International Business

LSCM3052

Busha Temesgen (PhD)

 Course Objectives:
• Upon successful completion of the course, students will be able to:

– Select and use appropriate sources to gather information and data needed for
IB decisions;
– Define key international business terms and concepts;
– Identify how cultural variables affect business;
– Discuss the different types of economic, political, and legal systems and their
impact on business;
– Compare and contrast major trade theories and trade policies and their effect
on business;
– Discuss international exchange rates and their effects on global business; and
– Critically analyze the opportunities and risks associated with international
business activities .
 Course Outline

Unit 1. Introduction
• Globalization
• Multinational enterprises
• Technology and globalization
Unit 2. Cross-Cultural Business
• Elements of culture
• Self reference criterion
• Business customs
• Business ethics
• Religion
• Communication
• Effect of culture on business
 Cont…
Unit 3. Political, Economic, and Legal Systems
• Types of political systems
• Types of economic systems
• Types of legal systems
• Treaties
• Resolution of international business disputes
• Risk and other impacts of political, economic,
and legal systems on business
 Cont…d
Unit 4. International Trade Theory
• Mercantilism
• Absolute advantage
• Comparative advantage
– Ricardo
– Factor endowments (Heckscher-Ohlin, Leontief)
• National competitive advantage (Porter’s
diamond)
• Trade theory and business
 Cont…d
Unit 5. International Trade Policies and Institutions
• Tools for trade policy
• Tariffs
• Subsidies
• Quotas
• Local content mandates
• Others
• Purposes of protectionism
• Benefits of free trade
• Foreign direct investment
• History of world trade
• Modern world trade (post WWII)
• WTO
• Regional economic integration
• European Union
• Asian trade agreements (Asia Pacific Economic
• Cooperation, Association of Southeast Asian Nations)
• African trade agreements
• Western hemisphere trade agreements (NAFTA, CAFTA,MERCOSUR, Andean Community)
• Other
 Cont…d
Unit 6. International Monetary and Financial
Issues
– Foreign exchange markets
– Exchange rates
– Relationship between prices and exchange rates
– Purchasing power parity
– Money supply and inflation
 Reference
• Ball, McCulloch, Frantz, Geringer, Minor, ‘International Business,
The Challenge of Global Competition,’ McGraw-Hill International,
10th Edition,(2006).
• Czinkota, M et al (2009) International Business Wiley, Chichester
• Dicken, P (2009) Global Shift 4th Ed Sage, London
• Hill, C (2009) International Business 8th Ed McGraw- Hill, New York
• Lasserre, P (2007) Global Strategic Management 2nd Ed Palgrave
McMillan, Basingstoke
• Morrison, J (2009) International Business Palgrave McMillan,
Basingstoke
• Verbeke, A (2009) International Business Strategy Cambridge
University Press, Cambridge
 Unit 1. Introduction

• Globalization
• Multinational enterprises
• Technology and globalization
 Learning Outcome
• Upon completing this unit, you will be
expected to:
– Describe international business
– Appreciate the need for international business
– Understand globalization
– Describe the internationalization process
 IB: Definition
• IB is business whose activities are carried out across national
borders.
• IB is commercial activities performed to promote the transfer
of technologies, goods, services, resources, people, and ideas
across national boundaries.
• IB consists of transactions that are devised and carried out
across national borders to satisfy the objectives of individuals,
companies, and organizations.
• IB ----- any business activities that cross national boundaries,
whether they be movement of goods, services, capital, or
personnel; transfers of technology, information, or data, or
even the supervision of employees.
• It gives special attention to the multinational enterprises.
 IB Definition
• IB is the study of transactions taking place
across national borders for the purpose of
satisfying the needs of individuals and
organizations.
• These economic transactions consist of trade,
as in the case of exporting and importing, and
foreign direct investment, as in the case of
companies funding operations in other
countries.
 Why Study IB?
• To understand how and why technologies,
goods, services, and ideas cross national
borders, and what factors affect their
acceptance (or rejection) in foreign markets.
• The flows of goods, services, technologies,
resources, people, and ideas among markets
have major effects on countries and their
governments, companies, and individuals.
 Cont…d
• The flows of goods, services, technologies, resources, people,
and ideas among markets have major effects on countries and
their governments, companies, and individuals.
• At the nation level, participation in IB activities helps countries
take advantage of national expertise in commerce to deliver
goods and services into the international marketplace.
• It also increases the varieties of goods and services available
in national markets and exposes consumers to new lifestyles
and ideas.
 Cont…
• Over time, these exposures affect national
cultures including their political and economic
institutions, and impact a society’s behaviors,
attitudes, and lifestyles.
• Governments have major effects on
international business activities in determining
how open (or closed) national economies are
to external influences such as trade and
investment.
 Cont…d
• To serve as a facilitator of the global economy
and interconnectedness
• A contributor to national economic well-being
• A competitive advantage for the firm
• An activity with societal implications
• A source of competitive advantage for you
 The Nature and Scope of International
Business
• IB deals with understanding the nature, devising strategy and
management of IB enterprises and their effects on business and
national performance (e.g., efficiency, growth, profitability,
employment).
• IB is interdisciplinary. It draws, among others, on economics,
politics, sociology, marketing, management (human resources,
strategic management, entrepreneurship).
• IB is concerned with the issues facing international companies &
governments in dealing with all types of cross border transactions
• Deals with all value-adding activities including sourcing,
manufacturing, and marketing, performed in international
locations

