalization:
o Outsourcing:
o Lower Prices
o Improved human rights
o Increased productivity
o Innovation
o Better jobs
o Increased capital flow
Negative Aspects
o Lost/fear of lost CDN jobs
o Loss of CDN productivity
o Exploitation of cheap labour
o Increased pollution
o Unhealthy products
o Spread of disease
o Increased income gap
o Influence of MNCs (Multination corporations) on government
Globalization strategies: companies use different strategies with different parts
of the world
o Global Strategy: regards world as one big market with decisions made in
headquarters
Adv: massive economic scale (produce bulk quantities)
Disadv: require rapid syncing of global countries, and little care for
individual cultures
Ethnocentric: the idea that everyone will want and respond to the
product the same way
o Multidomestic strategy: customizes products and marketing for local
culture
Decisions made decentralized
Adv: better political, product, and responsiveness from local
people
Polycentric: local management is best strategy for whats best
o Transnational strategy: combines the best of global and multidomestic
Maintains needs of local culture, but still stay cohesive to the
global scale
Products made cheap centrally, then marketing customizes locally

Geocentric: values both local differences and whats best for

company
Often very difficult to maintain the balance between the 2 however

Trade Agreements

Trade Agreement: enforceable treaty between 2 or more countries that addresses

the movement of goods and services, eliminates trade barriers, terms of trade, and
encourage foreign investment
o Indias trade agreements: NAFTA, EFTA, India-Chilie FTA, India-Israel
FTA
NAFTA: sets rules surrounding movement of goods, services, investments in
N.America
o Adv: Higher prosperity and efficiency for many companies
Higher paying engineering jobs in India
Free flow of resources makes NA a stronger competitor to Asia
markets
Trade has tripled for partners (894B) and exchange rate doubled
o Disadv: Many manufacturing jobs were lost to Mexico
Mexicos corn, beans, milk industry felt lack of tariffs made it hard
to compete
Mexico increased pollution
Factory jobs were often poor in standards
FTAA (Free trade Agreement of the Americas)
o N/S America free trade zone making it the largest in the world
o Agreement fell through because of Brazil and Venezuela
o In 2010, India still has pending agreements with Morocco, EU, Korea etc.
Tax Treaties: created to prevent double taxation and tax evasion for people who
pay taxes in India and other countries for income
o India has tax treaties with 92+ countries
o Tax treaties give businesses more predictable and easily to move things
across borders
o Taxation framework makes developing countries more favourable
EU: formed to remove many obstacles between movement through small EU
countries
o Has its own currency, financial policies, anthem, and flag
o Belgium, France, GB, Ireland, Luxembourg, Portugal, Denmark,
Germany, Greece, Italy, Spain, Netherlands, Cyprus, Estonia, Latvia,
Malta, Slovakia, Czech Republic, Hungary, Romania, Bulgaria, Lithuania,
Poland, Finland, Sweden, and Slovenia
o Members must be stable, democratic, and has positive human rights record
o Purpose: promote peace, economic growth, cooperation, people bonds,
and political integration
o Single market allows borders, goods, and investments to flow a lot easier

Collectively the largest GDP, 19.5 Trillion

Leaders switch once every 6 months, most votes majority but some
unanimous
o Council of EU > European parliament (laws, budgets) > European
Commission (day to day)
The Euro
o Some members do not use Euro, while some do.
o New members are expected to use Euro, and meet strict policies on
inflation, stability, etc.
o Adv: Decrease exchange rate fluctuations
Price transparency for comparisons
Eliminate transaction costs
Billing Ease
Large markets
Stability
Labour movements (easier to pay)
o Disadv: Initial costs (implements accounting software, signs, etc.)
National control (nations cant control certain rates)
Loss of tradition
o India + Euro
EU is CAs 4th largest Foreign investment & 2nd largest export
partner @ $90B trades in 2008
Metals, stones, oil, machinery
In 2009, agreements were made to start free trade (EFTA)
o
o

Trade organizations

Trade organizations: established to help free flow of goods and services

World Trade Organization (WTO): promotes free trade throughout the world
o Main Purpose: settle trade disputes
o 153 members and decisions made by consensus
Purpose: A forum for negotiation
Purpose: Set global rules
Purpose: Dispute Settlement
o WTO also provides protection of intellectual properties
o Invites government to lower protectionist policies
o Lower global cost and rise standards of living
o Criticisms: WTO destabilizes markets, and drains resources from
developing countries
Ie. Producing beans in USA faster then Madagascar can buy them
at lower price
Leads to lowering the already low underdeveloped
countries

Overprotection of IP (intellectual properties) make it hard to use

them for generic items (Ie generic AIDS drugs)
WTO decisions arent clear and definitive. Ie India US Softwood
lumber import duties disputes in 2006
o India + WTO
Its been vital to Indias success as it helps alleviate most of the
treaties
Asia-Pacific Economic Co-operation (APEC): created in 1994 to unite
countries in Asia
o Main Purpose: Promote trade in Pacific Rim countries
o 21 members represents 40.5 % of the worlds population
o Foster free trade among its members, increase prosperity and economic
growth
o Trade, investments, business facilitation, economic and technical
cooperation
o Asides from business, APEC also discusses climate change, and security
o Since APEC, countries have increased trade by 400%
The group of eight (G8): comprises of major economies of the world
o Main Purpose: Discuss Macroeconomic issues
o GB, Germany, India, France, Italy, Japan, USA, Russia
o Purpose to discuss macroeconomics such as growth, trade freedom, and
helping developing countries
o Also discusses terrorism, technology, arms, and crime/drugs, N.Korea, and
nuclear weapons
The group of 20 (G20): established in 1990s to discuss major economies of the
world
o Main Purpose: Discuss financial stability and growth of developing
countries
o Build to go beyond the G8 to include India, Brazil, and China
o To strengthen ties throughout the world, growth, and eliminate trade
barriers
o Also discusses restructuring global financial organizations like IMF and
World Bank
India + G8 and G20
o Theres been talks to rank India lower in the G20 and replace them in the
G8
o Plays a very small role in comparison
Organization for Economic Co-operation and Development (OECD)
o Main Purpose: promote democracy
o Established for the advancement of democracy and market economies
o Promote economic growth, expand employment, improve Stand. Of
Living,
o Financial stability, helping countries economic development, and enhance
world trade
o Provides publication on topics like sustainable development, world health
data, statistics etc.

