Introduction to International Business

1
Introduction to International Business

• July 21, 2008
• Second Discussion Section
• Culture Ethics International Trade

2
Agenda

• Chapters 1, 2 in a Nutshell
• Review Chapters 3 and 4
• Discussion 1
• Selling Dominos Pizza Worldwide
• Review Chapters 5 and 6
• Discussion 2
• Boeing v. Airbus

3
Chapters 1 and 2

• Chapter 1
• What is globalization?
• What is driving globalization?
• What are the trends in globalization?
• What are the debates about globalization?
• Chapter 2
• How are countries different politically,
  economically, legally?
• What are the factors leading to economic
  development?
• How to measure economic development
• Protection of property rights Innovation? What
  about the legal and political systems of the
  country?

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Chapter 3 Differences in Culture

• What is Culture?
• Values and Norms
• Culture, Society, and the Nation-State
• The Determinants of Culture
• Social Structure
• Individuals and Groups
• Social Stratification
• Religious and Ethical Systems
• Language
• Culture and the Workplace
• Hofstede study
• Power distance individualism vs. collectivism
  uncertainty avoidance masculinity vs. femininity

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Chapter 3 Learning Goals

• Know what is meant by the culture of a society.
• Identify the sources that lead to differences in
  social culture.
• Identify the business and economic implications
  of differences in culture.
• Understand how differences in social culture
  influence values in the work place.
• Develop an appreciation for the economic and
  business implications of cultural change.

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Chapter 3 Exercise Dominos Pizza commercials
from around the world

• U.S.
• http//www.youtube.com/watch?v8QuozSISqW4
• http//www.youtube.com/watch?vVIHj7f8mOLI
• http//www.youtube.com/watch?vYoZhpsNztgY
• Australia
• http//www.youtube.com/watch?viyHQHEWpf3A
• http//www.youtube.com/watch?vf5J8TnWHxVI
• Mexico/Latin America
• http//www.youtube.com/watch?vx8tSR-itf9o
• http//www.youtube.com/watch?vYTqtta8VMyo
• Europe
• http//www.youtube.com/watch?vMdTXbQ6t5os
• http//www.youtube.com/watch?vGRpixqTRejs
• Middle East
• Israel http//www.youtube.com/watch?vlOKPCxRKhdg
  
• Asia
• Japan http//www.youtube.com/watch?vHOlsj46QOwU
• Korea http//www.youtube.com/watch?vhh52CqPVj6E
• http//www.youtube.com/watch?v_k7kcEqdaH4

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Chapter 3 Critical Thinking

• Outline why the culture of a country might
  influence the costs of doing business in that
  country. Illustrate your answer with examples.

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Chapter 3 Critical Thinking

• Choose two countries that appear to be culturally
  diverse. Compare the culture of those countries
  and then indicate how cultural differences
  influence (a) the costs of doing business in each
  country, (b) the likely future economic
  development of that country, and (c) business
  practices.

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Dominos Discussion Questions

• 1. Dominos has successfully grown its
  international presence very quickly. Compare and
  contrast its strategy with that of another
  well-known international fast food operation,
  McDonalds. What similarities do you see? Are
  they any significant differences between the two
  companies? What has led to the success of
  Dominos?

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Dominos Discussion Questions

• 2. While its pizza appears to be universally
  accepted, Dominos has had to make some
  adjustments to its marketing mix. Discuss the
  different components in the marketing mix and how
  the company has responded to local needs.

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Chapter 4 Ethics in International Business

• Ethical issues in International Business
• Employment Practices Human Rights Environmental
  Pollution Corruption Moral obligations 
• Ethical Dilemmas
• What are they?
• The Roots of Unethical Behavior
• How do they arise?
• Philosophical Approaches to Ethics
• Straw Men
• Friedman Doctrine Cultural Relativism Righteous
  Moralist Naïve Immoralist
• Utilitarian and Kantian Ethics
• Rights Theories
• Justice Theories
• Ethical Decision Making
• Hiring and Promotion Organization Culture and
  Leadership Decision-Making Processes Ethics
  Officers Moral Courage

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Chapter 4 Learning Goals

• Be familiar with the ethical issues faced by
  international businesses.
• Recognize an international dilemma.
• Discuss the causes of unethical behavior by
  managers.
• Be familiar with the different philosophical
  approaches to ethics.
• Know what managers can do to incorporate ethical
  considerations into their decision making.

