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Preface
Dr Marie-France Waxin from the American University of Sharjah, Sharjah, United Arab Emirates, responsible for Chapter 12. Dr Rumen Gechev from the University of National and World Economy, Sofia, Bulgaria, responsible for Chapters 14 and 16.
Part A: Chapters
Challenges in International Business
Objectives
Opening Case
The analysis clearly shows that the problem lies in the use of outdated methods and its resistance to some innovative aspects of the project. It also seems clear to you that 90 percent of the problems lie in that particular department.
Today’s World of Business
Where a large part of a country's population is uneducated (for example, in Bhutan, Chad and Ethiopia, fewer than 25 percent of children between the ages of 6 and 17 attend school), companies often have to respond by providing additional benefits to their employees. training, deploying more supervisors, relying more on the transfer of management personnel from abroad, and simplifying work-related tasks. Life expectancy in the richer countries is more than 70 years, while in the poorer countries it is less than 50 years.
What is International Business?
Furthermore, an international business is any firm that engages in international trade or investment. Managers in an international business must also deal with government restrictions on international trade and investment.
Why Do Companies Go International?
All these technological advances have enabled more and more companies to be exposed to a greater number of international business activities. The banks can help with the payment of any currency through various international business transactions, with the receipt of goods and/or services.
The Participants in International Business
Of course, these companies go abroad to achieve higher sales and profits, but they must be ready and well prepared to face all kinds of other challenges, such as socio-cultural issues. In addition, many non-profit organizations – called multinational corporations (MNCs) – such as the Red Cross in Switzerland and the Roman Catholic Church in Italy, operate globally.
The Global Perspective of International Business
The globalization of production refers to the tendency of companies to source goods and services from locations around the world to take advantage of national differences in the costs and quality of production factors (such as labor, energy, land and capital). To emphasize the scale of globalization, Figure 1.3 shows the growth of trade in selected regions of the world.
Why Study International Business?
Companies around the world are making a serious commitment to face this competition with significant international investment. The global illicit drug trade is estimated to be worth around $400 billion – about as much as the global legal pharmaceutical industry.
Practical Tips
Exactly what is the most compelling problem for prospects in the firm's target market. The answer to these two questions reveals the customer benefit(s) to emphasize in the firm's sales approach.
Closing Case
To him, Hunts Point was "like the floor of the New York Stock Exchange." He formed Fortune Fruit Ltd. Terminalmarkets.com has already signed up 60 percent of the wholesalers in Hunts Point, which, as a whole, generates almost $2 billion in annual revenue.
Chapter Summary
Review and Discussion Questions
What additional factors contribute to increased international business activity in recent years.
Endnotes
The Culture Challenge in International Business
Same-store sales at Gap's 525 international stores fell an estimated 10 percent in January and are down about 5 percent in the past six months. Drexler merged national and international operations and installed Kenneth Pilot, the former head of Gap's outlet business, to run worldwide merchandising.
What Is Culture?
The wide range of differences between cultures illustrates how flexible and adaptable humans are in relation to other animals, as each culture has arrived at different solutions to the universal human problems that face all societies. Yet, at a higher level of abstraction, some similarities exist, as all cultures have worked out solutions to certain problems that face all human populations.
Economic Systems
Although determining the number of cultures that exist today depends largely on how culture is defined, anthropologists estimate that there are 850 separate and distinct cultures on the continent of Africa alone, illustrating the vast amount of cultural variability, the importance of which is even greater than the number of cultures around the world. The Bushmen of present-day Namibia in South-West Africa distribute the meat of hunted animals according to the principle of kinship—.
Marriage and Family Systems
To illustrate the principle of cultural universals, we can look at only one component of all economic systems: forms of distribution of resources. In the United States, most goods and services are distributed according to the capitalist mode, based on the principle of "to each according to his/her ability to pay." On the other hand, in socialist countries like China and Cuba, goods and services are distributed according to a very different principle - "to each according to his/her needs" -.