Their report Economic Survey of India is especially useful to Indian

businesses
World Bank: organization of 186 members that provides monetary support for
developing countries
o Main Purpose: Lend money for developing countries
o International Bank for Reconstruction and Development (IBRD)
Works with developing underdeveloped countries
o International Development Association (IDA)
Assists the least prosperous countries
o Provides loans and grants to poor countries with issues
o Helps these countries get proper infrastructure
o India and other countries donate to the WB
o Some say many countries suffered because of the rules it makes for taking
loans
They take advantage of the countries they loan to, so that when
theyre working well, theyll be advantageous to the countries in
the WB
The International Monetary Fund (IMF)
o Main Purpose: Track and analyze economic trends
o Tracks economic trends, analyzes countries financial performances, and
warns governments of financial problems
o 186 member including India
o Purpose to encourage countries to adopt responsible economic policies
o Lending money to emerging developing countries
o Provide technical training in banking regulations and policies
o In 1997 Asian economic crisis, IMFs suggestion to increase interest rates
made the crisis deepen
Loans also often come with strict regulations for inflation and
other economic constraints
Other organizations: Organization of Petroleum Exporting Countries (OPEC),
World Economic Forum (WEF), International Chamber of Commerce (ICC),
Indian International Trade Tribunal (CITT)
India Trade Assistance Organizations: GLOBE Foundation of India, The Fraser
Institute, C.D Howe Institute, CIGI Center for International Governance
Innovation
o

The Role of UN in International Business

Purpose: Keep peace throughout the world

o Develop friendly relations among nations
o Work to help poor people better lives by eliminating disease, illiteracy, and
respect of freedoms
o Center for helping nations achieve these goals

Peace keeping and relief with International Labour Organization, IMF, WHO, and
UNICEF
Charter of the UN declares UNs commitment to devote resources to help
standards of living, unemployment rate, and economic conditions
UN Economic and Financial Committee deals with International trade, sustainable
development, globalization and poverty elimination

Chapter 6: Social Responsibility and NGOs

What is Corporate Social Responsibility

Corporate Social Responsibility (CSR): is defined as the duty of a companys

management to work in the best interests of the society it relies on for resources
o It may take many forms like: Charitable donations, treating employees
ethically, Being environmentally conscious, Ensuring safe working
environments, sponsoring local teams, creating and promoting diverse
workplaces
Benefits of CSR
o CSR as a marketing tool
o Dissuades governments from implementing regulations that might
interfere businesses
o Attract and retain employees, especially if employees can make a say with
practices
o Nike and Gap traditionally had poor CSR practices
Criticisms of CSR
o Costs money to companies
o Spending time and employee energy on CSR
o Often distract customers from problems a company may be creating (Ie
Tobacco company with good CSR detracts people from thinking smoking
is good)
o CSR looks good one one side, but does it bad in other countries
CSR in a global company
o Important to stay consistent in CSR strategies worldwide
o Todays consumers can easily look up bad practices
o Companies need to tell employees about CSR practices too through codes
of conduct etc. To prevent fraudulent activities or immoral practices
Stakeholder Analysis
o When a company wants to know how its doing, it asks stakeholders
Primary stakeholders: customers, investors, suppliers, competitors
who have direct impact to the organizations profitability and
success

Secondary stakeholders: do not directly affect the companys profit

like community, media
When doing a stakeholder analysis, they must determine who has
the most influence on the decision making process

Business Ethics

Business Ethics: refers to the set of rules or guidelines that management or

individuals follow to make decisions for their company
o Include laws, companys code of ethics, and personal values of the
decision maker
o Is this honest? Will this be fair to stakeholders? How will this impact the
companys reputation?
Global Ethical Reasoning: Ethical decisions are more complex for global
companies
o Ethical Imperialism: there is a universal truth standard across all cultures
If something is wrong in one country, its wrong in all countries
o Cultural Relativism: Different cultures should be respected as one is not
seen as better than another
For these, different countries will have different ethics or practices
o The UN has Universal Declaration of Human rights that define minimum
human rights

Ethical Issues in International Business

Environmental Issues: the ability to meet human consumption while maintaing

the environment needs to be considered.
o Natural environment is critical for businesses, it must be respected and
sustained
o Examples
1984 gas leak from Union Carbide Plant in India killed 3000
Oil Spills Exxon Valdez in 1989 and BP in 2010
Indian waterways polluted with mercury from coal-burning power
plants
Ghana, Lake Songor is shrinking because of salt mining, diverting
water for irrigation
o Governments have agreements like Rio Declaration on Environment and
Development and Kyoto Protocol agree to limit greenhouse gas emissions
and other limits
US India and China have withdrew from it because it impedes with
economic growth

Johannesburg World Summit on Sustainable Development seeked to

preserve natural resources, and world consumption
Unfortunately, US president didnt attend, making it hard to have
decisions
o In 2009, in efforts to maintain global temperature increase to 2 degrees,
100B were put in to help developing countries reduce emissions
Sweatshops: factories of underdeveloped and developing countries where
working environments are unsafe and employees treated unfairly
o Often employs children age 14
o Paid very little with overtime pay cheated
o Workers cannot take sick days, breaks, and work 12 hours a day
o Hot environments and untrained workers make for dangerous work
environments
o Global competitiveness, corporate greed, and consumers expectation of
low prices cause sweatshops
o Companies shouldnt stop using factories in developing countries, but
instead make sure they do it right there and invest money in making more
ethical
o As consumers, we can boycott or buy only certain items from companies
to reflect how we feel
Corporate corruption: refers to the involvement in illegal activities to further
ones business interests
o Livent
Garth Drabinsky and Myron Gottleib involved in accounting
scheme were found guilty in overstating profits, under-representing
costs and inflated value of assets
Sentenced in 2009 to jail
o Hollinger Inc. Conrad Black was found guilty of fraud obstruction of
justice by US Securities Exchange Commision (SEC) and misappropriated
millions of dollars
Fined $125,000 and forfeited $6.1M and sentenced to 6.5 years in
prison
o Bernard Madoff: Spent years defrauding investors $50B in Ponzi scheme
which pays returns to current investors using new investors money rather
than profits. Sentenced to 150 years in prison
o Corporate crimes (white collar crimes) impact the world more than real
crimes
Gifts and Tips are not considered a bribe, just a low cost symbol
of friendship
Grease: smaller payments to encourage faster negotiations and
speed up business people are bribes
Commissions: Large payments made to facilitators or go between
business negotiations. Not bribes and happens often (realtors, Best
Buy)
Bribes: money presented to induce people to do things, are illegal
o

Corruption of Foreign Officials Act makes it illegal to accept a bribe in

India or globally
Dumping: selling products in a foreign country below the cost of production or
below the price in home country
o To get rid of excess production in home country without affecting home
country prices
o Predatory Dumping: reduces price of products an sells them in foreign
country to remove competitors
o Companies speak to CBSA (Indian Borders Services Agency) or CITT
about possible dumping
Poverty: Biggest problem on earth, one quarter of population lives in poverty
o Microcredit: when one family is given a small grant to start businesses
(farming, small shop)
Lending circles have entrepreneurs make money and repay it, then
lending it to someone else
o

Non-Governmental Organizations: non-profit organizations made with a service and

developmental focus

NGO focus can be diverse and care about various things.

o Ie Doctors without Borders, Greenpeace, Amnesty International, World
Vision etc.
Free the Children: Craig Keilburgers NGO goes around the world spreading
awareness about children in sweatshops and money
o They also help build schools and infrastructure to get children to success
Fairtrade Labelling Organizations International (FLO)
o Improves trading relationships for producers around the world
o Helps maintain a fair and honest trade between all members of the supply
chain
Ten Thousand Villages
o Retail stores that sell fair trade products in N.America like handicrafts
from artisans in underdeveloped countries
The International Organization for Standardization (ISO)
o Largest standards developing organization implementing 17500 standards
worldwide
o ISO helps ensure that all companies are able to produce the same way at
the same level of quality and dimensions

Chapter 3 Notes
Culture Intro

Culture: encompasses the knowledge, experience, beliefs, values, attitudes,

religion, symbols, and possessions acquired by a group of people who lived in the
same region or country for generations.

