Shared Flashcard Set


badm test 1
test 1

Additional Business Flashcards




nature of the course
- This nature of this course is very dynamic (continuous change and evolution)
o It is Multi-dimenstional. A blend/integration of multiple disciplines
o Majority of changes stem from changes in business environment
o Technology is the largest factor of change
o Reduction in bricks and mortar and increase in online shopping

- International business is very different from domestic business. IB is a cross-country exchange of goods, services, capital, labor, technologies, knowledge, ideas, culture, management and marketing skills, etc. with or without restrictions (usually there are restrictions)
- Contents of international business/ topical coverage
1. Globalization
2. National Differences in Political, Economic and Legal Systems
3. National Differences in Economic Development
4. Differences in Culture
5. Ethics, Corporate Social Development and Sustainability.
6. International Trade Theory
7. Government Policy and International Trade
8. Foreign Direct Investment
9. Regional Economic Integration
10. The Foreign Exchange Market
11. International Monetary System
12. The Global Capital Market
13. The Strategy of International Business
14. The Organization of International Business
15. Entry Strategy and Strategic Alliances
16. Exporting, Importing, and Countertrade
17. Global Production, and Supply Chain Management
18. Global Marketing and R&D
19. Global Human Resource Management
20. Accounting and Finance in the International Business
- Nature of IB
- 1. Multidimensional
o A blend/integration of multiple disciplines. (Economics, Finance, Accounting, Marketing, History, Geography, Anthropology, Sociology, Engineering Science, Medical Science)
- When you want to do business in another country you must first understand their cultures, then the religions, geography, history.
- Dynamics of IB
Its dynamics are ever-changing. Business environment is dynamic due to changes in Macro-economic policies.
Fiscal policies
- Tax Policies
- Monetary Policy
o Interest rate
Trade Policy - (unpredictability policy not good and vice-versa.)
-communication technologies, information technologies, production technologies go up production costs go down, transportation technologies
Changes in business regulations
-regulatory tightening reduces business freedom investment goes down, deregulations improves business freedoms investment goes up
Social and cultural compositions
-Us culture is diverse and cosmopolitan
Importance of IB Course
1. It provides sharp insights into the complex issues of international business in a dynamic and comprehensive world environment with demographic diversity.
2. It is informative in nature with necessary theoretic and practical expositions.
3. It challenges the students’ comprehensions of history, geography, science, politics, demography, sociology, multicultural and multilingual literacy, religions, business, economics, finance, accounting, marketing, management and psychology.
4. It will increase the understanding of global markets and various regions of the world.
5. The world’s economy is increasingly global. This course will provide the insights into the global economic and business climates.
6. It will teach students to evaluate external environment of particular country (i.e. to find opportunities and threats) along with strategy to entry in new markets.
Therefore, in a nut shell, this course is a blending of diverse fields and disciplines that makes it so enjoyable and exciting. Age of globalization.
Reasons For Growth In International Business
Why is it growing fast; market openness for goods and services, financial market liberalization and advances in technologies, massive deregulations, cross-country mergers and acquisition of manufacturing industry, outsourcing and insourcing.
Reasons For Growth In International Business
. Saturation of Domestic Markets:
opportunities in foreign markets
availability of low cost labor
competitive reasons
increased demands
reduction of trade barriers
development of communications and tech
consumer pressure
global competition
Unique Position Of The U.S. In The World Economy, And Its Global Importance (EMSRVBIT)
largest economy
largest market
highest standard of living and per captita annual income
key international reserve currency
vehicle currency
most developed banking system and capital markets
most developed infrastructure
technological leader
Major Participants In An Economy And Their Contributions
consumer/ household
business firms of all sizes
1. Consumers/household:
- The most important one for the US economy because total contribution spending constitutes 72% of US annual income/GDP.
- Consumers are the main driver of the US economy.
i. They supply labor for earnings,
ii. They pay payroll taxes.
iii. They spend disposable income (net income pay) to buy goods and services.
iv. If they do not spend all, they save it (UNDERSPENDING).
v. They borrow from bank, if there is OVERSPENDING.
vi. They invest the saving in financial markets.
(NOTE: job market, government, financial institutions all are interrelated)
2. Business firms of all sizes:
- They create jobs and employ workers.
- They pay wages and salaries.
- They collect taxes for Federal, State and local governments.
- They raise capital for investment borrowing from banks and issuing stocks and bonds. (usually small and mid sizes business borrow from banks and large size business do both i.e. borrow from banks and issue stocks)
- They buy raw materials domestically and internationally.
- They utilize labor, capital and raw materials to produce goods with technologies.
- They deliver goods to consumer through marketing chain.
- They earn profit and pay taxes on profit.
- They reinvest profit for business expansion.
- They export some goods.
- They earn foreign currencies.
- They invest in domestic and foreign markets.
3. Government:
- Government is a necessary evil.
- It mobilizes tax revenue from consumers and businesses.
- It spends on social problems to improve welfare.
- It invests in infrastructures.
- It subsidizes Research and Development.
- It protects consumers from abuses of market monopolists by regulations.
The Working Of An Economy**
Money as a life blood of an economy flows in and out among economic participants through the banking system and capital markets. Overflow of money causes some problems such as inflation, and its underflow slows down the economy causing higher unemployment. The following figure shows how an economy works.

