Global&Business&notes& 1 #Lecture #Intro#to#Global#Business# #Global#Business#! Introduction to Global Business Globalisation The shift towards a

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1 Global&Business&notes& 1 #Lecture #Intro#to#Global#Business# #Global#Business#! Introduction to Global Business Globalisation The shift towards a more integrated and interdependent world economy. What is the globalisation of markets? Historically distinct and seperate national markets are merging It no longer makes sense to talk about the german market or the american market. Instead there is a global market. Businesses are now looking to create businesses to do business everywhere. Not just singapore, it s asian market. Not just france, european. Firms of all sizes benefit and contribute to the globalisation of markets 97% of all U.S. exporters have less than 500 employees 98% of all small and mid-sized german companies participate in international markets. B2B Vast majority of globalisation is occurring B2C Big mac to consumer Ikea Ikea illustrates how one company is taking advantage of the globalisation trend to expand internationally Ikea, which generates just 8% of its revenue from it s home country, is using the same basic formula to sell its merchandise around the globe Firms source goods and services from locations around the global to apitalise on national differences in the cost and quality of factors of production like land, labor, energy and capital. Why do we need global institutions? To police and monitor The world trade organisation Polices the world trading system Makes sure the nation-states adhere to the rules laid down in trade treaties Promotes lower barriers to trade and investment 159 members in 2013 International monetary fund Maintains order in the international monetary system The world bank Promotes economic development via low interest loans for infrastructure projects The United Nations Maintains international peace and security Develops friendly relations among nations Cooperates in solving international problems and in promoting respect for human rights Is a center for harmonising the actions of nations

2 The G20 Forum through which major nations tried to launch a coordinated policy response to the global financial crisis What is driving globalisation? Declining barriers to the free flow of goods, services and capital Average tariffs are down More favourable environment for FDI (foreign direct investment) Facilitates global production What does globalisation mean for firms? Managing an international business is different from managing a purely domestic business, for at least six reasons, Countries are different - they have different polotical, legal, economic and cultural systems The range of problems confronted by a manager in an international business is wider The problems themselves are more complex and the knowledge demands much higher The competition will be more intense An international business must find ways to work within the limits imposed by government intrvention in the international trade and investment system International transactions involve converting money into different currencies Lower barriers to trade and investment But, firms may also find their home markets under attack by foreign firms Technological change means: Lower transportation costs Containerisation: same container for all transport goods Low cost information processing and communication Low cost global communications networks Global communication networks and global media How has foreign direct investment changed over time? In the 1960s, three stylised factors described the global economy: The US dominated the world economy and teh world trade picture There was US domination in foreign direct investment (FDI) US Multinationals dominated the international business scene Today The US does not dominate the world economy nearly as much FDI is not dominated by the US US multinational do not dominate IB

3 Globalisation brings risks The financial crisis swept through south east asia in the late 1990s The recent financial crisis that started in the U.S. in the , and moved around the world Financial crisis in EU now Is an interdependent global economy a good thing? Suppoerters believe that increased trade and cross-border investment mean Lower prices for goods and services Greater economic growth High consumer income and more jobs Critics worry that globaisation will cause Job losses Environmental degredation The cultural imperialism of global media and MNE s Anti globalisation protesters now regularly show up at most major meetings of global institutions How does Globalisation affect jobs and income? Critics argue that falling barriers to trade are destorying manufacturing jobs in advanced countries Supporters contend that the benefits of this trend outweight the costs Countries will specialise in what they do most efficiently and trade for other goos - and all countrie swill benefit How does globalisation affect labour polocies and the environment Critics argue that firms avoid the cost of adhering to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced Supporters claim that tougher environmental and labor standards are associated with economic progress As countries get richer from free trade, they implement tougher environmental and labor regulations Globalisation affecting the environment