Subculture: a cultural group within a larger or predominant culture distinguished

from it by factors such as class, ethnic background, and religion, and unified by
shared beliefs and interests
Counter Culture: A culture that has values or lifestyle that are in opposition to
those of a current accepted culture. Members of a counter culture openly reject the
established cultural values that surround them.
Culture Determinants: The main factor that shape the culture of a specific group
include religion, politics, topology, climate, and history.

Cultural Awareness and Business

Indian firms going global must determine the cultural differences

Decide whether or not their business can adapt to foreign culture

Extent of foreign operations

Level of cultural awareness will depend on how much business a company does
in foreign country
Primary domestic operations that export do not need to care
Manufacturing, retail are more crucial

Degree of cultural differences

If foreign culture is similar, no need to spend as much time

If its very different, then you need to spend more time

Number of Foreign Operations

Businesses in foreign markets need to be aware the difference between cultures

Impact of culture on international business

Failure to consider culture could ruin negotiations, marketing, labour, or even

death
o Products

Culture has a direct impact on the types of products and services

that will be successful in other markets
Culture has little impact on the sale of Indian raw goods
Indian exports depend on foreign culture though (ie pork in
jewish/muslim area)
Services
Financial services are most commonly exported into foreign
markets
Peoples attitude towards money is different in every culture
Chinese like to save money, investment firms like to tap
into the billions of dollars

Impact of culture on labour

Indian values extend into the workplace by means such as minimum wages,
safety, discrimination, and holidays

Rationalization: any attempt to increase a companys effectiveness and

efficiency
o Ex. Downsizing, layoffs, relocating corporate functions and activities

Many companies find Indian labour is very expensive for manufacturing jobs
For skilled jobs, India is very educated and well fitted for those tasks
Indians who wish to do business abroad must understand the differences between
other countrys values about labour

Child Labour
o Child Labour is very prominent in Asia and the Pacific countries
o To Indian businesses, this is easy to control, just dont hire kids
o But to some nations, it may be ok or they dont care whos working
o Some take advantage of kids, putting them in dangerous conditions
If a Indian business is caught doing this, Indians will see this as
unacceptable and will decline to buy their products
Discrimination
o Indian law prohibits any form of discrimination in the workplace
o However, in Saudi Arabia, hiring women can be difficult as their values
are different
o Homosexuality may also be less welcomed in other countries

Wages
Wages reflect standards of living in a country
Indian manager must ask what is an acceptable or average wage in foreign
countries
Standards and Practices
o Cultures may have different norms as part of the workplace than India
Lunch breaks: India = 1 hour, Mexico = 2 hours, Muslim Countries
have times to pray
o Labour Unions and benefits may be non-existent in some countries
o Different labour cultures affect Indian branch plants that they must respect
Indigenous Cultures
o Foreign branches must be aware of indigenous cultures
o Positive indigenous effects: employments, medical, roads, water.
Ie Businesses who need educated people might benefit local
schools etc.
o Historically, it hadnt worked out with indigenous people
Ex French India traders abused Native Indians to do resource
extraction
o Angola and Sierra Leone have rebel forces trading Diamond with bloody
conflicts
Exploitation of diamonds for guns harms ecosystems, human life,
and animal life
Thousands of indigenous colonies get displaced when companies
expand into forests
o
o

Business Meetings and Negotiations

Time Perception
o Monochronic: sees time as linear and sequential, and focus on one thing
at at time
Based on contracts, back and forth, formality, fact based, direct
o Polychronic: sees many things happening at the same time with
participation of many people
Works based on trust, contacts, and lesser formal
Spatial Perception
o Refers to the personal space and amount of physical contact
o Europe, South Americans are closer than North American cultures
o Physical contact can involve kissing, touching
India: hand shaking, patting on back is appropriate
Latin America: Kissing, hugging, patting is appropriate
Muslim: touching is offensive
o Seating can also be different
India likes sitting across from eachother, China likes side by side

Non-Verbal Communication
o Non-Verbal communication is closely related to cultural norms of space.
Ie Japan is strict to have 1 person talking at once, whispering is
unacceptable
o Some gestures are regarded as offences
Ie OK sign is obscene in Spain
Business Etiquette
o Expectations for how a business person presents him/herself in a meeting
is different
o Business cards, dress, punctuality, gifts, greetings, and topics should be
considered

Hofstedes Cultural Dimensions

Power Distance (PDI)

o How different in power between people is perceived differently.
o High Power Distance
Cultures with superiority because of age, wealth, gender, status,
job etc.
Ex. Mexico, India, Indonesia
o Lower Power Distance
Cultures that assume on equality regardless
Assumed based on earned status and how you build
yourself
People arent prejudged
Ex. Israel, India, Austria
Uncertainty Avoidance (UAI)
o How cultures adapt to change
o High Uncertainty Avoidance
You like rules, routines, religion, belief
Act based on beliefs
Little tolerance for outsiders
Ex. Mexico, Japan, Saudi Arabia
o Low Uncertainty Avoidance
Love risk taking and seeking change
Very high tolerance for difference
Accepting, diverse
Ex. India, USA, Sweden, Singapore
Masculinity vs Femininity (MAS)
o Workplace values of males and females
o Masculinity
Something we possess and show

Being assertive, competitive, ambition, accumulative of material

goods (collecting)
Ex. Japan, Mexico
o Femininity
Degree of culture values nurturing, family values, and social
support systems
Ex South Korea
Individualism vs Collectivism (IDV)
o Extent to which a person makes their own decisions regarding your
education, job, and life partner
o Individually (High IDV)
Makes decisions yourself
Ex India, USA, Australia
o Collectivism (Low IDV)
Members have government, churches, and families make decisions
for them
Ex. China, Cuba
Orientation (LTO)
o Long term orientation vs Short term orientation
o Long Term Goals
Having perseverance for long term goals
Ex. South Korea
o Short Term Goals
Looking at the present, what are you going to do now.
Ex. USA, India

Hofstedes India
o High IDV: individualistic approach and attitude. Privacy.
o Low LTO: short term driven and appreciates cultural traditions
o Low PDI: High level of equality.

Chapter 4 Notes
Economics and Politics

Political System: the type of government by which a country is run

Economic System: the way a country organizes its resources and distributes good
to citizens
o Economic systems try to answer:
What should the country produce and in what quantities?