- Everything has two-way flows. Banks earn profit because loan interest rates are higher than deposit rates acting as middleman between depositors and borrowers.
BRICS And Future Challenges To USA **
BRICS- (Brazil Russia India China South Africa). Brics is the pacific ocean-the ocean of the future. BRICS are rising while PIGS are sinking. Emerging and vibrant economy. Increasingly proactive in IB. they have become more competitive and challenging of US in world markets.
- Emerging economy
- Huge market

Future challenges to the USA-
- Huge competition from BRICS
- the baby boomers population (1946-1964) which is 70 million Americans will soon retire over the next 20 years (currently, 10,000 baby boomers are retiring per day). This will create a labor shortage in the USA workforce.
China investment in tech
US depends on china for capital
Global Competitiveness and Labor Productivity
(output per work hour)– (Part of technology)
USA is still the technological leader in the world due to R&D although a formidable challenge is coming from China. Advances in production technologies improve labor productivity. So, production costs will go down leading to lower prices for goods. This improves US global competitiveness as technologies reduce physical distance, time distance and mental distance.
Share modern technologies with developing countries to make them more competitive increasing labor productivity and lowering costs. Labor productivity is low output per work hour when there is lower costs this promotes competition, global competitiveness.
If workers have access to technology their productivity will improve.

- Keeping up with changes is not enough in highly competitive business environment (must be ahead of the curve)
o Manufacturers cannot increase price, so they must reduce production costs to be competitive
o Requires latest technology (supply chain management etc.)
o Think of all the things cellphones have replaced (landline, typewriter, etc.)
o Creative destruction – cellphone is the best example
o due to increase in technology (must have the latest skills)

- Walmart doesn’t produce anything. They use global product chains to obtain products
o Largest global sourcer in the world (global supply chain management)

-garment producers in the US = $23/hr min wage while Vietnam =10 cent min wage/hr
-US companies do not produce garments anymore
-they have to outsource, or the garments would be ridiculously expensive
-outsourcing increases unemployment in the US
- outsourcing is good for the consumers, but bad for the US
-always winners and loser in international business
- 2. Foreign investment – 2 types: Direct and Indirect
direct) FDI= investment in overseas production plants ( US companies building production facilities in other countries to reduce production costs)
 Good for stakeholders and consumers, but bad for US (leads to unemployment)
o Indirect- = foreign portfolio investment (investment in foreign securities)
 China is largest investor in US Treasury Bills (mainly 1 month and 3 month)
 Due to trade deficit with china
 US gets most money back from china through foreign investment
o (over the last 230 years average saving in US- 2% / China= 15%
o We buy more foreign goods than we produce
o US = Cosmopolitan society we buy more foreign goods than domestic due to lower price and higher quality
o Japan = Nationalistic society -prefer to buy their own goods even though they are more expensive
- 4. International tourism- (least controversial building block)- bring money from elsewhere and spend he in the US
o 77 million visited US last year and spent over 200 million dollars
o Biggest groups that visit US are: 1. Canada 2. Germany 3. UK 4. France 5. Australia 6. China
 Chinese spend the most (over $7600 on average)
 4 biggest factors for Louisiana tourism= location, climate, unique history and unique culture (jazz music, language etc)
 LA has huge potential for tourism industry
• Domestic = gaming, dining etc
• Foreign = factors listed above
 800 million people spend close to 2 trillion dollars as international tourists annually
 Bahamas economy dependent on tourism
- Outsourcing-
o medical tourism (for example: open heart surgery in india is 1/10th of the price of the same surgery in the US (including transportation, lodging, food etc) same medicine in canada is 1/5th the price in US.)
o engineer in India happy with $30,000/year salary
o bill gates hires a lot of software engineers from India.
 Threatened to move Microsoft from Seattle to India when congress tried to limit the amount of engineers he could hire from India