17
 Changing Nature of International Business

• Some nation’s share of world output has

dramatically declined
• Sources and destinations of FDI has also changed
dramatically in the past 30 years and the
developing countries becoming more important
• New MNCs emerged from developing countries
• Fall of communism and rise of free enterprise
system
 Scope of IB
• International transaction in physical goods
– Mining, petroleum, agriculture, manufacturing
• International transactions in services
– Construction
– Hotel
– Tourism
– Business consulting
– Retailing, wholesaling
• International transactions in financial areas
– Commercial banking, investment banking
– Securities, insurance
 Scope of IB
• Communication media
– Telephone
– Magazines
– Books
– Movies
• Transaction in intangibles
– Technology
– Trademarks
 Why International Business is different?

• Operate in different countries with different

cultures, political, economic systems, and are at
different levels of economic development
• Interact with different governments
– conflict between nation-state and MNC
• Work within the limits of international trade and
investment systems
• Complexity of managing international businesses
• Deal with foreign exchange changes
 What is different…
• Multinational conflict( both inside and outside the
corporation)
– e.g. struggle for control (inside);
– goals of company vs. host country (outside)
• Multinational environment(complex, dynamic, multi-
dimensional)
• Management challenge(management mentality and practice)
• International risk (political risk, foreign exchange risk, etc.)
• More opportunities & choices (transfer pricing, extending the
life-span of products & technologies)
 Managing an IB is different

 Countries are different

 International transactions involve converting
money into different currencies
 Range of problems in an international
business is wider and problems are
more complex
 International business must cope with different,
conflicting government rules and systems
 Different strategic approaches required
 What is Different about IB
• A firm operating across borders must deal
with the forces of three kinds of environments
—domestic, foreign, and international.
• Domestic environment is an essential concern
for domestic business, does not mean it is
entirely free from foreign or int.l forces
• Environment means all the forces influencing
the life and development of the firm.
 Why IB?
• Participation in IB activities helps countries take advantage of
national expertise in commerce to deliver goods and services
into the international marketplace.
• It also increases the varieties of goods and services available
in national markets and exposes consumers to new lifestyles
and ideas.
• For companies, IB increases competition in domestic markets
and opens up new opportunities abroad. Global competition
forces firms to be more innovative and efficient in their use of
resources.
 Cont…d
• For consumers, IB brings increased varieties of goods and
services into the world marketplace and enhances living
standards. Just as important, open borders means increased
exposure to new ideas, technologies, and ways of doing
things.
• Expanding sales;
• Acquiring resources (better components, services, products;
foreign capital; technologies; information);
• Minimizes risks (take advantage of the business cycle for
products/services; diversify among international markets)
 Cont…d
 Seek opportunities for growth through market
diversification
 Earn higher margins and profits
 Gain new ideas about products, services, and
business methods
 Better serve customers that have relocated abroad
 Be closer to supply sources, benefit from global
sourcing advantages, or gain flexibility in the sourcing
of products
 Cont…d
 Gain access to lower-cost or better-value
factors of production
 Develop economies of scale in sourcing,
production, marketing, and R&D
 Confront international competitors more
effectively or thwart the growth of
competition in the home market
 Invest in a potentially rewarding
relationships with foreign partners
Need for International Business
• International business:
– causes the flow of ideas, services, and capital across
the world
– offers consumers new choices
– permits the acquisition of a wider variety of products
– facilitates the mobility of labor, capital, and technology
– provides challenging employment opportunities
– reallocates resources, makes preferential choices, and
shifts activities to a global level

29
 Cont…d
• IB is growing
• Factors underlying the growth of IB
• Facilitators:
– Factor mobility
– Economic reforms
– Opening up of command economies
– Development in communication and transport
technology
 Cont…d
• Drivers
– Having the innate growth impetus- looking for growth
opportunities anywhere
– Having a constant eye on foreign markets
– Management culture of multi-national corporations
• Attractors
– Access to raw materials
– Sales growth
– Low cost possibilities
– Enhanced profitability
 Cont…d
• Compulsions
– Compelling reasons such as
• Limitations of domestic markets
• Need for risk minimization by diversification
 Reasons for Growth in IB
• Rapid increase in and expansion of technology
• Transportation is quicker while costs are lower
• Communication enables control from afar
• Liberal government policies on trade and resources
• Development of institutions that support
international trade
• Consumer pressures
• Increased global competition
Benefits of International Business

Access to Markets
Cheaper Labor
Increased Quality of Goods
Increased Quantity
Access to Resources
Cont…d

The Five Ps of International Business

All countries benefit when businesses produce

specialized goods and services that appeal to
consumers.