How should scarce resources such as labour and capital be

allocated?
How should goods and services be distributed throughout the
country?
What should be the price of goods and services?
Market Economy: capitalism or private enterprise
Businesses, consumers, government run independently of each
other
Ensure there is a variety and little government control
Atmosphere in which citizens and corporations can be successful
Private Property: encouraged to own property (real estate,
automobiles, furniture..)
Free to rent, sell, trade, or give properties
Profit: encouraged to be profitable because then companies can
improve
Profit belongs to the owner of the business and they choose
how to spend it
Competition: Companies compete on quality, services, price,
reputation & warrantees
competition results in more incentives by the companies to
have loyal customers
Advantage:
Freedom of speech, religion, assembly
Efficiency
Innovation
Economic Growth
Low prices
Disadvantages
Rich and Poor gap
No education
Unhealthy products
Centrally Planned Economies: communism or command economy
Government controls all element of the economy and distributes
income
Government provides education, healthcare, employment, and
housing
Private Property: Restricted. Government owns all housing &
businesses like factories, offices, farms. All workers are employed
by the government
Profit: Profit belongs to government. No portion belongs to
citizens. Governments re-invest revenues into businesses or
education, military. Governments control prices to increase
revenue when needed
Competition: Limited. Government determines size, price, quality,
and amounts. Consumers have little variety

Ex. North Korea, Cuba.

China and Russia are changing to market economy practices
Advantages
Citizens ensured minimum standards
No unemployment
All services provided
Stability
Disadvantages
Restriction of freedom
No motivation to work
No innovation
Large military
Corruption
Mixed Economies: Free enterprise systems
Ex. India has government services like healthcare and education,
yet prosperous businesses and large corporations.
Private Property: owned by individuals, corporations, or
government. Government has offices, parks, and schools. It sets
regulations that affect private property.
Ex India has regulations for ownership of financial
institutions and media
Profit: encouraged, but taxed to support government. Federal &
provincial level through sales tax, income tax, corporate tax.
Municipal collects property taxes
Competition: Strong competition between businesses, but
government might be a competitor too.
Ex. Government owned VIA Rail, India Post affect DHL,
Fedex, UPS etc.
Advantages:
Consumer protection
Individual incentive
Basic social services
Disadvantage
Higher taxation
Individuals have little on input on tax spendings
Less working motivation
Government might intervene growth

Political Systems
o Theocratic: based on religion
o Monarchy: based on king and queen
o Aristocracy: based on rich and wealthy

Democracy: Free and fair elections, rule of law, free speech, assembly,
press, and religion
Entitled to education and govern themselves
Accompanied by market economy
Ex India, USA
Politicians get concerned with re-election than the overall benefit
Politicians rely on corporate funding may be influenced by
corporations
Similar background from politicians (lack of women, minorities,
poor)
Expensive to maintain
New emerging economies lack judicial systems to maintain
political stability (latin america)
Autocracy: Ruled by a small group or individual
Believe 1 government will have rational decisions for entire
country
Strong military presence
Controls citizens lives including media, professions, businesses,
religions
Citizens have no say in government decisions
Ex. North Korea, Cuba are led by a single leader
Tied with centrally planned economy, though some countries have
foreign investments

Classifying Economic Development

o Countries are classified by economic development. Whether theyre poor,
rich, or just getting started
o Countries are ranked based on criteria determined by United Nations (UN)
and IMF (International Monetary Fund)
o Underdeveloped Countries, least developed, or third world
Poor infrastructure, no healthcare, education
Small economies by comparison
Low literacy, limited technology, weak economies
Political issues, corruption, war
Relies predominantly on agriculture or resources
Frequent natural catastrophes result in underdevelopment
(Rwanda, Madagascar)
o Developing Countries, emerging countries
Improved literacy rates, increased health care access, technological
advancements
Shift towards industrialization and manufacturing
Ex. China, Brazil, India, South Africa
Rural shift to cities as well as urbanization

Indian businesses like Bombardier can benefit by providing for

these countries
However, lower labour costs India cant match can compete with
India
Often weak regulatory and legal systems.
Developed Countries, industrialized nations, first world countries
High Income or strong GDP
High literacy rates, good healthcare, education, and technology
Manufacture diverse complex equipment like cell phones,
computers, hybrid cars
Strong alliances between developed countries (G8)
Correlation between democracy and economic growth

The Business Cycle

o Recession, contraction
Economy slows down
2 consecutive quarters of negative GDP
decline in consumer purchases, employment, business growth
Indication in India are construction contracts and exports
o Trough, Bottom of the cycle
Employment and production at their lowest point
Turning point to success
sometimes worsens to become depression (ie 1930s)
o Expansion, recovery, prosperity
growth of employment, wages, production, and profits
Strong investments, businesses created (Ie 2001-2007)
o Peak
Top of the business cycle when economy stops expanding and
begins contracting

Economic Indicators of the business cycle

o Leading indicators: predict where the economy is headed.
adjusts before economy actually experiences change
guides investors, businesses, and governments
Ex. Housing starts are leading indicators because people wont
purchase new homes if economy is down
o Lagging Indicators: are adjusted after economic changes.
Takes 2-3 quarters for economic change to influence a lagging
indicator
Ex. Unemployment rate: takes 6 months for unemployment rate to
decrease after change

Coincident Indicators: move in conjunction with the business cycle

Ex International Trade: slumping economies involve less trading

Governments and the Business Cycle

o During the 2008-2009 US recession, India was affected by decrease in
American purchases
o Governments increased their spending to stimulate the economy
o India allotted $12B for infrastructure, $7.8B for homes, $200B for
consumers.
o USA had a $787B stimulus package to government agencies
o Democratic governments may invest in social programs to influence
voters decisions before elections

Economics of Trade

Absolute Advantage
o a country has absolute advantage if it makes a product or service more
productively than other countries.
o They use the resources more efficiently to manufacture more products.
o Country has better technology to produce goods with absolute advantage
o Opportunity Cost: is the value of what is forgone
Opportunity cost of being in school is the money you could be
making in a job
Comparative Advantage
o When a country has a comparative advantage, it means that country can
produce a good at a lower opportunity cost as the other
o Countries exporting products in which they have a comparative advantage,
and import goods from country with a comparative advantage for that
product, both countries will benefit.

The Role of Government in International Trade

Governments role include: IN/OUT Laws, tariffs, trade agreements, immigration

laws, currency rates, taxation laws, education, tax treaties, military systems,
environmental policies, infrastructures, embargoes
Indian government help intd businesses set up in India with incentives
But impede with regulations, licenses, and laws.

Government Regulations
o Government regulates laws such as minimum wage
o To start a business in India, it is easy to start a business with only one
online application
o New registered businesses will receive
A registration number
GST/HST number
Corporate income tax account
Import/Export account
Payroll deduction information
o In China, though, it takes 13 stages of approval to open a business there

Trade offices
o Established in foreign countries, it helps foreign businesses operate
o Trade offices help investments, exports, R&D, and lower costs by
providing expertise
Government Embassies, High commissions, and Consulates
o Consular Services in foreign countries help traveling Indians in case of
emergencies
Communications with family after accident
Lost passports or identifications
Customs, Taxes, VISAs
o Embassies: located in capital cities they provide full range of services
o High Commissions: Same as embassies, but in Commonwealth countries
(GB, Australia)
o Permanent Missions: Located in UN, WTO and EU. No consular
services
o Consulates General: embassy like offices located in major cities
o Consulates: located in major cities but do not provide all range of services
o Consulates headed by honorary consuls: Located around the world
headed by honorary consuls. In places like Uganda and Paraguay.
o Offices: Found in major and capital cities to aid with specific projects
without consular services.