4 Consider The degree to which the basic unit of social organisation is the individual, as opposed to the group The degree to which a society is stratified into classes or castes How are individuals and groups different A group is an association of two or more people who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other as behaviour Individuals are involved in families, work groups, social groups, recreational groups, etc. Societies place different values on groups In Western societies, there is a focus on the individual But is individualism good? Studies suggest that individualism has several drawbacks Lack of company loyalty Competition Within the firm, between employees fighting for a promotion Networks People who stay in jobs they have stronger networks. You develop high value contacts In many asian societies, the group is the primary unit of social organization Decrease job switching Lifetime employment systems Cooperation However, they reduce creativity or innovation - entrepreneurship isn t encouraged. What is social stratification? All societies are stratified on a hierarchical basis into social categories, or social strata Individuals are born into a particular stratum Must consider Mobility between strata The significance placed on social strata in business contexts 1. Social mobility - the extent to which individuals can move out of the strata into which they are born Caste system - closed system of stratification in which social position is determined by the family into which a person is born Change is usually not possible during an individual s lifetime Class system - form of open social stratification Position a person has by birth can be changed through achievement or luck 2. The significance attached to social strata in business contacts Class consciousness - a condition where people tend to

5 perceive themselves in terms of their class background, and this shapes their relationship with others An antagonistic relationship between management and labour raises the cost of production in countries with significant class differences How do religious and ethical systems differ? Religion - a system of shared beliefs and rituals that are concerned with the realm of the sacred Four religions dominate society Christianity Islam Hinduism Buddhism Confucianism is also important in influencing behaviour and culture in many parts of asia Ethical system - a set of moral principles, or values, that are used to guide and shape behaviour Religion and ethics are often closely intertwined e.x. christian or islamic ethics What is christianity? The worlds largest religion Found throughout europe, the americas, and other countries settled by the europeans The protestant work ethic (Max Weber, 1904) Hard work, wealth creation and frugality is the driver. Protestant work ethic? Max Weber (1904) Protestant ethics emphasise importance of hard work and wealth creation Combination of hard work and accumulated capital paved the way for development of capitalism Business leaders and owners of capital were overwhelmingly protestant What is islam? Second largest religion dating to AD 610 There is only one true omnipotent god an all embracing way of life that governs ones being Examples of impact of business: Western and islamic banking

6 What is hinduism? Practiced primarily on the indian subcontinent Focuses on the importance of achieving spiritual growth and development, which may require material and physical self denial What is buddhism? Doesn t focus on wealth creation What is confucianism? Reduces risk in business Superstitions? Like religion, superstitions play an important role in the daily life of people as well as impacting on how business is conducted e.g. The number 8 is important in chinese culture What is the role of language in culture? Language, the spoken and unspoken (nonverbal communication such as facial expressions, personal space, and hand gestures) means of communication Countries with more than one language often have more than one culture Low context culture, thick legal documents. Importance of direct and precise language Language is one of the defining characteristics of culture Non Spoken Language Hand gestures What is the role of education in culture? Formal education is the medium through which individuals learn many of the language, conception and mathematical skills that are indispensable in a modern society Important in determining a nation's competitive advantage General education levels can be a good index for the kinds of products that might sell in a country E,g, impact of literacy rates through education

7 Impacts research and potential later on How does culture impact the workplace? Management processes and practices must be adapted to culturally determined work related values Geert Hofstede studied culture from for 100k employees Identified 4 dimensions that summarized different cultures Power distance - How a society deals with the fact that people are unequal in physical and intellectual capabilities Uncertainty avoidance - the relationship between the individual and fellows Individualism versus collectivism - the extent to which individuals are integrated into groups Masculinity versus femininity - the relationship between gender and roles Not gender Hofstede later expanded added a fifth dimension called Confucian dynamism or long term orientation Captures attitudes towards time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favours Japan, Hong Kong and Thailand scored high on this dimension The US and Canada scores low Was Hofstede RIght? Work criticised for several reasons Made the assumption there is a one to one relationship between culture and the nation state Study may have been culturally bound Used IBM as sole source of information Culture is not static, it involves But, it is a starting point for understanding how cultures differ and the implications of those differences for managers Does culture change? Culture evolves over time Change in value systems can be slow and painful for a society Social turmoil - an inevitable outcome of culture change As countries become economically stronger, culture change is particularly common Economic progress encourages a shift from collectivism to individualism Globalisation also brings cultural change What do cultural differences mean for managers? Is it important to develop cross cultural literacy Companies that are ill informed about the practices of another culture are unlikely to To avoid being ill informed Consider hiring local citizens