International business provides increased markets

for businesses and offers them a broader choice of
products, services, and prices for its consumers.

The Five Ps of International Business

1. Product
2. Price
3. Proximity
4. Preference
5. Promotion
Cont…d
Product
A country’s resources determine what goods and services it
produces.
Price
The cost of producing goods and services varies from country to
country. Sometimes it may be more profitable for a nation’s
businesses to produce products overseas and then ship them into the
nation to sell to consumers. Lower foreign wages, taxes, and material
costs make it cheaper to produce products abroad rather than
domestically.
Proximity
It may be more advantageous and profitable for some businesses to
sell products and services to consumers near a neighboring country’s
border rather than to its domestic customers.
Cont…d

Preference
Consumers often purchase foreign goods and services based
on their reputation and specialization, even though similar
products are produced domestically.
Promotion
Technology, especially the Internet, makes it easy for
businesses to promote their products and services
internationally.
 Internationalization Stages

• Some companies may enthusiastically & systematically go

international as part of their corporate plan from the very
beginning by actively seeking becoming a global company.
• The initial attitude towards IB may be passive for others (a low
degree of commitment or investment) and they may get into IB
in response to some external stimuli.
• For instance, starting exports on an experimental basis &
gradually enlarging the international basis and then establishing
offices, branches or subsidiaries or joint ventures abroad
• Increasing the product mix & number of market segments,
markets & countries of operation are also possible
 Cont…d
• Most companies pass through different stages of
internationalization.
• A firm which is entirely domestic in its activities normally
passes through different stages of internationalization before
it becomes a truly global one.
• The important stages in the evolutionary process are the
following.
• Domestic company (No regular export activities)
– Essentially ethnocentric
– Operates domestically
– Never considers the alternative of going international
– Diversifies into new markets, products, technologies when it reaches
growth limits in its primary markets
 Cont…d
• Factors like domestic market constraints, foreign
market prospects, increasing competition, etc. may
force the company to reorient its strategies to tap
foreign market potential – may extend its products to
foreign markets by exporting, licensing and
franchising. In many instances, at the beginning
exporting is indirect.
• The Company may develop a more serious attitude
towards foreign business and move to the next stage of
development, that is, international company.
 Cont…d
• International company (Export via independent agents):
– The orientation of the company is basically ethnocentric
and the marketing strategy is an extension, i.e., the
marketing mix developed for the home market is extended
into the foreign markets.
– International companies normally rely on the IB
 Cont…d
• Multinational company (Establish sales subsidiaries):
– The orientation shifts from ethnocentric to polycentric,
– a company decides to respond to market differences,
– It pursues a multi-domestic strategy
– The marketing strategy of the multi-dimensional company is
adaptation.
– Each foreign subsidiary is managed as if it were an
independent one. The subsidiaries are part of an area
structure in which each country is part of a regional
organization that reports to world headquarters
 Multinational enterprises (MNEs)
• Firms that hold assets or employees in more
than one country, are powerful economic
institutions with the 500 largest MNEs holding
most of the world’s proprietary technology
and commanding close to 30% of the global
GDP as of 2012
• Expected to continue increasing
 Cont…d
• The global company (Establish production facilities abroad):
– will have either a global marketing strategy or a global sourcing strategy but
not both.
– It will either focus on global markets and source from the home or a single
country to supply these markets, or
– it will focus on the domestic market and source from the world to supply its
domestic markets.
– However, according to the interpretation of some others all strategies for
product development, production, marketing, etc- will be global.
– is much more than a company with sales, investments, and operations in
many countries.
– is increasingly dominating markets and industries around the world
– is an integrated world enterprise that links global resources with global
markets at a profit.
 Cont…d
• Internationalization strategies
– The essential act of entrepreneurship is new entry. New entry
can be accomplished by entering new or established markets
with new or existing goods or services.
– New entry is the act of launching a new venture, either by a start
up firm, via an existing firm, or via internal corporate venturing
– Three key questions for internationalization strategies:
• When to internationalize? Being a first mover or late mover
• How to internationalize? In large scale or small scale- depends on firms’
resources and commitment
• Where to internationalize? Market attractiveness while balancing between
benefits, costs, & risks
 Globalization
• Business is becoming a unified, global field
• Companies that think globally have a competitive edge
• Domestic markets are saturated for many companies
• Consumers can no longer tell from which country they are buying
• Trade and investment barriers are disappearing.
• Perceived distances are shrinking due to advances in
transportation and telecommunications- convergence of
tastes/cross-fertilization of cultures
• Material culture is beginning to look similar.
• National economies merging into an interdependent global
economic system
 Meaning and Definition
• World Bank: Globalization is the growing integration of
economies and societies around the world.
• IMF: the growing economic interdependence of countries
worldwide through increasing volume and variety of cross-
border transactions in goods and services, freer international
capital flows, and more rapid and widespread diffusion of
technology
• Trend toward greater economic, cultural, political and
technological interdependence among national institutions
and economies
• The movement towards the expansion of economic and social
ties between countries through the spread of corporate
institutions and the capitalist philosophy that leads to the
shrinking of the world in economic terms
 Cont…d
• The shift toward a more integrated and
interdependent economy
• Characterized by growing economic, financial,
trade, and communications integration
 Cont…d
• Four major x-cs of globalization (Barbara
Parker)
– Growing worldwide connections predictable and
unpredictable
– Rapid, discontinuous change
– Increased number and diversity of participants
– Growing complexity
 Global (stateless) Corporations
• Number is increasing
• Awareness of national borders decreasing
• Rising managers expected to know a 2nd or 3rd language