Trade Missions
o Organized by DFAIT, Team India visits a specific country focused on a
specific industry
o Provides Indians a business opportunity to meet potential customers,
suppliers etc.
o Junior Team India are teenagers going abroad to gather business
information, contacts, and opportunities.

Brand India promotes Indian Culture to foreign places

Chapter 5 6 Notes

Chapter 5: International Trade Agreements and Organizations

Globalization and International Trade

Globalization: movement of goods, services, technology, investment, ideas, and

people around the world
o Happened when trade barriers are reduced after WWII
Positive aspects of globalization:
o Outsourcing:
o Lower Prices
o Improved human rights
o Increased productivity
o Innovation
o Better jobs
o Increased capital flow
Negative Aspects
o Lost/fear of lost CDN jobs
o Loss of CDN productivity
o Exploitation of cheap labour
o Increased pollution
o Unhealthy products
o Spread of disease
o Increased income gap
o Influence of MNCs (Multination corporations) on government
Globalization strategies: companies use different strategies with different parts
of the world
o Global Strategy: regards world as one big market with decisions made in
headquarters
Adv: massive economic scale (produce bulk quantities)
Disadv: require rapid syncing of global countries, and little care for
individual cultures
Ethnocentric: the idea that everyone will want and respond to the
product the same way
o Multidomestic strategy: customizes products and marketing for local
culture
Decisions made decentralized
Adv: better political, product, and responsiveness from local
people

Polycentric: local management is best strategy for whats best

Transnational strategy: combines the best of global and multidomestic
Maintains needs of local culture, but still stay cohesive to the
global scale
Products made cheap centrally, then marketing customizes locally
Geocentric: values both local differences and whats best for
company
Often very difficult to maintain the balance between the 2 however

Trade Agreements

Trade Agreement: enforceable treaty between 2 or more countries that addresses

the movement of goods and services, eliminates trade barriers, terms of trade, and
encourage foreign investment
o Indias trade agreements: NAFTA, EFTA, India-Chilie FTA, India-Israel
FTA
NAFTA: sets rules surrounding movement of goods, services, investments in
N.America
o Adv: Higher prosperity and efficiency for many companies
Higher paying engineering jobs in India
Free flow of resources makes NA a stronger competitor to Asia
markets
Trade has tripled for partners (894B) and exchange rate doubled
o Disadv: Many manufacturing jobs were lost to Mexico
Mexicos corn, beans, milk industry felt lack of tariffs made it hard
to compete
Mexico increased pollution
Factory jobs were often poor in standards
FTAA (Free trade Agreement of the Americas)
o N/S America free trade zone making it the largest in the world
o Agreement fell through because of Brazil and Venezuela
o In 2010, India still has pending agreements with Morocco, EU, Korea etc.
Tax Treaties: created to prevent double taxation and tax evasion for people who
pay taxes in India and other countries for income
o India has tax treaties with 92+ countries
o Tax treaties give businesses more predictable and easily to move things
across borders
o Taxation framework makes developing countries more favourable
EU: formed to remove many obstacles between movement through small EU
countries
o Has its own currency, financial policies, anthem, and flag
o Belgium, France, GB, Ireland, Luxembourg, Portugal, Denmark,
Germany, Greece, Italy, Spain, Netherlands, Cyprus, Estonia, Latvia,

Malta, Slovakia, Czech Republic, Hungary, Romania, Bulgaria, Lithuania,

Poland, Finland, Sweden, and Slovenia
o Members must be stable, democratic, and has positive human rights record
o Purpose: promote peace, economic growth, cooperation, people bonds,
and political integration
o Single market allows borders, goods, and investments to flow a lot easier
o Collectively the largest GDP, 19.5 Trillion
o Leaders switch once every 6 months, most votes majority but some
unanimous
o Council of EU > European parliament (laws, budgets) > European
Commission (day to day)
The Euro
o Some members do not use Euro, while some do.
o New members are expected to use Euro, and meet strict policies on
inflation, stability, etc.
o Adv: Decrease exchange rate fluctuations
Price transparency for comparisons
Eliminate transaction costs
Billing Ease
Large markets
Stability
Labour movements (easier to pay)
o Disadv: Initial costs (implements accounting software, signs, etc.)
National control (nations cant control certain rates)
Loss of tradition
o India + Euro
EU is CAs 4th largest Foreign investment & 2nd largest export
partner @ $90B trades in 2008
Metals, stones, oil, machinery
In 2009, agreements were made to start free trade (EFTA)

Trade organizations

Trade organizations: established to help free flow of goods and services

World Trade Organization (WTO): promotes free trade throughout the world
o Main Purpose: settle trade disputes
o 153 members and decisions made by consensus
Purpose: A forum for negotiation
Purpose: Set global rules
Purpose: Dispute Settlement
o WTO also provides protection of intellectual properties
o Invites government to lower protectionist policies
o Lower global cost and rise standards of living

Criticisms: WTO destabilizes markets, and drains resources from

developing countries
Ie. Producing beans in USA faster then Madagascar can buy them
at lower price
Leads to lowering the already low underdeveloped
countries
Overprotection of IP (intellectual properties) make it hard to use
them for generic items (Ie generic AIDS drugs)
WTO decisions arent clear and definitive. Ie India US Softwood
lumber import duties disputes in 2006
o India + WTO
Its been vital to Indias success as it helps alleviate most of the
treaties
Asia-Pacific Economic Co-operation (APEC): created in 1994 to unite
countries in Asia
o Main Purpose: Promote trade in Pacific Rim countries
o 21 members represents 40.5 % of the worlds population
o Foster free trade among its members, increase prosperity and economic
growth
o Trade, investments, business facilitation, economic and technical
cooperation
o Asides from business, APEC also discusses climate change, and security
o Since APEC, countries have increased trade by 400%
The group of eight (G8): comprises of major economies of the world
o Main Purpose: Discuss Macroeconomic issues
o GB, Germany, India, France, Italy, Japan, USA, Russia
o Purpose to discuss macroeconomics such as growth, trade freedom, and
helping developing countries
o Also discusses terrorism, technology, arms, and crime/drugs, N.Korea, and
nuclear weapons
The group of 20 (G20): established in 1990s to discuss major economies of the
world
o Main Purpose: Discuss financial stability and growth of developing
countries
o Build to go beyond the G8 to include India, Brazil, and China
o To strengthen ties throughout the world, growth, and eliminate trade
barriers
o Also discusses restructuring global financial organizations like IMF and
World Bank
India + G8 and G20
o Theres been talks to rank India lower in the G20 and replace them in the
G8
o Plays a very small role in comparison
Organization for Economic Co-operation and Development (OECD)
o Main Purpose: promote democracy
o Established for the advancement of democracy and market economies
o

