Chapter 1: Globalization

Introduction:
● Globalization: the process, in which national economies are merging into an
independent and integrated global economic system that shift toward a more integrated
and interdependent world economy
● Lower barriers enable cross border trade and investment.
● Many business opportunities: selling around the world, producing in low cost
environments, regulations have been reduced, expand revenues, transportation,
telecommunication
● Outsourcing: Services no longer need to be performed where they are delivered
Globalization of Markets:
● Merging into one huge global market results in the falling of barriers and it becomes
easy sell internationally
● Create a global market by offering the same basic product worldwide.
● All differences among national markets (consumer taste, preferences, distribution
channels, business systems, legal regulations)
The Globalization of Production:
● Sourcing of goods and services from locations around the globe to take advantage of
national differences in the cost and quality of factors of production is in hopes to lower
cost structure and improve quality, allowing product to compete more effectively.
The Emergence of Global Institutions:
● WTO: 154 nations responsible for policing the world trading system, making and
checking rules with a goal to create a more open global business
● The International Monetary Fund (IMF) and World Bank (WB): maintain order in the
international monetary system and promote economic development
● United Nations (UN): 191 countries committed to preserving peace through international
cooperation and collective security
● UN Charter: international treaty that establishes basic principles of international relations
(maintain peace and security, develop relations, cooperate to solve problems, promote
human rights). A peacekeeping role.
Drivers of Globalization:
● Declining trade and investment barriers:
- International trade: firms exports goods and services
- FDI: firm invests resources in business activities outside the home country
- GATT (General Agreement on Tariffs and Trade): lower barriers to the free 2ow of
goods and services
● The role of technological change:
- advances in communication, information processing, transportation, internet
- Implication for Globalization of Markets: mass movement of people between
countries reduces cultural distance allows the convergence of customer taste and
preferences and creates a worldwide culture
The globalization debates:
● Anti-globalization protests: job losses in industries, foreign competition, environmental
degradation, cultural imperialism.
● Globalization, jobs and income: exporting jobs to low-wage countries creates higher
unemployment, lower living standards in their home nations. However it also lowers
production costs, lower consumer prices and can spend money elsewhere
● Labour policies and the environment: less developed countries lack adequate
regulations to protect labour and environment such as pollution, child labour, workspace
safety, health issues.
● National sovereignty: shift economic power away from national governments and toward
supranational
● Gap between rich and poor is wider
Managing the global marketplace:
● international business: is any form that engages in international trade or investment.
● be sensitive to differences in taste, culture, political/legal/economical system (adopt their
appropriate ways)
● Cross-border transactions: understanding rules, trading and investment systems
Chapter 2: National Differences in Political Economy
Introduction:
● International environment is much more complicated and are affected by many factors
● Political economy: term to stress that the political/economic and legal system of a
country are interdependent.
Political Systems:
● Shapes its economic and legal system
● Political system: is the system of government in a nation
● Two dimensions:
- Degree to which they emphasise collectivism as opposed to individualism
- Degree to which they are democracy or totalitarian
● Collectivism:
- Collectivism: stress the collective goals over individual goals, the needs of a society
as a whole are viewed as being more important than individual freedom
- Socialism: the idea is to manage state-owned enterprise to bene:t society as a whole
rather than individual capitalists
- Communists: believe that socialism would be achieved only through violent revolution
and totalitarian dictatorship
● Individualism:
- An individual should have freedom in their economic and political pursuits
- Interests of individuals are bigger than the interests of the state
● Democracy: Refers to a political system in which government is by the people that are
directly or through elected representatives (citizens should be involved.
● Totalitarianism: a form of government in which one person or political party exercises
absolute control over all spheres of human life and prohibits opposing political parties
- Communist totalitarianism: most spread
- Theocratic totalitarianism: government according to religious principles
- Tribal totalitarianism: when a political party represents the interests of a tribe
- Right-wing totalitarianism: permits some individual economic freedom, but restricts
individual political freedom
Economic Systems:
● Market Economy: all productive activities are privately owned and production is
determined by the interaction of supply and demand.
● Command Economy: the government plans the goods and services that a country
produces (demanding quantity and setting prices)
● Mixed Economy: certain sectors private owned while others have signi:cant ownership
and government planning.
Legal Systems:
● Legal system of a country refers to the rules or laws that regulate the behaviour along
with the processes by which the laws are enforced.
- Common law: based on tradition (countries legal history), precedent (cases in court
of the past) and custom.
- Civil law: based on a detailed set of laws organized into codes
- Theocratic Law: law is based on religious teachings (Islamic law)
The protection of intellectual property:
● Intellectual property: product of intellectual activity (computer software, music, chemical
formula
Chapter 3: Political Economy and Economic Development
Introduction:
● Political economy is changing around the world, moving toward a more democratic
form of government.
Differences in Economic Development:
● Measure: GNI (gross national income): measures the total annual income received by
the residents of
● PPP (purchasing power parity): allows for a more direct comparison of living standards
in diFFerent countries.
Broader Conceptions of Development:
● HDI (human development index):measure the quality of human life in different nations. It
measures life expectancy at birth, educational attainment, and whether average income
is suFFIcient to meet the basic needs of life in a country.
Geography, Education and Economic Development:
● Geographical conditions (disease, poor soils, hosle climate) causes negative impact
● landlocked countries grew slowly, coastal economics faster.
● Tropical countries grew slowly, temperature zone economics faster
● Less education standard counes grew slowly, educated economics faste