50
 Globalization and Economic Integration
• Globalization as the closer integration of all nations through the increased
level of trade and capital flows
• Resulted from technological process mainly in the area of information
technology, telecommunications, energy, transport, and biotechnology as
well as a shift in economic policies
• The rationale for market economy is increased efficiency through
competition and specialization of factors of production
• Global markets present greater opportunities for countries to have access
to more funds, know-how, cheaper imports, and larger export markets.
• Economic integration- the discriminate reduction or elimination of trade
barriers among participating nations, establishment of some form of
cooperation and coordination among participants
• Relative benefits: in terms of free-trade and customs union
 Cont…d
• Causes
– Improved communications
– Improved transport
– Free trade agreements
– Global banking
• Effects
– Changed food supply
– Division of labor
– Less job security
– Damage to the environment
– Cultural impacts
– Increase in anti-Globalization protests
 Cont…d
• Essential conditions for globalization
• Business Freedom: There should not be unnecessary
government restrictions which come in way of
globalization, like import restriction, restrictions on
sourcing finance or other factors from abroad, foreign
investments etc.
• Facilities: The extent to which an enterprise can
develop globally from home country base depends on
the facilities available like the infrastructural facilities
 Cont…d
• Government Support: Although unnecessary government
interference is a hindrance to globalization, government
support can encourage Globalization. Government support
may take the form of policy and procedural reforms,
development of common facilities like infrastructural facilities,
R&D support, financial market reforms and so on.
• Resources: Resources is one of the important factors which
often decides the ability of a firm to globalize. Resourceful
companies may find it easier to thrust ahead in the global
market. Resources include finance, technology, R&D
capabilities, managerial expertise, company and brand image,
human resource etc.
 Cont…d
• Competitiveness: The competitive advantage of the company
is very important determinant of success in global business. A
firm may derive competitive advantage from any one or more
of the factors such as low costs and price, product quality,
product differentiation, technological superiority, after sales
service, marketing strength etc.
• Orientation: A global orientation on the part of the
business firms and suitable globalization strategies
are essential for globalization
 Cont…d
• Globalization of competition- the intensification of competition among
business enterprises on a global scale
• Globalization of technology- the rapid pace of innovations with
international networks and convergence of standards across countries has
contributed to the globalization of technology
• Financial Globalization- the liberalization of capital movements and
deregulations, especially of financial services, led to a spurt in cross-
border capital flows
• Political globalization – the convergence of political systems and processes
around the world
• Cultural globalization- the convergence of cultures across the world
Economic Globalization
 Globalization

Globalization of markets
Globalization of production
Convergence in buyer Dispersal of production
preferences in markets activities worldwide to
around the world minimize costs or maximize
New markets opened via quality due to transportation
Internet, jet aircraft moves and communication
people & goods faster advances
Global media creating a
worldwide culture
 Globalization of Markets
• Merging of historically distinct and separate
national markets into one huge global
marketplace- similarities in life styles: comfort,
convenience, & speed
• Facilitated by offering standardized products
• Does not have to be a big company to
participate
 Globalization of Production
• Refers to sourcing of goods and services from locations around
the world to take advantage of differences in cost or quality of
the factors of production (land, labor, capital & energy)
• Using parts and components from the cheapest source around
the world; selling products, financing operations, and are
owned by stakeholders throughout the world
• Companies hope to lower their overall cost structure and/or
improve the quality or functionality of their product/offering-
increasing their competitiveness
• More and more corporations operate today in the belief that
their very survival requires that they become one of a handful
of global corporation in their sector
 Cont…d
• One important form that globalization in production often
takes in today’s corporation is in the foreign “sourcing” of
inputs. There is practically no major product today that does
not have some foreign inputs.
• Foreign sourcing is often not a matter of choice for
corporations to earn higher profits, but simply a requirement
for them to remain competitive. Firms not looking abroad for
cheaper inputs face loss of competitiveness in world markets
and even in the domestic market.
 Benefits of Globalization