Promote economic growth, expand employment, improve Stand. Of

Living,
o Financial stability, helping countries economic development, and enhance
world trade
o Provides publication on topics like sustainable development, world health
data, statistics etc.
o Their report Economic Survey of India is especially useful to Indian
businesses
World Bank: organization of 186 members that provides monetary support for
developing countries
o Main Purpose: Lend money for developing countries
o International Bank for Reconstruction and Development (IBRD)
Works with developing underdeveloped countries
o International Development Association (IDA)
Assists the least prosperous countries
o Provides loans and grants to poor countries with issues
o Helps these countries get proper infrastructure
o India and other countries donate to the WB
o Some say many countries suffered because of the rules it makes for taking
loans
They take advantage of the countries they loan to, so that when
theyre working well, theyll be advantageous to the countries in
the WB
The International Monetary Fund (IMF)
o Main Purpose: Track and analyze economic trends
o Tracks economic trends, analyzes countries financial performances, and
warns governments of financial problems
o 186 member including India
o Purpose to encourage countries to adopt responsible economic policies
o Lending money to emerging developing countries
o Provide technical training in banking regulations and policies
o In 1997 Asian economic crisis, IMFs suggestion to increase interest rates
made the crisis deepen
Loans also often come with strict regulations for inflation and
other economic constraints
Other organizations: Organization of Petroleum Exporting Countries (OPEC),
World Economic Forum (WEF), International Chamber of Commerce (ICC),
Indian International Trade Tribunal (CITT)
India Trade Assistance Organizations: GLOBE Foundation of India, The Fraser
Institute, C.D Howe Institute, CIGI Center for International Governance
Innovation
o

The Role of UN in International Business

Purpose: Keep peace throughout the world

o Develop friendly relations among nations
o Work to help poor people better lives by eliminating disease, illiteracy, and
respect of freedoms
o Center for helping nations achieve these goals
Peace keeping and relief with International Labour Organization, IMF, WHO, and
UNICEF
Charter of the UN declares UNs commitment to devote resources to help
standards of living, unemployment rate, and economic conditions
UN Economic and Financial Committee deals with International trade, sustainable
development, globalization and poverty elimination

Chapter 6: Social Responsibility and NGOs

What is Corporate Social Responsibility

Corporate Social Responsibility (CSR): is defined as the duty of a companys

management to work in the best interests of the society it relies on for resources
o It may take many forms like: Charitable donations, treating employees
ethically, Being environmentally conscious, Ensuring safe working
environments, sponsoring local teams, creating and promoting diverse
workplaces
Benefits of CSR
o CSR as a marketing tool
o Dissuades governments from implementing regulations that might
interfere businesses
o Attract and retain employees, especially if employees can make a say with
practices
o Nike and Gap traditionally had poor CSR practices
Criticisms of CSR
o Costs money to companies
o Spending time and employee energy on CSR
o Often distract customers from problems a company may be creating (Ie
Tobacco company with good CSR detracts people from thinking smoking
is good)
o CSR looks good one one side, but does it bad in other countries
CSR in a global company
o Important to stay consistent in CSR strategies worldwide
o Todays consumers can easily look up bad practices
o Companies need to tell employees about CSR practices too through codes
of conduct etc. To prevent fraudulent activities or immoral practices
Stakeholder Analysis

When a company wants to know how its doing, it asks stakeholders

Primary stakeholders: customers, investors, suppliers, competitors
who have direct impact to the organizations profitability and
success
Secondary stakeholders: do not directly affect the companys profit
like community, media
When doing a stakeholder analysis, they must determine who has
the most influence on the decision making process

Business Ethics

Business Ethics: refers to the set of rules or guidelines that management or

individuals follow to make decisions for their company
o Include laws, companys code of ethics, and personal values of the
decision maker
o Is this honest? Will this be fair to stakeholders? How will this impact the
companys reputation?
Global Ethical Reasoning: Ethical decisions are more complex for global
companies
o Ethical Imperialism: there is a universal truth standard across all cultures
If something is wrong in one country, its wrong in all countries
o Cultural Relativism: Different cultures should be respected as one is not
seen as better than another
For these, different countries will have different ethics or practices
o The UN has Universal Declaration of Human rights that define minimum
human rights

Ethical Issues in International Business

Environmental Issues: the ability to meet human consumption while maintaing

the environment needs to be considered.
o Natural environment is critical for businesses, it must be respected and
sustained
o Examples
1984 gas leak from Union Carbide Plant in India killed 3000
Oil Spills Exxon Valdez in 1989 and BP in 2010
Indian waterways polluted with mercury from coal-burning power
plants
Ghana, Lake Songor is shrinking because of salt mining, diverting
water for irrigation

Governments have agreements like Rio Declaration on Environment and

Development and Kyoto Protocol agree to limit greenhouse gas emissions
and other limits
US India and China have withdrew from it because it impedes with
economic growth
o Johannesburg World Summit on Sustainable Development seeked to
preserve natural resources, and world consumption
Unfortunately, US president didnt attend, making it hard to have
decisions
o In 2009, in efforts to maintain global temperature increase to 2 degrees,
100B were put in to help developing countries reduce emissions
Sweatshops: factories of underdeveloped and developing countries where
working environments are unsafe and employees treated unfairly
o Often employs children age 14
o Paid very little with overtime pay cheated
o Workers cannot take sick days, breaks, and work 12 hours a day
o Hot environments and untrained workers make for dangerous work
environments
o Global competitiveness, corporate greed, and consumers expectation of
low prices cause sweatshops
o Companies shouldnt stop using factories in developing countries, but
instead make sure they do it right there and invest money in making more
ethical
o As consumers, we can boycott or buy only certain items from companies
to reflect how we feel
Corporate corruption: refers to the involvement in illegal activities to further
ones business interests
o Livent
Garth Drabinsky and Myron Gottleib involved in accounting
scheme were found guilty in overstating profits, under-representing
costs and inflated value of assets
Sentenced in 2009 to jail
o Hollinger Inc. Conrad Black was found guilty of fraud obstruction of
justice by US Securities Exchange Commision (SEC) and misappropriated
millions of dollars
Fined $125,000 and forfeited $6.1M and sentenced to 6.5 years in
prison
o Bernard Madoff: Spent years defrauding investors $50B in Ponzi scheme
which pays returns to current investors using new investors money rather
than profits. Sentenced to 150 years in prison
o Corporate crimes (white collar crimes) impact the world more than real
crimes
Gifts and Tips are not considered a bribe, just a low cost symbol
of friendship
Grease: smaller payments to encourage faster negotiations and
speed up business people are bribes
o

Commissions: Large payments made to facilitators or go between

business negotiations. Not bribes and happens often (realtors, Best
Buy)
Bribes: money presented to induce people to do things, are illegal
o Corruption of Foreign Officials Act makes it illegal to accept a bribe in
India or globally
Dumping: selling products in a foreign country below the cost of production or
below the price in home country
o To get rid of excess production in home country without affecting home
country prices
o Predatory Dumping: reduces price of products an sells them in foreign
country to remove competitors
o Companies speak to CBSA (Indian Borders Services Agency) or CITT
about possible dumping
Poverty: Biggest problem on earth, one quarter of population lives in poverty
o Microcredit: when one family is given a small grant to start businesses
(farming, small shop)
Lending circles have entrepreneurs make money and repay it, then
lending it to someone else

Non-Governmental Organizations: non-profit organizations made with a service and

developmental focus

NGO focus can be diverse and care about various things.