- Domestic exporters have become importers
- You don’t have to produce everything you need if you can buy it cheaper
- Only ways to increase profits it to increase price or lower production costs
o International markets are too competitive to increase price, so production costs must go down
- Parts of a laptop are sourced from 80 different countries
o Out of $500 purchase $100 stays in US and $400 goes elsewhere
Building Blocks of Globalization:
1. Free Trade
2. Foreign Investment
3. International Migration
4. International tourism
5. Outsourcing
6. Insourcing
7. Global-Sourcing
8. Cultural Exchanges
9. Political Integration
10. Market Integration
- Realities of globalization
1. All boats do not rise equally and simultaneously
- ->yachts are rising more and faster than row boats
- ->developed countries benefit more than less developed countries
- ->aggravates global income inequality

2. High-skill workers earn premium wages while low-skill workers experience wage erosion and even job loss (wage gap is actually increasing not decreasing)

3. Advances in technologies lead to job displacements and job losses (robots)
-robots are taking jobs in the manufacturing industry

4. Tariffs (taxes on imported goods) and import quotas have diminished, but non-tariff barriers such as health and safety standards, environmental standards and technical standards are rising in developed countries due to the erection of non-trade barriers. Many products of developing countries do not qualify for access in developed markets. The playing field for them is bumpy and not leveled
-(leads to unequal market opportunities)

5. Developed countries, multinational companies pollute the environment of developing countries by emitting CO2
a. For example: US dirty firms move to Mexico to take advantage of the low environmental standards there. They can produce goods at lower costs as compared to the USA where environmental standards are much higher (Mexico keeps environmental standards low to attract foreign investment)
i. (Louisiana keeps environmental standards low for the same reason)
ii. The cost is health and disease (many insurance companies do not want to provide healthcare in LA)

6. Global warming
a. Temperature rises all over the world due to pollution
b. Water surge (sea level rises, but less drinking water)
c. Loss of coastal lands
d. More hurricanes

- As a result of the negative consequences, globalization is losing momentum and becoming less popular all over the world. This leads to a rise in economic nationalism which emphasizes
o Protect domestic industries
o Protect domestic jobs
o Reduce trade deficit
 (trade war/ currency war= lose-lose for everyone)
- For the survival of globalization, there is a need to put a human face on it
- Cultural Globalization
- What is culture?
o A complex whole of social norms, values, customs, beliefs, laws, regulations, way of living, etc (intrinsically all humans are the same, but we are culturally diverse)
o Companies must manage diversty at the workplace to be successful
- Different countries have different cultures. Even within a country, different ethnic and social groups have their own cultures

- The USA is the most culturally diverse county (best example of multicultural country) the USA has a diverse cosmopolitan society over time they melt into the main stream America (1st gen immigrants= gumbo pot 2nd gen immigrants= melting pot)
-(this is why companies require cross-cultural/multi-cultural training) =diversity management
1. Roles of social structures in international business
a. A society can be structured in demographic, income and other terms

- Demographics
- - male population vs female population
- - higher female population in a country is better for international business
o Consume a greater variety of goods than men
o Women have more derived demand than men