The Spread of Democracy:

● Political freedom: free (high degree of political and civil freedom), partly free (restrictions
on political rights and civil liberties, corruption, weak rule of law, civil war), not free
(basic freedoms are denied.

The Nature of Economic Transformation:

● Deregulation: involves removing legal restrictions to the free play of markets, the
establishment of private enterprises and the manner in which private enterprises
operate removing price control -> prices to be set by the interplay between supply and
demand
● Privatization: transfer ownership of state property to private individuals
● Legal Systems: law protecting private property rights required for the well-functioning of
the market.

Chapter 4: Differences in culture

Introduction:
● Cross-cultural literacy: understanding of how cultural differences across and within
nations can affect the way business is practiced
What is Culture?
● Culture: the complex whole which includes knowledge, beliefs, art, morals, law, custom
and other
● Values: abstract ideas about what a group believes to be good, right and desirable
● Norms: social rules and guidelines that prescribe appropriate behaviours in particular
situations
● Society: a group of people who share a common set of values and norms
Religious and Ethical Systems:
● Religion: a system of shared beliefs and rituals that are concerned with the realm of the
sacred
● Ethical systems: a set of moral principles or values that are used to guide and shape
behaviours
- Chrisanity: 20% of the world population, roman catholic church and orthodox church
- Islam: second largest major religion, adherent of Islam are called Muslims.
- Hinduism: world’s oldest major religion
- Buddhism: ascetic lifestyle and spiritual perfection, achieve state of spiritual
enlightenment
Language
● Spoken Language:
- More languages in one country equals more cultures
- Chinese: largest number of people (followed by English and Hindu)
- English: language of international business
Cultural Change:
● Culture is not a constant.
- Economic advancement,
- Globalization,
- Shift in values: individualism, increased urbanization, and improvements in quality of
education.
Implications for Managers:
● Ethnocentrism: belief in the superiority of one’s own ethic group or culture.

Chapter 5: Ethics in International Business

Introduction:
● Ethics: accepted principles of right or wring that govern the conduct of a person, the
member of a profession or the actions of an organization
● Business ethics: the accepted principles of right or wrong governing the conduct of
business people
● Ethical strategy: course of action that does not violate these accepted principles
Ethical Issues in International Business:
● Ethical issues in international business are rooted in the fact that political systems, law,
economic development and culture vary significantly from nation to nation.
- Employment Practices: How much divergence is acceptable? Low pay, health issues,
child labour, wage it may not be illegal, but is it ethical?
- Human Rights: basic human rights are not respected in many nations (rights taken
for granted in developed nations -> but not universally accepted)
- Environmental Pollution: regulations in host nations are inferior and ethical issues
arise.
- Corruption: problem in almost every society’s history -> oen ongoing
Philosophical Approaches to Ethics
● Straw Men
- The Friedman Doctrine: only social responsibility of business is to increase profits, so
long as the company stays within the rules of law, child labour may not be against the
law, but it is sll immoral to do so.
- Cultural Relativism: belief that ethics are nothing more than the reflection of a culture.
Firms should adopt the ethics of the culture in which it is operating. However,
companies shouldn’t use cultural relativism to justify their behaviour.
- The Righteous Moralist: claims that a multinational home country standard of ethics
are the appropriate ones for companies to follow in foreign countries.
- The Naive Immoralist: if other Multinationals are doing the same unethical things in
foreign countries,other firms are allowed to do so as well. However Multinationals
have the resources to change something, often a moral compass is necessary to
support managers solutions.
● Utilitarian and Kanan Ethics:
- Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences, an action is judged desirable if it leads to the best
 possible balance of good consequences over bad consequences (max. good, min.
harm).
- This means the greatest good for the greatest number of people -> problem of
measuring the bene:ts, costs and risks of a course of action.
- Kanan ethics hold that people should be treated as ends and never purely as a
means to the ends of others, people are no instruments, they need to be respected.
● Rights Theories:
- Recognize that human beings have fundamental rights and privileges that transcend
national boundaries and cultures fundamental human rights form the basis for the
moral compass that managers should navigate by making decisions that have an
ethical component.
● Justice Theories:
- just distribution: is one that is considered fair and equitable all economic goods and
services should be distributed equally unless an unequal distribution would work to
everyone’s advantage