o Ie Doctors without Borders, Greenpeace, Amnesty International, World
Vision etc.
Free the Children: Craig Keilburgers NGO goes around the world spreading
awareness about children in sweatshops and money
o They also help build schools and infrastructure to get children to success
Fairtrade Labelling Organizations International (FLO)
o Improves trading relationships for producers around the world
o Helps maintain a fair and honest trade between all members of the supply
chain
Ten Thousand Villages
o Retail stores that sell fair trade products in N.America like handicrafts
from artisans in underdeveloped countries
The International Organization for Standardization (ISO)
o Largest standards developing organization implementing 17500 standards
worldwide
o ISO helps ensure that all companies are able to produce the same way at
the same level of quality and dimensions

Chapter 7 8 Notes

Chapter 7: Marketing

Marketing Activities

Marketing: the sum total of all the activities involved in getting goods and
services from original producer to the ultimate consumer
o Includes market research, product development, pricing, advertising,
promotion, sales, and logistics
o Purpose is to sell the output of production.
Market Research
o Finds data to solve marketing problems
o Primary Data: data collected first hand. Secondary Data: data collected
by a third party
o Statistics can be used to help determine how well a product will sell given
different ways it could be produced
Product Development
o Companies use data as well as additional research to refine their products
so it will appeal to the largest audience when released
Pricing
o Using data collected throughout the stages, companies can determine the
best pricing for products to be sold attractively to the most amount of
people
Advertising and Promotion
o After producing the product, companies will need to convince consumers
that their products are worth their price
o Ads can outline unique creative designs, environmental concerns, and
other special features
o It can take many forms like internet ads, billboards, posters, TV radio ads,
newspaper ads, sponsorships, endorsements
Sales
o A company must know where to sell their products
Craft Shows attract alot of people to one location at once where
products can be shown off
Retailers can be dealt so theyll carry and sell your product
Own store can be setup to exclusively sell your product, although
one can be expensive
Online mediums can reach a great audience and have transactions
done easy and cheap
Logistics
o Management of the flow of goods and services both in and out of an
organization
o Companies must worry about packaging, warehousing, inventory, and
management of goods

4 Ps of International Marketing

Product: modifications must be made to adapt a foreign culture

o Packaging weights: units must be converted
o Packaging colours: some colours are more appealing or have special
meanings in different countries
o Legal Requirements: some countries require materials or restrict
materials from being in products.
o Label Requirements: Special product labeling rules may also apply
o Language Requirements: translate your packaging
o Ingredients: Some countries restrict the consumption of certain foods due
to religious or other reasons. Also, some countries restrict the amount of
harmful ingredients like MSG or salts in their imports
o Style:
Some countries may have different styles or more advanced than
others
Companies need to be aware of different traditions and current
trends in foreign country before adapting or selling products there
Place: Where to manufacture or sell specific products
o Centralized Strategy: all manufacturing and marketing is performed in
one location
This strategy limits foreign expansion as the central plant may
become overly large
o Decentralized Strategy: means they will setup manufacturing plant in
another country, or hire sales force there to do everything in foreign
country
o E-Commerce: online distribution of goods make it the fastest way by far
to carry out sales
E-Distribution: companies can use online distribution channels
like EBay and Amazon to host their products for sale globally
online
Customers can quickly and easily pay with methods like PayPal
E-commerce transaction types:
B2C: business to consumer operated by major retailers
B2G: business to government sells things to various
governments
B2B: business to business sells things online to other
businesses
o Sales Agents: combines centralized strategy with decentralized one
Hire someone to go to foreign country with stocks and sell there
Sales agents go with customized marketing and sales processes
suitable for foreign market
o Trade shows: collection of manufacturers and distributors of similar
products rent a space and display a booth

Attracts thousands of potential customers in and often quickly sells

fast and make money
Between businesses, one can also get attention and make deals
within a trade show
o Branch Plants: most expensive way, but includes staffing a foreign
location to do all its operations
Adv: Lower shipping costs
Import regulations and tariffs are no longer an issue
Product modifications are easier
o Licensing Agreements
Companies can sell rights to use a patent or trademark for a fee as
they take it to do other things with it
A Royalty is often paid as a percentage of the products sold
Manufacturing Agreement: anyone in a foreign country can have
a contract to manufacture products of another company under their
license
Some manufacturers can rebrand the product or market it as
their own with more fees
Distribution Agreements: Retailers can pay royalties to carry
someone elses products and sell them in a foreign country.
In return, the retailer will promise not to sell a competitors
product in the same store
If interest is high, the 2 can negotiate agreements for selling
these products
Franchising Agreements: are a form of licensing agreement that
turns the ownership of a manufacturing or distribution company
over to a local franchisee.
Under certain restrictions and fees, a franchisee can use all
the brands and products of the parent company
Acquisitions: To remove competitions in a foreign country, a
larger company can choose to buy out a smaller company to make
it part of them
Acquisitions may also be used to acquire new skills,
patents, or key people
Price: when picking a price for a product to sell in a foreign country, its
important to consider the following factors
o Labour Costs: when products are manufactured in foreign locations, its
often lower than if it were to be produced in India
o Shipping Costs: When shipping products to farther locations, it may be
very expensive to do so if the distances are farther
o Duties and Tariffs: taxes and fees when importing to another country can
hike up the prices
o Legal costs: Modifications for adaptation to foreign country and foreign
country approvals may have taken some money so its good to consider
those in as well

Competition and consumer interest in foreign country should also be

considered
Promotion: When doing ads in a foreign country, you should consider the
following methods
o Using existing ads: some companies may get away using the same ads for
foreign nations because both countries are very similar in culture (Ie US &
India)
o Translating Ads: The same ads may work, but require some tweaking to
translate the language or units to the foreign country
Companies should be careful translating slogans to foreign
countries as translations often make them not mean the same thing
o Creating the ads: it may be worthwhile just to scrap the old ads and make
new ads unique for the foreign market
o

The 2 Cs of International Marketing

Consumers: Companies must know about the foreign target market before they
do business there
o Indian businesses should avoid Ethnocentrism
Ethnocentrism: is a belief that your own culture is the right way
of doing things and the values of others arent important
To avoid it, you should visit the foreign country and feel how its
like to live there
Read country profiles on the Internet to see how its like there
Offer products in language to suit their demands
o Market Size: tells companies if its worthwhile to sell products there to
enough people
o Demographic Information: is information about the people living in
target country should also be considered before selling there
o Culture, spending habits, and income levels should also be known
Competition: Its important to consider who youll be competing with in the
foreign country
o Direct Competition: are those who provide products or services that are
almost identical to the products or services you provide
o Indirect Competition: Any other product of service that is geared
towards getting money from your target consumers are considered your
indirect competition
o Competitive Advantage: refers to the ability of one company to produce
a product more cheaply than another company.
The following factors may cause a company to create products at a
lower cost
Lower cost production: a competitor might have economies of
scale that allows them to make products far cheaper
Lower distribution costs: companies may be more ahead and
already has manufacturing plants in foreign country so they can do
things cheaper

Product differentiation: Difference in flavour, quality, and

packaging, colour, scent, and so on can deter a customer to their
product
Brand equity: is the value of a products brand in the market,
essentially the number of consumers who can identify the brand.