- Married vs. unmarried
- Countries with higher populations of married couples are better for international business
o Need house etc
o More demand for derived goods than unmarried

- Age groups
- Distribution of population of age groups:
- Below 14- If this age group is higher in country. It is good for future supply of labor. (toys childrens clothes etc)
- 15-64- ( working age) i.e lots of demand particularly, for durable goods.
-It is good for International business because they have high income. Demographic dividend if highest % of this group.
- 65+ -(not good for IB because they are not working age) Their consumption goes down but saving is high so they are good for investment but bad for consumption view point. (japan has been in recession for 30 years because they have so many old people (causes labor shortage etc)
- Distribution of population by income
- ->$30,000:- Small not good for IB
- - 30,000 up to $250,000:- Middle; Good for IB
- - Above $250,000:- High (bad for IB, they have everything they need, so they don’t buy much besides luxury goods)
Dimensions of culture:
1. Social structures
2. Languages
3. Religions
4. Education
5. Political philosophy
6. Economic philosophy
- Monolithic society (not good for IB)
- Homogenous population (japan)
- Same language same race etc
- Stronger economic nationalism
- Want to buy their own goods even if prices are higher
- Low elasticity of demand
- “don’t buy Japanese goods in Tokyo, buy then in Singapore (greater elasticity of demand and lower price in Singapore)
cosmopolitan society (good for IB)
heterogenous population (USA)
- weak economic nationalism
-prefer to buy goods of any country as long as they are cheaper
- greater elasticity of demand

- USA is the largest market in the world because it is a cosmopolitan society
- Japan and china have invaded the US market
- US market has become an economic colony of china (neo-colonialism)
- invasion of other countries market with cheaper products
o Takes over production of goods
o Reason for trade deficit with china
o Reason for rise of economic nationalism in this country
o Total gain of consumer> total loss of others
High context society
- business is done informally (by word of mouth and mutual trust)
- another reason, other than cheap labor, china can sell cheaper goods
- china has the highest production rate of engineers
-more china facts:
- before 1980 60% of Chinese people were living in poverty
-now the 2nd largest economy and pulling ahead of the USA (rebuilding silk road)
- china is the oldest trading nation in the world (silk road was built 3000 years ago
Low context society
- business is done formally and every transaction is a legal document (higher cost of production and lower trust)
- USA has highest production rate of lawyers in the world
2. Languages (verbal and body language) (primary language)
2. Chinese (mandarine)
3. English
4. Russian
6. Hindu
3. Religions (meta religions)
1.christianity (1.4/7.5) = 19%
2. Islam (will exceed Christianity in 5-10 years) (1.1/7.5) = 15%
3. Hinduism (.85/7.5)= 11%
4. Buddism (.3/7.5)= 4%
5. confucism (China) (.25/7.5)= 3%
- Christianity: 2 parts
- Protestant (better for IB)
- Emphasize material success
- High demand for luxury goods

- Catholic (not as good for IB)
-Emphasize spirituality and simplicity
- Christianity is the oldest religion and catholics are the majority
- Catholic pope is more secular (tolerant of all religions) than others
- Islam
- Pro-trade (the profit himself was a merchant)
- Pro- capitalism except for prohibition of interst (riba)
- Hinduism
Pro- market (good for IB)
Pro- capitalism (good for IB)
Spirituality success ( not good for IB)
- Budduism (not good for IB
- Simplicity/ frugality/ savings are emphasized
- Thailand for example. (savings are very high)
- Confucianism
-pro business (good for IB)
-workers are loyal to employers (good for IB)
4. Education
- Provide skills
- Earning power -> leads to higher buying power
- Creativity (must be creative, innovative and inventive to be successful in IB)
- Inventions and innovations
- Ciriculum must provide all these things
- Education can lift people out of poverty
o “to get out of public housing one must go to school”
o “do your homework, Chinese are coming to get your jobs
- "Key to success”. “We go to school to get out of public housing", i.e. to get out of poverty.
- "Do your homework, the Chinese are coming to get your job". It means Chinese product invade the US market and by importing good from China they are creating jobs in China.
- We invest in the education to get skilled manpower. Mainly "STEM" workforce.
- New skills as product are becoming more knowledge, skill, technology intensive (upskilling)
- Reap premium wage for skill differences
- Income Gap is decreased
- Buying power goes up (Medium Per Capita Income of US is $49,000.)
- Brainpower gain due to education.
- Develops writing and analytical skills with critical thinking.
- "Read, Reflect and write".
- Creativity will rise through education and creativity is very important for R&D.
5. Economic Philosophies
A) Capitalism:
Has a free market and dominance of private sector over the public sector. Risk taking, wealth maximization, greed, self-interest characteristics. Freedom of choice in making economic decisions. Pure capitalism can be seen in Singapore – it is a city estate.