Globalization
of markets Globalization
of production

•• Reduces
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marketingcosts
costs •• Access
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lower-costlabor
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•• New
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•• Levels
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incomestream
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Accessproduction
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•• Increased
Increasedrevenue
revenueopportunity
opportunity •• different
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 Cont…d
• Attracting foreign capital
• Productivity grows more quickly when countries produce
goods in which they have comparative advantage
• Increase in competition would make companies more cost
and quality conscious and innovative
• Global competition and imports keep a lid on prices
• Liberalization and global competition enhance consumer
choice
• An open economy spurs innovation with fresh ideas from
abroad
• Export jobs often pay more
 Globalization: Boon or Bane?
Realm of Globalization Advantages Disadvantages
Political Weakens power of Unwanted external
authoritarian governments influences difficult to
control
Economical Jobs, capital, more choices Exploitative; uneven
benefits
Cultural Offers exposure to other Risks cultural imperialism
cultures
 Cont…d
• Adverse Effects
– Loss of jobs
– Fear of loss of jobs
– Facing pay cut demands from employers
– Services and white collar jobs are increasing
vulnerable to operations moving offshore
– Loss of comparative advantage for employees
when companies build facilities in low wage
countries
 Jobs and Income

Opponents Supporters

 Eliminates jobs in
 Increases wealth and
developed nations- move jobs
to low cost nations efficiency everywhere
 Generates labor market
 Lowers wages in
flexibility in developed
developed nations
countries
 Exploits workers in  Advances economies
developing nations of developing nations
 Labor, Environment, & Markets

Opponents Supporters

– Globalization lowers + Investment raises

labor standards labor standards

– Weakens protection of + Open economies most

the environment environment friendly

– Exploits workers in + Companies concerned

poor nations for future markets
 National Sovereignty
• Globalization …. on
Opponents Supporters

Supranational institutions
Globalization has
reduce autonomy of
benefited societies by
national, regional, and
helping to spread
local governments
democracy worldwide
 Impact on Culture

Opponents Supporters

• Destroys cultural • Specialize and trade

diversity to obtain other goods
• Homogenizes our • Import cultural goods
world from other nations
• Bankrupts local • Protects deeper moral
small businesses and cultural norms
Strategies for Entering International Markets
High

Greenfield
Venture
Foreign Operations

Acquisition
Ownership of

Joint Venture

Franchising
Licensing

Exporting
70
Low Low Cost to Enter Foreign Operations High
Four Stages of Globalization
Domestic stage:
• market potential is limited to the home country
• production and marketing facilities located at home
• surplus may or may not be exported
• no overt efforts to develop foreign markets
International stage:
• which markets to enter?
• global sourcing (seeking cheaper sources of raw material or
labor)
• exports increase
• company usually adopts a multi-domestic approach
• Exporting
• Licensing
• Franchising
• Joint ventures/acquisitions
• Direct investments

71
Cont…d
Multinational stage:
• marketing and production facilities located in many countries
• Carry out its own manufacturing, marketing & sales in the key foreign
markets
• Full insider position supported by a complete business system
• Calls on mrs to replicate the hardware, systems and operational
approaches that have worked so well at home
• more than 1/3 of its sales outside the home country
Cont…d
Global (or stateless) stage:
• making sales and acquiring resources in whatever country
offers the best opportunities and lowest cost
• Moving towards a genuinely global mode of operation
• Creates a system of values shared by corporate managers
around the globe to replace the glue a nation based
orientation once provided
• ownership, control, and top management tend to be
dispersed
• True global corporations serve the interests of consumers,
not governments. They do not exploit local situations and
then repatriate all the profits at home, leaving each local
area poorer for their having being there
• Invest, train, pay taxes, build up infrastructure and provide
good value to customers in all the countries where they do
business
Challenges to Business

Physical Digital Reputational

security security risk

Examine company Guard proprietary Require ethical and

vulnerability and information and lawful behavior from
create a disaster confidential all employees and
recovery plan communications business partners
Advice for Global Managers