Educational Institutions
These two well-known distribution systems hardly exhaust the range of possibilities that exist in the world. Whatever form the distribution system may take, no society, at least not for long, has failed to develop and adhere to a well-understood, systematic pattern of distribution.
Social Control Systems
Supernatural Belief Systems
Greater empathy for cultural differences—an important, if not crucial, condition for greater knowledge—can be achieved by avoiding focusing solely on the apparent differences between cultures without appreciating their underlying commonalities. The same set of variables appears to be at work, although their relative weights may be very different.
Culture and its Elements
In the neutral versus affective dimension, the emphasis is on the emotional orientation of relationships. A religious division in the eleventh century led to the creation of two major Christian organizations: the Roman Catholic Church and the Orthodox Church.
The Study of Cultural Differences
In countries like Pakistan and Panama, where low individualism prevails - where collectivism prevails - we find tight social frameworks, an emotional dependence on belonging to an "organization" and a strong belief in group decisions. The four cultural dimensions proposed by Hofstede do not operate in isolation; instead, they are interdependent and interrelated—and therefore complex. their impact on attitudes and behavior in the work environment.
Culture in the Workplace
Many people in the world understand and relate to others only in terms of their own culture. International managers must not only be aware of cultural variables and their effects on workplace behavior, but must also appreciate cultural diversity and understand how to build constructive working relationships anywhere in the world.
Cross-cultural Management and Training
Globally, multinationals are filled with managers who are afraid to deal with cultural differences – the diverse set of assumptions and expectations that people from different backgrounds bring to the workplace. Hofstede, “The Cultural Relativity of Organizational Practices and Theories,” Journal of International Business Studies (Fall 1983), pp.
Theories of International Trade and International
300 BC n. No.–330, Cyprus continued to trade mainly with Egypt and other provinces under the Roman Empire. In addition, Cyprus' trade relations with the EU, Eastern Europe, Russia, China, Japan and the United States of America have strengthened over the past ten years, and WTO membership has increased the island's trade opportunities in the world. .
International Trade in General and its Importance
Why does international trade take place and how does it affect the existence and viability of countries and businesses. All these questions will be discussed within the context of this chapter, and hopefully students will have a better understanding of international trade and its implications in today's global environment.
Mercantilism
For as long as countries and companies have existed, international trade has been an essential resource for countries and companies. economies. Although the era of mercantilism ended in the latter part of the seventeenth century, the arguments of this theory still have applications today.
Adam Smith and the Theory of Absolute Advantage
Based on the aforementioned discussion and his contributions to international trade, he developed the theory of absolute advantage. The relative efficiency of each country in the production of the two products is measured by comparing the number of man-hours required to produce 1 unit of each product.
David Ricardo and the Theory of Comparative Advantage
Fewer man-hours are needed (2 is less than 4) before Spain can produce 1 unit of olive oil. Italy exports 1 unit of olive oil to Spain and in return imports 120/100 units of shoes.
The Heckscher–Ohlin (Factor Proportions) Model
In the H-O model, we define the ratio between the amount of capital and the amount of labor in a production process as the ratio of capital to labor. Correspondingly, the price of the labor-intensive product in the labor-rich country will be bid down in relation to the price of the product in the capital-rich country.
Raymond Vernon and the Product Life Cycle Theory of Trade
Sales volume and profit become the critical micro variables in the product life cycle framework. The measure of maturity in the product life cycle approach is sales growth.
Contemporary Trade Theories
For example, it was in the maturity phase in Western Europe and in the introduction phase in the United States.17. Finding new international markets can rejuvenate products that have reached the stage of decline in the domestic market.
Porter’s Diamond of National Advantage
Examples include Silicon Valley in the US, Detroit (for the automotive industry) and Italy (leather shoes and other leather goods industry). Downstream companies (i.e. those that use the industry's product as input) will also invest in the area.