Chapter 6: International trade theory

Introduction:
● Free trade stimulates economic growth and raises living standards across the boarder.
An Overview of Trade Theory:
● Free Trade refers to a situation where a government does not attempt to influence
through quotas or dues what its citizens can buy from another country or what they can
produce and sell to another country.
Mercantilism:
● Interest to maintain a trade surplus, export > import.
● Imports were limited by tariffs and quotas while exports were subsidized
Absolute Advantage:
● When the production of a product is more efficient than and other country producing it
● Countries should specialize in those goods.
Comparative Advantage:
● Specialize in production of those goods that are produced most efficiently, but goods
where the production is less efficient than in other countries. Two countries increase
their combined production.
Heckscher-Ohlin Theory:
● Comparative advantage arises from di(erences in national factor endowments (the
extent to which a country is endowed with such resources as land, labour and capital)
The product life cycle theory:
● The theory suggests that early in a product's life-cycle all the parts and labor associated
with that product come from the area where it was invented. After the product becomes
adopted and used in the world markets, production gradually moves away from the point
of origin.
New Trade Theory:
● Ability of firms to attain economies of scale.
- Increasing product variety and reducing costs: individual national markets are
combined into a large world market.
- First mover advantage: are the economic and strategic advantages that accrue to
early entrants into an industry

Chapter 7: Political Economy of International Trade

Instruments of Trade Policy:
● Tariffs: taxes that are imposed by the government on imported goods or services.
- Specific tariffs: fixed charge for each unit of a good imported
Example: Argentina increased taxes to $10 us per unit on the milk powder.
- Ad valorem tariff: levied as a proportion of the value of the imported goods
 Example: Company x produces chocolate in Sweden and exports to
Colombia. A 10% tax would require company x to pay Colombian
government.
● Subsides: is a government payment to a domestic producer
- Cash grants, low-interest loans, tax breaks, government equity participation
Example: The EU supports local production with financial support.
● Import Quota and Voluntary Export Restraints:
- Quotas: restrictions that limit the quantity or monetary value of a specific goods and
services that can be imported over a certain period of time.
Example: In 2015, Ecuador imposed a limit of 500.00 meters of fabric.
- Import quota: direct restriction on the quantity of some good that may be imported
into a country.
- Tariff quota (hybrid between quota and tariff): lower tariff rate is applied to imports
within the quota than those over the quota
- Voluntary export restraint (VER): quota on trade imposed by the exporting country,
typically at the request of the importing country’s government all variants benefit
domestic production by liming import competition.
Example: Japan announced it would impose an export limit of 1,000,000
units.
- Quota rent: extra profit that producers make why supply is artificially limited by an
import quota.
● Local Content Requirements: is a requirement that some specific fraction of a good be
produced domestically.
- tries to protect local jobs and industry from foreign countries (in developed countries).
Example: In 2008, Colombia demanded each car imported to at least have
30% of local cost.
● Administrative Policies: are bureaucratic rules designed to make it difficult for imports to
enter a country use informal or administrative policies to restrict imports and boost
exports.
Example: Netherlands exports bulbs to almost every country except Japan.
● Antidumping Policies:
- dumbing = defined as selling goods in a foreign market at below their cost of
production or as selling goods in a foreign market at below their “fair” market value
- antidumping policies: designed to punish foreign firms that engage in dumping.
● Embargo: a complete ban on imports from certain countries.
Example: In 1962 the US prohibited all imports and exports from Cuba.