 Communicate effectively

 Know the customer

 Emphasize global awareness

 Market effectively
 Monitor business environments

 Analyze problems correctly

Unit 2. Cross-Cultural Business

• Elements of culture
• Self reference criterion
• Business customs
• Business ethics
• Religion
• Communication
• Effect of culture on business
Learning Outcomes
• Upon completing this unit, you will be able to:
• Understand culture and its major elements
• Explain how culture affects doing business internationally
• Explore different traditions that have effect on business
dealings
Culture Defined
• Culture should be regarded as the set of distinctive spiritual,
material, intellectual and emotional features of society or a
social group, and that it encompasses, in addition to art and
literature, ways of living together, value systems, traditions
and beliefs.
• Culture . . . is that complex whole which includes knowledge,
belief, art, morals, law, custom, and any other capabilities and
habits acquired by man as a member of society.
Cont…
• Culture: everything that makes up a person’s entire way of life
• Culture refers to the total lifestyle of a people, including all of their
ideas, values, knowledge, behaviors, and material objects that
they share. Culture shapes and guides people’s perception of
reality.
• Culture is the characteristics of a particular group of people,
defined by everything from language, religion, cuisine, social
habits, music and arts
• Culture–ways of living, built up by a group of human beings, that
are transmitted from one generation to another
• Culture determines
• Food we eat, Clothing, Music, Games we play, How to express
emotions, What is good or bad, What is high or low culture (if any)
Cont…
• Culture is the collective programming of the mind that
distinguishes the members of one category of people from
those of another
• Culture has both conscious and unconscious values, ideas,
attitudes, and symbols
• Culture is acted out in social institutions
• Family • Education • Religion • Government • Business
• These institutions function to reinforce cultural norms
• Culture is both physical (clothing, tools, decorative art, homes)
and nonphysical (religion, attitudes, beliefs, perceptions, and
values)
Cont…
• There is a strong consensus, however, that key elements of
culture include language, religion, values, attitudes, customs,
and norms of a group or society
Cont…
• Language is perhaps the most important key to understanding
culture in general and the specific values, beliefs, attitudes, and
opinions of a particular individual or group. English is widely
accepted as the language of business; many global institutions
and companies have adopted English as their official language.
• For many firms, English-speaking ability is a pre-requisite for
promotion.
• However, any assumption that speaking the same language
removes cultural differences is dangerous—it normally just
hides them.
• Moreover, a reliance on English by British and American
managers, and a lack of other language skills, can weaken their
ability to empathize with and adapt to other cultures.
Cont…
• Religion, linked to both regional characteristics and language, also
influences business culture through a set of shared, core values.
• Protestants hold strong beliefs about the value of delayed
gratification, saving, and investment. The sociologist Max Weber,
writing in 1904, saw this Protestant work ethic as the “spirit of
capitalism” during the industrial revolution.
• Rather than spending, consuming, and enjoying life now, their
religious beliefs prompted the Protestants to look to longer-term
rewards (including those in the after-life). There are parallels with
the Confucian and Shinto work ethics, which also view spiritual
rewards as tied to hard work and commitment to the fruits of
industry. Contrasting this, a more stoic attitude among some
African populations partly explains their acceptance of the ways
things are, because it is the “will of God”
Cont…
• At the most general level, culture can refer simply to the
lifestyle and behavior of a given group of people, so corporate
culture is a term used to characterize how the managers and
employees of particular companies tend to behave.
• But the term is also used by human resource managers and
senior management in their attempts to proactively shape the
kind of behavior (innovative, open, dynamic, etc.) they hope
to nurture in their organizations.
• Promoting a distinctive corporate culture is also expected to
enhance the sense of community and shared identity that
underpins effective organizations.
Cont…
• Attitude–learned tendency to respond in a consistent way to a
given object or entity
• Belief–an organized pattern of knowledge that an individual
holds to be true about the world
• Value–enduring belief or feeling that a specific mode of
conduct is personally or socially preferable to another mode of
conduct
• Religion is an important source of beliefs, attitudes, and values
• Religious tenets, practices, holidays, and history impact global
business activities
Cont…
• Characteristics of Culture
• Elements of culture have some logical relationship to one
another
• In some ways, members of a culture share values and norms
• The way people learn to interact with one another is cultural
• Types and expression of emotions is cultural
• These are things that all cultures have in common.
• What might some of those things be?
Cont…
• Customs and traditions
• Rules of Behavior are enforced ideas of right and wrong.
• They can be customs, traditions, rules, or written laws
Cont…
• Religion Answers basic questions about the meaning of life.
• Supports values that groups of people feel are important.
• Religion is often a source of conflict between cultures.
• Monotheism is a belief in one god.
• Polytheism is a belief in many gods.
• Atheism is a belief in no gods
Cont…
• Language
• Language is the cornerstone of culture.
• All cultures have a spoken language.
• People who speak the same language often share the same