Trading Coffee
Unskilled labor accounts for more than 60 percent of the total cost of production on coffee farms. American brands Maxwell House (Kraft Foods) and Folgers (Procter & Gamble) represent 56 percent of the American market.
The Monetary System in the International Arena
If markets expect the euro to fall by 3 percent, the yield on the European Treasury bill will be 3 percent (6 percent minus 3 percent depreciation). As long as the markets are convinced that the euro will appreciate, capital will flow into Europe.
International Transactions
Assume that expectations are not taken into account and that US investors move their funds into Europe. This increases the demand for dollars and the dollar appreciates against the euro, or alternatively the euro weakens against the dollar.
Balance of Payments
On the other hand, imports of goods and services are placed on the debit side. Likewise, the "Transfers" entry on the debit side includes remittances paid to home or foreign residents (such as remittances to home students studying abroad) and aid abroad.
Current and Capital Accounts
A current account deficit means that the home country's current payments abroad for goods, services and remittances are greater than the corresponding receipts. The home country has to resort to foreign borrowing or reduce its foreign claims or draw on its foreign reserves to finance the current account deficit.
Balance of Payments Disequilibrium
In Figure 4.2, the capital account is in surplus, which exactly offsets the current account deficit so that the balance of payments is zero. You will notice that a third account - the Official Reserves Account - appears on the balance of payments statement.
The Foreign Exchange Market
In this case, if the rate of the domestic currency falls (rises), it means that its value also falls (rises), that is, it depreciates (rises). Therefore, we can say that the value of the domestic currency has decreased (increased) or the exchange rate (of the domestic currency) has decreased (increased).
Exchange Rates in the Business Context
For example, if the current 90-day forward exchange rate is E12=$1, the market expects the value of the dollar to fall. If, on the other hand, the forward exchange rate is lower than the spot rate (i.e. the market expects the dollar to appreciate), then there is a forward discount.
Demand and Supply of Foreign Exchange
The demand for dollars (or any other currency) is closely related to the credit items in the balance of payments. This excess supply can be eliminated by a fall in the exchange rate toward the equilibrium at E0.
Exchange Rate Determination
The demand curve for dollars will shift to the right while the supply curve of dollars shifts to the left and the dollar appreciates. Graphs (a) and (b) show what happens in the currency market when the demand curve for dollars shifts to the right and left, respectively, while the supply curve.
Purchasing Power Parity
Overall, the relative PPP theory seems to be a fairly good determinant of exchange rates in the long run, but not in the short run. Empirical evidence across currencies shows that PPP tends to hold in the long run (a period between five and ten years), but shows large deviations from PPP in the short run.12.
Exchange Rate Regimes
Maintaining a fixed exchange rate places limits on the actions of monetary authorities in conducting monetary and fiscal policies. For example, lower interest rates will cause an outflow of capital, leading to a depreciation of the exchange rate.
The International Monetary System
For example, if inflation is higher in the United States than in the rest of the world, the dollar will depreciate, raising the dollar price of imports. Not to mention the fact that matters are further complicated as domestic macroeconomic policies themselves affect the exchange rate.
The Gold Standard
Because the US dollar was pegged to gold terms, the United States could not devalue the dollar to restore competitiveness, and the only way the dollar's exchange rate against other currencies could change was if surplus countries revalued their currencies. Since 1998, 12 member countries of the European Union have adopted irreversible fixed exchange rates between their currencies, choosing to have a common currency - the euro.
The Asian Crisis
Suppose the United States decides to implement a fixed exchange rate system and peg the dollar to the euro. The asset market approach to determining exchange rates, where exchange rates are determined in asset markets, is discussed in Salvatore (2001), op.
International Economic Integration
Of course, many European and Japanese firms are setting up production and research facilities in the United States and employing many American professionals. In the future, more and more work will simply be done in places that are best equipped to do the work the most economically.
The Changing World Context
Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom made a dramatic impact on their economies as they tried to fight inflation and slow growth. Japan developed an impressive current account surplus and became a major investor in Europe and the United States although the situation was reversed in the 1990s when Japan entered a major economic and political crisis.4.