Chapter 8: Foreign Direct Investment

Introduction:
● FDI occurs when a firm invests directly in facilities to produce or market a product in a
foreign country
● once a firm undertakes FDI it becomes a multinational enterprise (MNE)
FDI in the World Economy:
● Flow of FDI: amount of FDI undertaken over a given me period
● Stock of FDI: total accumulated value of foreign-owned assets at a given me
● Outflows of FDI: flow of FDI out of a country
● Inflows of FDI: flow of FDI into a country
Political Ideology and FDI
● The Radical View: Multinational enterprise are exploring host countries to the exclusive
benefit of their capitalist-imperialist home countries, giving nothing of value to the host
country in exchange
● The Free Market View: international production should be distributed, use comparative
advantage, specialization, produce efficient and increases overall efficiency of the world
economy.
● Pragmatic Nationalism: FDI has both benefits (bringing capital, skills, technology, jobs)
and costs (profits from the investment go abroad).
The Pattern of FDI:
● Strategic Behaviour:
- Oligopoly: limited number of large firms, cutting prices -> take away market share ->
imitate each other’s FDI
 - Multipoint competition: two or more enterprises encounter each other indifferent
regional markets -> :rms will try to match each other’s moves in different markets to
try to hold each other in check
● The Product Life Cycle: undertake FDI to produce a home market product in other
countries, invest in advanced countries when demand is growing -> invest in developing
countries when product standardization give rise to price compeon -> shi production to
cope with cost pressure
● The Eclectic Paradigm: location-specific advantages: utilizing resource endowments or
assets that are linked to a particular location (cost and skill of local labour), combine with
own unique assets.

Chapter 9: Regional Economic Integration

Introduction
● Regional economic integration: agreements among countries in a geographic region to
reduce (and remove) tariff and nontariff barriers to the free flow of goods, services and
factors of production between each other.
Levels of Economic Integration
● Free Trade Area: all barriers among members are removed -> ideal free trade area
● Custom Union: eliminate trade barriers between member countries and adopts a
common external trade policy, members desire even greater economic growth down the
road.
● Common Market: no barriers to trade between countries, common external trade policy
and allows factors of production to move freely between members, demands a
signi:cant degree of harmony and cooperation on fiscal, monetary and employment
policies
● Economic Union: involves the free flow of products between members and the adoption
of a common external trade policy, but requires a common currency, harmonization of
members tax rates and a common monetary and fiscal policy, demands a coordinating
bureaucracy and the sacrifice of significant amounts of national sovereignty to that
bureaucracy
● Full Political Union: a central political apparatus coordinating the economic, social and
foreign policy of the member states, independent states are e(ecvely combined into a
single naon
Trade Creation: occurs when high-cost domestic producers are replaced by low-cost
producers within the free trade area.
Trade Diversion: occurs when lower-cost external suppliers are replaced by higher-cost
suppliers within the free trade area.