B) Socialism:
Aka a command economy. Here public sector makes consumption, pricing, and investment decisions. Insignificant role of private sector.
 No private ownership of real estate
 Centrally planned economy.
 No role for market
 Price controls
 No economic freedom
 Such as Russia
6. Political Philosophies
a. Democracy
i. The best political system with no better alternative
ii. People have greatest voice
iii. It is chaotic, has political freedom, elected officials’ accountability to the people.
b. Authoritarianism, Dictatorship, monarchy, totalitarianism:
i. No political freedom
ii. No voice in choosing political leaders
iii. No accountability of leaders to people
c. Autocracy or Fascism
i. Some capture power through violence
ii. Act on whims
iii. Suppression of people
iv. Unpredictable psychology
- Psychological adjustments in a foreign cultural environment
- U-curve hypothesis (adjustments occur in multiple phases)
o Phase 1- excitement-
 they get to see a new country and new people at the company’s expense. Results in higher pay, overseas allowances and allowances for children’s education.
o Phase 2 – psychological downturn-
 result from language barrier, (communication problem with co-workers) cultural shock, miss family members and relatives, different local food habits
o Phase 3- mental depression
 (lowest state) because of above reasons
o Phase 4 – mental or psychological recovery-
 get over some communication barriers with co-workers, develop acquaintance with local co-workers, get used to local some local foods
o Phase 5- mastery-
 gain proficiency in local language, develop friendship with co-workers and other locals (invite you to social and cultural events when they get to know you), develop complete taste for local foods
- Management Of Cultural Differences, Diversity At Work Places In USA
A cultural globalization adds diversity to US workplace.
- Diversity is a blessing.
- Large corporation have very diverse workplace- Diversity at workplace

- “Be a Roman while in Rome” (be a part of the local society) (U-Curve graph in notes)
- People are trained before they are sent to another country
o Required to read history, geography, sociology and such then start cross-cultural training and learn local language (companies spend millions of dollars on this training so you will be able to make them money) (reduces Cultural Distance)
 Otherwise you will not be successful in international business
Potential benefits to reap by the diverse corporation
) To boost team spirit among employees (diversity in workplace in USA)
- Out of a team of ten is higher than total of output of individual employees
2) To enhance total quality management (TQM) due to inducement of homogeneity among the team member.
3) To reduce production cost and to improve product quality. Both will improve global competitiveness of the corporation.
4) Sales and profit soar.
5) Stockholder’s wealth will go up.
6) Sharing of creative ideas among team members. This is very helpful to a corporation
7) Foreign nationals within the team can help develop right marketing strategies for the countries of their origins.
8) Foreign nationals provide important business contacts in their home countries.
9) In additions to effective cultural diversity management a corporation must strictly enforce. Anti-Discrimination law to put all employees on the same level playing field.
Cases Of Unethical Conducts In International Business
Unethical conducts in international business are rampant around the world. The primary reasons for unethical conducts are as follows:-

• Excess greed for short-term gain at a long-run cost.
Short-run Long- run
Gains are enormous
Financial gain at loss of social capital (trust, confidence, respect, loyalty, etc.) Loss of trust and goodwill