• Many societies include a large number of people who speak
different languages.
• Each language can have several different dialects.
Cont…
• Arts and literature
• They are the products of the human imagination.
• They help us pass on the culture’s basis beliefs.
• Examples: art, music, literature, and folk tales
Cont…
• Forms of government
• People form governments to provide for their common needs.
• Definition of government: Person/people who hold power in a
society
• Democracy: people have supreme power, government acts by
and with consent.
• Republic: people choose leaders who represent them.
Cont…
• Economic systems
• How people use limited resources to satisfy their wants and
needs.
• what to produce, how to produce it, and for whom.
• Traditional Economy: people produce most of what they need
to survive (hunting, gathering, farming, herding cattle, make
own clothes/tools).
• Market Economy: buying and selling goods and services.
THE IMPORTANCE OF CULTURE IN DIFFERENT
BUSINESS CONTEXTS
• Cross-cultural management issues arise in a range of business
contexts. Within individual firms, for example, managers from a
foreign parent company need to understand that local
employees from the host country may require different
organization structures and HRM procedures.
• In cross-border mergers and acquisitions (M&As), realizing the
expected synergies very often depends on establishing
structures and procedures that encompass both cultures in a
balanced way. Cross-border joint ventures, alliances, or buyer-
supplier relationships between two or more firms also require a
cultural compromise.
• Finally, for firms to sell successfully to foreign customers
requires culturally sensitive adaptations to products, services,
marketing, and advertising
Cont…
• At the most general level, there is a links between business
contexts and particular characteristics of individuals or groups
that are influenced by social and cultural norms of a particular
region. At the face-to-face level in meetings the language and
behavior of different peoples vary and their mutual
understanding of each other’s culture will influence the
effectiveness and efficiency of communication between them.
• This influences how well multicultural workplaces operate at
all levels, from strategy setting at the senior level to plant-floor
operations
Cont…
• Firms also tend to have different organizational and decision-
making practices depending on where they have evolved and
which cultures and subcultures they encompass.
• For firms to build successful alliances and partnerships, or for
M&A activities to succeed at the company-to-company level,
there needs to be an understanding of the organizational
differences between them.
• This covers practically every element of corporate
organizations from decision-making structures and systems
and management-labor relationships to individual employees’
attitudes toward their work and their employer
Cross-cultural business contexts
Cont…
• Finally, culture influences the behavior and preferences of
clients and customers. To sell successfully in a foreign market,
a manager needs to adapt his/her product or service to meet
the different needs of that particular group of customers.
• Any alteration in advertising, marketing, product or service
features, after-sales support, technical back-up,
documentation, etc., will be partly guided by cultural
differences
Cont…
• Failure to do this ends in the kinds of marketing mistakes and
communication blunders that become marketing folklore. For
example, Ford’s low-cost truck was initially marketed as the
Feira to Spanish-speaking people when this means “ugly old
woman” in Spanish.
• The Ford Comet, a high-end car, was sold as the Caliente in
Mexico, which is local slang for “prostitute.” Unsurprisingly
neither model did well in these markets.
• This reinforces the above point about the importance of
language, but also demonstrates how some of the largest and
most experienced companies do not appear to do the most
basic cultural due diligence (their homework!) when launching
products and services in foreign markets.
Cont…
• Across all of the business contexts, ignorance of cultural
differences represents a common stumbling block for
international managers.
• Ethnocentrism, the belief that one’s own way of doing things is
superior to that of others, can also be a major barrier to good
international management.
• The challenge lies in recognizing differences, combining the
advantages that stem from different styles and approaches,
adjusting and adapting to succeed with different people, in
different partnerships, and in different markets.
Cont…
• Culture has always been important Despite the various
patterns and processes of globalization, cultural differences
still remain important.
• Even with greater common access, via various media and the
Internet, to the same brands, rock icons, and sports stars,
differences remain.
• Terms like cultural convergence or, simply, Americanization
(the homogenization of global consumer preferences through
the ubiquity of McDonalds, Coca-Cola, and Ford) overstate the
similarities between groups of people around the world
Cont…
• Cultures vary and these variations lead to real and significant
differences in the ways that companies operate and people
work. Moreover, because of globalization more and more
firms are coming head-to-head with the added complexity of
doing business globally, which stems from the huge amount of
variety in the world that still exists (and arguably will always
exist).
Self-Reference Criterion and
Perception
• Unconscious reference to one’s own cultural values; creates
cultural myopia
• How to Reduce Cultural Myopia: – Define the problem or goal
in terms of home country cultural traits – Define the problem
in terms of host-country cultural traits; make no value
judgments – Isolate the SRC influence and examine it –
Redefine the problem without the SRC influence and solve for
the host country situation
Business customs