Chapter 8: Logistics

Logistics Defined

Logistics: consists of the acquisition, transportation, and storage of materials

from the point of origin to the point of consumption
Military Logistics: refers to the science of planning, organizing, and managing
the movement and maintenance of military forces.
o French used foraging: taking foods and supplies from people they defeated
Production Logistics: refers to logistic processes within a company, usually a
manufacturing business.
o It ensures all the materials arrive correctly in sync to be manufactured
o Works in part with supply chains to make this happen
Business Logistics: is responsible for ensuring a steady flow of needed materials
and information, transportation, storage facilities, all move to the end consumer

Supply Chain

Supply Chain: is the sum total of all activities involved in moving raw materials,
processed goods, and finished products into an organization, moving them out to
be processed, and eventually to the consumer
o Vertical Integration companies who own the entire supply chain
(shipping, raw materials etc.)
Vertical integration requires lots of resources and attention that
takes away from the quality
Many companies prefer to use third party logistics (3PL) so they
can spend more time correcting problems instead of managing the
huge animal
Inventory Management: refers to the way inventory is gathered and used
o SKU (stock-keeping units) are used to number and manage stocks
o Retails often have point-of-sales terminal to get products out the door
o Large companies need to coordinate the availability of product inventory
from hundreds of suppliers as well as store inventory in hundreds of
locations

If a company designs its own clothing, it also needs to find out if these
materials are available before they choose to use that design
Storage
o Stored in 4 locations: place where its made, a warehouse, a distribution
centre, or place that receives the goods
o Companies often use third party warehouses instead of their own to reduce
costs
o Due to high costs, many companies use Just In Time Inventory Systems
so that everything arrives just in time to eliminate the need to store them
for too long
o Online retailers require a lot of warehouse space, but since warehouse
spaces are cheaper than retail, online retailers smart with their Just In Time
systems can compete with brick and mortar stores
Cash-Flow management
o They only need cash-flow management if the transaction take place
between 2 businesses in 2 different countries
o Involves negotiating payment terms, method of payment, and exchanging
funds of the supply chain .
o Often for large payments for products, machinery, transportation, and legal
fees
o A Letter of credit can be used to hold some money and guarantee that the
funds will arrive once the deed is done.
However, in places where banks and financial institutions arent
developed, this may be difficult
Supplier Management
o Refers to the sourcing and finding reliable sources for products and
services a business needs
Using electronic data interchange (EDI), suppliers and businesses
can monitor the amount of resources as they are being used and get
to work to make more in time
o Supply Managers also evaluating the suppliers response and economic
benefits of suppliers
Finding the cheapest and best suppliers can be beneficial to
companies
Outsourcing: refers to using outside resources to perform activities
o Nearsourcing: employing companies nearby to do things smaller tasks for
them
o Insourcing: when companies use part of the company from within to do a
certain task
o Most companies focus on the things that give them the most competitive
advantage (Ie efficiency, managing supply chain) and outsource the rest
o Offshoring: does not contract out major business functions, but transfers
that branch of the company to another country
o Inshoring: Offshoring but putting functions out to other businesses within
their own country
o

Information Management: Software can be used to analyze large amounts of

data which can be vital to monitoring and making decisions
o Many companies use enterprise resource planning software to plan
resources and connect global suppliers for them
Physical Distribution: the movement of the finished product to customers
o Inbound Distribution: deals with receiving the goods that are sent to the
company
Responsibility rests to the buyer
At this point, the buyer takes possession of goods since it passed
the FOB point
Receiving process: a process in which a company follows when
shipments arrive
Check for damages, count them, assign SKUs, record
location
Outbound Distribution: refers to arranging the shipment of goods
for shipment
Its a sellers responsibility to arrange shipping the goods to
customers
Ex Works (EXW): where the buyer responsible for all
shipping related charges and chores
The shipping company, carrier, must present a bill of
lading indicating that the company has accepted these good
for shipment
FOB Point: defined by the ICC, is the point in which the costs,
and risks with the shipment passes from the seller to the buyer
FCA: free carrier: the seller hands the goods, cleared for
export into the name of the buyer
FOB: free on board: where seller must load goods on ship
nominated by the buyer, then it will be given rights to the
buyer
CIF: cost, insurance, and freight: seller pays all costs
including insurance to bring goods to the port of destination
CFR: cost and freight: same as CIF but risk is transferred
once the goods have crossed the ships rial
CIP: carriage and insurance paid to: seller pays all
insurance to the point but risk is transferred once the goods
are handed to the carrier
DDU: delivered duty unpaid: Seller delivers goods to the
buyer at destination named in contract of sales. Goods are
not cleared for import or unloaded at the place of
destination. Buyer is responsible for risks thereafter
DDP: delivered duty paid: seller pays for all transportation
and bears all risk until goods have been delivered any pays
the duty. Most advantageous to buyer as seller pays all
shipping costs

Methods of Physical Distribution in the supply chain

The method depends on (1) what is being shipped, (2) Weight of shipment, (3)
Speed of delivery required, (4) Cost of carrier, (5) Destination of shipment
Motorized Carrier: Trucks, cars, vans, motorcycles, bikes
o Full truck load is less expensive than less than truckload
o Freight Consolidation: places goods in a warehouse until a FTL is
accumulated
o Motor carrier is often most versatile
Rail
o Slower but can effectively carry for large distance and feasible for bulk
items
o Raw materials are often transported with rail
Ocean Freight
o Helps move things across oceans to different continents
o Landlocked places may face problems as boats need to navigate into them
o Cheap and bulk transfer is good
o However theyre slow and often needs another transportation method as
ships cannot go door to door
Air freight:
o Very fast international movement
o Bulk cannot be carried, and very expensive
Containerization:
o Uses standard-sized metal boxes to ship freights
o Cuts down on damage and limitations as the box is shipped and untouched
generally
Intermodal Shipping:
o Means more than 1 mode of transportation may be used
o This can take advantage of all the benefits from each method

Issues in the supply chain:

Reliability of sources:
o If problems occur with one part of the chain, then the entire system may
be interrupted and the operations delayed
Oil Prices
o As transportation requires oil, fluctuations with the oil prices can cause
transportation costs to go up
Unstable political climate
o New taxes or political turmoil can cause conflicts and delayed with
operations and customs inspections in other countries
Piracy

Hijacking of shipments from Africa and other places can put seamen and
goods at risk
Optimization
o Using full truck loads may be good but shipping more products mean
theyll need to produce more products and have warehouses.
o Companies will need to balance and optimize the costs to the best of their
abilities
o

Getting help with the supply chain

Department of foreign affairs and international trade

o Helps assisting businesses in preparing to enter international markets
Indian Trade Index: is a buyers guide of thousands of companies in India. This
helps businesses look for suppliers and supply chain members to incorporate into
their business
Frasers: online directory that helps companies search terms, help, and companies
to aid their supply chains
Customs Broker: is an expert in navigating the complicated rules when
importing to India or other countries.
Industry India: department of the government that helps businesses compete and
succeed internationally with tools and analysis data to help them
Indian Border Services Agency (CBSA)
o Operates border inspection operations around India and does inspection of
goods as the come in
o Promotes safety, prevent diseases, economic and businesses benefits,
protection of Indian industries from being dumped, and collecting tariffs
and duties