- Loss of social capital in the long run will result in loss of future business contracts.
• Lack of strict enforcement of existing business laws motivates unethical business behavior.
• Gray areas in the legal system
- Unethical business people or corporations take advantage of legal loopholes claiming to be smart.
• Cultural acceptance of some unethical behavior in some societies.
• Corrupt corporate environment
- Fish starts rotting from the head
• Deviations from religious fundamentals focusing on rituals.
Causes And Costs Of Unethical Conducts
Some burning examples will serious negative economic, financial and social consequences.
1) Kickback/bribe : Quid pro quo
a) Financial corruption ( bureaucratic-civil and military, political and institutional)
b) Top bureaucrats make business policies and offer business contracts. They favor a company in exchange for financial bribe or in kind or both.
c) According to the World Bank, Multinational Corporation pay bribes over $ 1 trillion to gain favorable business contracts.
d) Ultimately consumers pay for it in terms of higher prices for goods and services.
e) Some banks grants jumbo business loan at 10% rate of bribe (implicitly understood by both parties, involved).
f) Moral Corruption Vs Financial Corruption:- Moral Corruption is more dangerous than the other one because of its wider social and economic negative consequences.
2) Violation of intellectual property rights ( China)
a) Movies, Music, Books, Patent Rights
b) As a result, original producers lose global market share due to too high R&D costs.
3) Piracy of technological secrets ( industrial espionage)
4) Illicit capital outflows through under-invoicing of exports and over-invoicing imports.
5) Tax evasion by Multinational Corporation by inflating cost through transfer pricing for inputs imported by subsidiaries from the Head Office.
6) Environmental pollution by Multinational Corporation’
a) Pollution level is grossly underreported by multinational corporations in developing countries without harsh legal penalty.
7) Exercise of undue political influence in other countries to twist policies in their favor.
8) Smuggling
In a highly corrupt country, cost of doing business is high but short-term gains are even much higher.
Corruption flourishes in a country due to lacks of transparency, accountability and good governance. As a result, economic development is not sustainable for a long haul.
Corruption perception index data are published annually for all countries by the Transparency International (housed in Germany).
- Integrity
- Do the right things for others instead of only self-interest (don’t beselfish)
o Make distinction between short-term and long-term
o Short-term profits can be maximized by misleading foreign buyers in the beginning, but they with pay for it in the long run
o Short-term sacrifice for long-term benefit is the way to go
- Corruption/bribery
- Very rampant in international business
o According to world bank $1 trillion is spent annually on bribes to get foreign contracts (sometimes a necessary evil to do business in a country)
 Ultimately the consumers have to pay for it
 Most corrupt country is Russia (over 70% of money is corrupt money in Russia)
 Every year 7 to 8 trillion dollars is transferred to other countries
 Especially prevalent in developing countries
- Why do certain countries companies engage in unethical conducts?
-short-term profit is extremely high
- low chance of being caught due to lack of strict enforcement of laws
- excess greed at both giving and receiving ends
- at a personal level the root causes are:
1. excess greed
2. improper family upbringing
3. legal loopholes
4. moral hazard (they don’t care if it is unethical)
5. lack of enforcement of the law
6 lack of religiosity and morality
- “When you lose money, nothing is lost, when you lose health, something is lost. When you lose character, everything is lost”
- How to mitigate unethical conducts in international business
1. require all employees to go through ethics training
2. strict enforcement of anti-bribery laws
3. harsh punishment/ penalty for violations of intellectual property rights in all countries
4. closing of loopholes in the legal system
a. USA is # 25 on corruption list out of around 250 countries
b. USA introduced anti-bribery law in 1977, but they do not enforce it because other coutries do not follow it. This would be a huge disadvantage for US companies if it was enforced and only US companies followed it
c. “don’t ask don’t tell” = real US anit-bribery policy
- Corporate social responsibility (CSR)
steak and carrot” policy
- Companies take the steak, but the local community should at least get the carrot
- Take social responsibility and give back to the community
- Companies donate money for public education (carrot)
-oil and gas companies giving money to public schools and McNeese
- sponsor social events
- contribute to public parks and recreation
-donate to public libraries

- “steak and stick” policy raises anti-globalization sentiments
o Companies take everything and give nothing back to the local community
Supporting users have an ad free experience!