•  International Business Customs That Could Make or Break a

Deal
• South Korea
• It is common for South Koreans to expect their guests to
engage in Noraebang, or karaoke. If you join your Korean
colleagues for dinner, you might find yourself at a karaoke
establishment, and you will be expected to sing.
• Don't worry if you're not a great singer, though. These karaoke
establishments generally have private rooms, and it will just
be your group that you have to perform in front of. Koreans
will also often skip songs after the first verse and chorus to get
through more karaoke during their allotted time
Cont…
• France
• If you don't speak French, that's OK, but you are expected to
apologize for your lack of fluency before engaging in further
conversation. If you don't have time to learn French before
doing business there, learning a few phrases or greetings can
serve as a show of good faith.
• Also, be prepared for lengthy meals in France. Lunch can last
up to two hours long.
Cont…
• Germany
• Germans often respect direct communication and err on the side of
being blunt in business dealings. The more straightforward, the
better when in Germany. It's also wise to remain serious and devoid
of humor, as jokes are not appreciated in a business context.
• Italy
• Don't expect to get down to brass tacks with Italians. In Italy,
business is often personal and relationship driven, so expect to
spend a significant amount of time getting to know your Italian
business partners and developing a relationship with them. If you
relax and put business on the backburner instead of focusing your
efforts on forming a foundation based on trust and friendly
communication, you'll find more success in Italy than a hard-driving,
all-business, all-the-time approach.
Cont…
• Australia
• Set your alarm early when doing business in Australia. Punctuality is
absolutely key when meeting to discuss business. If you're not going to
be precisely on time, then you should arrive a bit early. Otherwise, you
could be perceived as rude or unorganized by your hosts.
• Don't lose a deal because you were five minutes late. While that might
be acceptable in the U.S., it will certainly be noticed when you're down
under.
• Russia
• Being on time to a business meeting in Russia is of the utmost
importance. At least for one party, that is. While Americans are expected
to arrive not a second after the meeting's scheduled time, Russians may
show up as late as they desire and are unapologetic about it. The move
is designed to test the patience of their U.S. counterparts
Cont…
• China
• Americans working in China better have a gift ready when they
show up for a business meeting. However, don't expect it to
be eagerly accepted. In China, the customary tradition is that
gifts are refused up to three times before being accepted. It is
important to continue offering your present until it is finally
taken
Cont…
• Japan
• While the business card has declined in importance in the U.S.,
that is far from the case in Japan. When doing business with
the Japanese, Americans should be armed with stacks of their
business card, which should be printed in both English and
Japanese.
• The business card is held in very high regard in Japan. When
presenting your card, it is critical to pass it out with both
hands, with the Japanese side facing up. When receiving a
business card, Americans should accept it with both hands and
thank them while doing so. In addition, the business card
should never be written on or played with during the meeting,
as both are signs of disrespect
Cont…
• Brazil
• Expect a complete invasion of personal space if doing business in
Brazil. While it could be considered impolite in the U.S., in Brazil
it is customary to stand extremely close and use lots of physical
contact while talking. While the normal reaction might be to
back away, those who do risk losing out on a potential business
relationship, since it is considered disrespectful.
• United Arab Emirates
• Left-handers may have some trouble doing business in the
United Arab Emirates. In Middle Eastern countries, the left hand
is considered unclean and used strictly for bodily hygiene. It is
important to eat, shake hands and pass documents with the right
hand only. Using the left hand to do any of those activities is a
serious insult.
Cont…
• India
• When at a business dinner in India, Americans better be careful
what they order. Those looking to make a good impression
should refrain from digging into a juicy steak or hamburger
during the dinner. Since the cow is considered a sacred animal in
India, some can consider it a sign of disrespect to order any type
of beef dish – or wear any type of leather –  during a dinner.
• Spain
• While deadlines are usually considered firm dates in the U.S., the
same can't be said in Spain. In Spain, deadlines are viewed more
as a guideline and not something that is frowned upon if missed.
Americans shouldn't be insulted by this, but instead should
schedule potential delays into any timelines
Cont…
• Finland
• While Americans are used to doing business in plenty of
locations outside the office – restaurants, golf courses, etc. –
they probably aren't as comfortable holding a meeting in a
sauna.
• In Finland, enjoying a relaxing sauna is an honored tradition.
To help build the relationship, Americans shouldn't decline the
invite, as it is considered a sign of hospitality and that the
meeting is headed in a positive direction
Cont…
• Belgium
• Be prepared to spend some time just saying hello and
goodbye when in business meetings in Belgium. While a
handshake will suffice as a greeting in the U.S., the Belgians
prefer the kiss — or the "air kiss," to be more precise.
• While strangers will shake hands at first, Belgium business
professionals greet each other with three air kisses once a
relationship has been established. Protocol calls for the kisses
to be given on the right cheek, then the left cheek and back to
the right cheek. Not giving the kisses, or not following the
right order when giving them, are both considered
disrespectful when dealing with Belgians
Cont…
• United Kingdom
• When doing business with British professionals, Americans
shouldn't feel as if a game of charades is breaking out when
the British start tapping their nose. Rather than a fun game,
the tapping indicates that what is about to be discussed is
private and confidential. It is important to look for that signal,
or you risk sharing something the Brit had intended to keep
secret from others.
Unit 3. Political, Economic, and Legal
Systems
• Types of political systems
• Types of economic systems
• Types of legal systems
• Treaties
• Resolution of international business disputes
• Risk and other impacts of political, economic, and legal
systems on business
Learning Outcomes
• Upon completing this unit, you will be able to: