I.

GLOBAL ECONOMY

1. Global economy in which resource supplies, product markets, and business competition are
worldwide rather than local or national in scope.
2. Globalization is the growing interdependence among elements of the global economy
3. Economic globalisation can be defined as all the things that happen when:

 goods, 
 ideas, 
 people, 
 services, and 
 capital 

move from one nation to another.

 Globalisation is important because the flow affects jobs, salaries, income distributions, and so
on. 
4. World 3.0 is a world where nations cooperate in the global economy while still respecting different
national characters and interests.
5. The term used to describe management in businesses and organizations with interests in more than
one country is global management.
6. Global management will require global manager. The success of firms like these depends on being
able to attract and hire truly global managers who have strong global perspectives, are culturally
aware, and always stay informed about international developments.
7. International businesses are businesses that conduct for-profit transactions of goods and services
across national boundaries, like Nike.

- Nike does no domestic manufacturing. All of its products are made from sources abroad

- New Balance makes use of global suppliers and licensing its products internationally, and
produces at factories in the United States.

 Both are doing international businesses for these common reasons:

- Profits—Gain profits through expanded operations.
- Customers—Enter new markets to gain new customers.
- Suppliers—Get access to materials, products, and services.
- Labor—Get access to lower-cost talented workers.
- Capital—Tap a larger pool of financial resources.
- Risk—Spread assets among multiple countries.
8. There would be 2 approaches:
a. Market-entry strategies that involve the sale of goods or services to foreign markets
without expensive investments
b. Direct investment strategies require major capital commitments, create rights of ownership
and control over operations in the foreign country

Market entry strategies are the first steps in globalizing an organization:

 - Global sourcing—the process of purchasing materials, manufacturing components, or locating
business services around the world.
- Exporting—selling locally made products in foreign markets.
- Importing—buying foreign-made products and selling them in domestic markets.
- Licensing agreement whereby foreign firms pay a fee for rights to make or sell another
company’s products in a specified region.
- Franchising is a form of licensing in which the foreign firm buys the rights to use another’s name
and operating methods in its home country.

Direct investment strategies:

- Foreign direct investment, or FDI, involves setting up and buying all or part of a business in
another country. And the ability to attract foreign business investors has been a key to
succeeding in the global economy -> insourcing is job creation through DI.
- When foreign firms invest in a new country, a common way to start is with a joint venture. This
is a co-ownership arrangement in which the foreign and local partners agree to pool resources,
share risks, and jointly operate the new business. It can be a part ownership of the local
organization or both can join together to have a new operation.
- International joint ventures are types of global strategic alliances in which foreign and domestic
firms work together for mutual benefit. Both gain their own benefits.
- A foreign subsidiary is a local operation completely owned and controlled by a foreign firm. Or a
company operating overseas that is part of a larger corporation with headquarters in another
country, often known as a parent company or a holding company.
o The difference between a foreign subsidiary and a joint venture is that subsidiary is
operated as a completely foreign-owned enterprise while a joint-venture company is
owned by both foreign investors and at least one domestic investor.
- Greenfield ventures where it is built from constructing all facilities from start by the foreign
owner. You open a business in a new market without the help of another business which is
already present there. It has advantages of high level of control over business operations and
image, High level of quality control over the manufacturing and sale of products, and be able to
create jobs for the economy where the greenfield investment is taking place. However, this is
the riskiest form of foreign direct investment with potentially high market entry cost,
Government regulations and high fixed cost.

II. GLOBAL BUSINESS ENVIRONMENT

1. Legal and Political Systems

Some of the biggest risk in international business comes from differences in legal and political systems.
Global firms are expected to abide by local laws, some of which may be unfamiliar.

Political risk—the potential loss in value of an investment in or managerial control over a foreign asset
because of instability and political changes in the host country. The major threats of political risk today
come from terrorism, civil wars, armed conflicts, and new government systems and policies.

Most global firms use a planning technique called political-risk analysis to forecast the
probability of disruptive events that can threaten the security of a foreign investment.
 2. Trade Agreements and Trade Barriers

When international businesses believe they are being mistreated in foreign countries, or when local
companies believe foreign competitors are disadvantaging them, their respective governments might
take the cases to the World Trade Organization.

Yet trade barriers are still common. They include

- Tariffs, which are taxes that governments impose on imports.

- Nontariff barriers that discourage imports in nontax ways such as quotas, import restrictions.
- Protectionism that give favorable treatment to domestic businesses.
 The purpose for tariffs and protectionism is to protect local firms from foreign competition and
save jobs for local workers.
3. Regional Economic Alliances: nations agree to work together for economic gains.
4. Global Businesses
a. Host-Country Issues

- Potential host-country costs are: complaints that global corporations extract excessive profits,
dominate the local economy, interfere with the local government, do not respect local customs
and laws, fail to help domestic firms develop, hire the most talented of local personnel, and fail
to transfer their most advanced technologies.

b. Home-Country Issues
- Global corporations can also get into trouble at home in the countries where they were founded
and where their headquarters are located.
- Even as many global firms try to operate as transnationals, home-country governments and
citizens still tend to identify them with local and national interests.
- Whenever a global business cuts back home-country jobs, or closes a domestic operation in
order to shift work to lower-cost international destinations, the loss is controversial.
- Corporate decision makers are likely to be called upon by government and community leaders
to reconsider and give priority to domestic social responsibilities.
5. Ethics Challenges for Global Businesses
- Corruption: occurs when people engage in illlegal practices to further their personal business
interests.
- Child Labor and Sweatshops:
o Child labor—the employment of children to perform work otherwise done by adults, a
major ethics issue for global businesses as they follow the world’s low-cost
manufacturing from country to country
o Sweatshops—business operations that employ workers at low wages for long hours in
poor working conditions

III. CULTURE AND GLOBAL DIVERSITY

- Culture is the shared set of beliefs, values, and patterns of behavior common to a group of
people.
- Culture shock is the confusion and discomfort a person experiences when in an unfamiliar
culture.
 - Ethnocentrism, a tendency to view one’s culture as su- perior to that of others.
- Cultural intelligence, the ability to adapt and adjust to new cultures.
1. The silent language of culture:
a. Context: cultures differ in their use of language in communication.

Most communication in low-context cultures takes place via the written or spoken word: say or write
what they mean and mean what they say.

In high-context cultures what is said or written may convey only part of the real message. The rest must
be interpreted from the situation, body language, physical setting, and even past relationships.

b. Time

People in monochronic cultures often do one thing at a time. It is common in the United States, for
example, to schedule meetings with specific people and focus on a specific agenda

Members of polychronic cultures are more flexible toward time. They often try to work on many
different things at once, perhaps not in any particular order, and give in to distractions and interruptions

c. Space

Proxemics, the study of how people use space to communicate.

2. Tight and Loose Cultures

The concept of cultural tightness-looseness:

(1) the strength of norms that govern social behavior, and

(2) the tolerance that exists for any deviations from the norms.

3. Values and National Cultures

4 cultural dimensions: power distance, uncertainty avoidance, individualism–collectivism, and

masculinity

- Power distance is the degree to which a society accepts unequal distribution of power.
- Individualism–collectivism is the degree to which a society emphasizes individuals and their
self-interests.
- Uncertainty avoidance is the degree to which a society tolerates risk and uncertainty.
- Masculinity–femininity is the degree to which a society values assertiveness and materialism.
- Time orientation is the degree to which a society emphasizes short-term or long-term goals.
- Intercultural competencies are skills and personal characteristics that help us be successful in
cross-cultural situations.