Chapter 10: The foreign exchange market

Introduction:
● The foreign exchange market: a market for converting the currency of one country into
that of another country.
● An exchange rate is simply the rate at which one currency is converted into another.
The Functions Of Foreign Exchange Market:
● The foreign exchange market serves two main functions:
- The first is to convert the currency of one country into the currency of another.
- The second is to provide some insurance against foreign exchange risk or the
adverse consequences of unpredictable changes in exchange rate.
● Currency speculation typically involves the short-term movement of funds from one
currency to another in the hopes of profiting from shifts in exchange rates.
● A kind of speculation that has become more common in recent years is known as the
carry trade. The carry trade involves borrowing in one currency where interest rates are
low, and then using the proceeds to invest in another currency where interest rates are
high.
Currency Conversion
● The rate of change in countries' relative prices depends on their relative inflation rates. A
country's inflation rate seems to be a function of the growth in its money supply.
● In many countries, the ability of residents and nonresidents to convert local currency into
a foreign currency is restricted by government policy. A government restricts the
convertibility of its currency to protect the country's foreign exchange reserves and to
halt any capital flight.
● The three types of exposure to foreign exchange risk are:
- Transaction exposure: is the extent to which the income from individual transactions
is affected by fluctuations in foreign exchange values. Such exposure includes
obligations for the purchase or sale of goods and services at previously agreed
prices and the borrowing or lending of funds in foreign currencies.
- Translation exposure: is the impact of currency exchange rate changes on the
reported financial statements of a company. Translation exposure is concerned with
the present measurement of past events.
- Economic exposure: is the extent to which a firm's future international earning power
is affected by changes in exchange rates. Economic exposure is concerned with the
long run effect of changes in exchange rates on future prices, sales, and costs.
Insuring Against Foreign Exchange Risk
● The spot exchange rate is the rate at which a foreign exchange dealer converts one
currency into another currency on a particular day.
● A forward exchange occurs when two parties agree to exchange currency and execute
the deal at some specific date in the future. Exchange rates governing such future
transactions are referred to as forward exchange rates. For most major currencies,
forward exchange rates are quoted for 30 days, 90 days, and 180 days into the future.
● A currency swap is the simultaneous purchase and sale of a given amount of foreign
exchange for two different value dates. Swaps are transacted between international
businesses and their banks, between banks, and between governments when it is
desirable to move out of one currency into another for a limited period without incurring
foreign exchange risk.

Chapter 12: The Global Capital Market

● The function of a capital market is to bring those who want to invest money together with
those who want to borrow money.
● The growth of the global capital market during recent decades can be attributed to
advances in information technology, the widespread deregulation of financial services,
and the relaxation of regulations governing cross-border capital flows
● The hedge funds, which operate largely outside of existing regulatory boundaries.
(Hedge funds are private investment funds that position themselves to make "long bets"
on assets that they think will increase in value and "short bets" on assets that they think
will decline in value
● A Eurocurrency is any currency banked outside of its country of origin. Eurodollars,
which account for about two-thirds of all Eurocurrencies, are dollars banked outside of
the United States. Other important Eurocurrencies include the Euro-yen, Europound,
Euro-euro. The term Eurocurrency is actually a misnomer because a Eurocurrency can
be created anywhere in the world; the persistent Euro- prefix reflects the European
origin of the market
● International bonds are of two types: foreign bonds and Eurobonds.
- Foreign bonds are sold outside of the borrower's country and are denominated in the
currency of the country in which they are issued.
- Eurobonds are normally underwritten by an international syndicate of banks and
placed in countries other than the one in whose currency the bond is denominated.
● Foreign investors are investing in other countries' equity markets to reduce risk by
diversifying their stock holdings among nations.

Chapter 15: Entry strategy and Strategic alliances

Entry modes: How to get a company's resources into a market.
● There are six modes of entering a foreign market: exporting, creating turnkey projects,
licensing, franchising, establishing joint ventures, and setting up a wholly owned
subsidiary.
Basic Entry Decisions:
● Which foreign Market? (look at different factors: the size of the market, demographic,
purchasing power, economic growth, living standards, political situation, inflation rates,
privatization, etc.)
Contractual entry modes: mainly for services and intangible goods.
● Exporting: has the advantages of facilitating the realization of experience curve
economies and of avoiding the costs of setting up manufacturing operations in another
country. Disadvantages include high transport costs, trade barriers, and problems with
local marketing agents.
● Turnkey Projects: the contractor agrees to handle every detail of the project for a foreign
client, including the training of operational personnel (complex, expensive production
technologies)
● Licencing: an arrangement whereby a licensor grants the rights to intangible property to
another entry for a specified period and in return, the licensor receives a royalty fee from
the licensee (patents, invenons, formulas, processes, designs, copyrights, trademarks)
● Franchising: sell intangible property, strict rules on how to do business, royalty payment,
service firms.
Investment entry modes: entail FDI (higher commitment).
● Joint Ventures: establishing a firm that is jointly owned by two or more otherwise
independent firms most typical: 50/50, to achieve a business objective.
- Forward: A and B to C.
- Backward: C to A and B.
- Buyback: A and B, A and B to C.
- Multistage: A to C to B
● Wholly owned subsidiaries: (WOS) the firm owns 100% of the stock either greenfield
venture or acquire an established firm in that host country and use that firm to promote
its products. Wholly owned subsidiary (Acquisitions or brownfield investment or
greenfield investment.)
Strategic Alliances: entities cooperate (do not create a separate company) to achieve
strategic goals.