Globalization and Economic Activity
In the 1990s there was a marked shift towards a market economy in both developed and developing countries. Exhibit 5.2 shows what is often associated with globalization: increased capital flows to developing countries during the 1990s and before the global financial crisis that began in East Asia in 1997 and then spread to Russia and Brazil.
The World Trade Organization
The GATT principles and trade agreements were adopted by the WTO.13 The WTO was founded on January 1, 1995 with 104 signatory countries. In the late 1990s, the WTO was associated with globalization and came under strong criticism regarding labor and environmental standards.
The International Monetary Fund and the World Bank
This is due to three main factors: (1) the fact that the WTO focuses on all goods, services and intellectual property, in contrast to GATT, which focused mainly on goods with the exception of textiles and agriculture;. 2) strengthening the mechanisms for the review of trade policies and the resolution of trade disputes; and (3) the fact that the number of signatory countries has increased significantly and the combined share of international trade under the WTO exceeds 90 percent of the total. In December 1999, a WTO trade conference - the "Millennium Round" - was held in Seattle and provoked massive protests from environmental, labor and human rights organisations.
Economic Integration
Pre-union trade barriers – the higher the pre-union trade barriers, the greater the likelihood that the formation of a customs union will lead to trade creation. Economic relations before union – the closer the economic relations between potential members, the greater the probability of the formation of a successful customs union.
Economic Integration in Europe: The European Union
Geographical proximity - the closer the member states are geographically, the lower the transport costs. Economic integration between transition economies has not gained momentum as almost all Eastern European countries have signed treaties with the EU and have already started negotiations to become members of the EU.
Background Information
The ECSC was established to control the combined coal and iron and steel resources of the six founding members. The European Central Bank (ECB), discussed below, is empowered to conduct the common monetary policy of the EU. 26.
The Single Market
The Court ensures that the law is observed and has the power to rule on the constitutionality of the decisions of the Commission and the Council of Ministers. Most of the legal framework for market integration in goods, services, labor and capital was completed by December 1992.
Economic and Monetary Union Historical Background
The measure of fiscal discipline aims at the convergence of the fiscal policies of the Member States. The convergence of macroeconomic policies has been remarkable since the beginning of the European monetary system.
Economic Integration in North America—NAFTA
The Governing Council consists of the governors of the participating central banks and members of the Executive Board. The Council consists of the President and the Vice-President of the ECB and four other members.
Economic Integration among Developing Countries
He hoped to create what is now called the Free Trade Area of the Americas (FTAA), which was established in 1998 and is still under negotiation. To some extent, NAFTA reflects the structural adjustment of the United States economy to face increasing competition.
Economic Integration in Asia
Economic Integration in Africa
However, the majority of SADC member states are also members of COMESA, a significant overlap that has created tension and rivalry between the two regional arrangements and delayed the achievement of its stated goals. It is a customs union with reasonably free movement of labor and capital and a common external tariff.
Economic Integration in Latin America and the Caribbean
SACU was established in 1969 between Botswana, Lesotho, Swaziland and the Republic of South Africa and was later joined by Namibia. Progress towards trade liberalization has been slow and the establishment of a common external tariff has been postponed several times as it was difficult to reconcile the interests of the more developed and the less developed member states.
Economic Integration in the Middle East
What about NAFTA?
European Commission (1973), Treaties establishing the European Communities, Office for Official Publications of the European Communities, Luxembourg. European Commission (1992), Treaty of the European Union, Office for Official Publications of the European Communities, Luxembourg.
Government, Law, and Political Risk in
International Business
In the other, he is working to make Europe's role as arbiter of global antitrust law equal to that of the United States. A leading Italian executive (CEO) adds: “He acts like a high priest.” Monti's political greenness and some priestly inflexibility may have gotten him into trouble in the GE case.
Washington’s Worries and Monti’s Defense