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Chapter 4 Critical Thinking

• QUESTION 1 A visiting American executive finds
  that a foreign subsidiary in a poor nation has
  hired a 12-year-old girl to work on a factory
  floor, in violation of the companys prohibition
  on child labor. He tells the local manager to
  replace the child and tell her to go back to
  school. The local manager tells the American
  executive that the child is an orphan with no
  other means of support, and she will probably
  become a street child if she is denied work. What
  should the American executive do?

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Chapter 4 Critical Thinking

• QUESTION 2 Under what conditions is it ethically
  defensible to outsource production to the
  developing world where labor costs are lower when
  such actions also involve laying off long-term
  employees in the firms home country?

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Chapter 4 Critical Thinking

• QUESTION 3 Are facilitating payments ethical?

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Chapter 4 Critical Thinking

• QUESTION 4 Drawing upon John Rawlss concept of
  the veil of ignorance, develop an ethical code
  that will (a) guide the decisions of a large oil
  multinational toward environmental protection,
  and (b) influence the policies of a clothing
  company to outsourcing of manufacturing process.

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Chapter 5 International Trade Theory

• An Overview of Trade Theory
• Mercantilism
• Absolute Advantage (Adams Smith)
• Comparative Advantage (David Ricardo)
• The Gains from Trade/Qualifications and
  Assumptions
• Simple Extensions of the Ricardian Model
• Heckscher-Ohlin Theory 
• The Leontief Paradox
• The Product Life-Cycle Theory (Raymond Vernon)
• Evaluating the Product Life-Cycle Theory
• New Trade Theory (1970s economists)
• Increasing Product Variety and Reducing Costs
• Economies of Scale, First-Mover Advantages and
  the Pattern of Trade
• Implications of New Trade Theory 
• National Competitive Advantage Porters Diamond
• Factor Endowments
• Demand Conditions
• Related and Supporting Industries
• Firm Strategy, Structure, and Rivalry

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Chapter 5 Learning Goals

• Understand why nations trade with each other.
• Be familiar with the different theories
  explaining trade flows between nations.
• Understand why many economists believe that
  unrestricted free trade between nations will
  raise the economic welfare of countries that
  participate in a free trade system.
• Be familiar with the arguments of those who
  maintain that government can play a proactive
  role in promoting national competitive advantage
  in certain industries.
• Understand the important implications that
  international trade theory holds for business
  practice.

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Chapter 5 Critical Thinking

• What are some potential costs of adopting a free
  trade regime? Do you think governments should do
  anything to reduce these costs? What?

20
Chapter 5 Critical Thinking

• The worlds poorest countries are at a
  competitive disadvantage in every sector of their
  economies. They have little to export. They
  have no capital their land is of poor quality
  they often have too many people given available
  work opportunities and they are poorly educated.
  Free trade cannot possibly be in the interest of
  such nations! Discuss.

21
Chapter 5 Critical Thinking

• Unions in developed nations often oppose imports
  from low-wage countries and advocate trade
  barriers to protect jobs from what they often
  characterize as unfair import competition. Is
  such competition unfair? Do you think that this
  argument is in the best interests of (a) the
  unions, (b) the people they represent, and/or (c)
  the country as a whole?

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Chapter 5 Critical Thinking

• a) Who benefits from the outsourcing of skilled
  white collar jobs to developing nations? Who are
  the losers?
• b) Will developing nations like the United States
  suffer from the loss of high skilled and high
  paying jobs to other countries?
• c) Is there a difference between the transference
  of high paying white collar jobs, such as
  computer programming and accounting, to
  developing nations, and low paying blue collar
  jobs? If so, what is the difference, and should
  government do anything to stop the flow of white
  collar jobs out of the country to countries like
  India?

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Chapter 5 Critical Thinking

• Drawing on the new trade theory and Porter's
  theory of national competitive advantage, outline
  the case for government policies designed to
  build a national competitive advantage in
  biotechnology. What kind of policies would you
  recommend the government adopt? Are these
  policies at variance with the basic free trade
  philosophy?

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Chapter 6 The Political Economy of
International Trade

• Instruments of Trade Policy
• Tariffs
• Subsidies
• Import Quotas and Voluntary Export Restraints
• Local Content Requirements/ Administrative
  Policies
• Antidumping Policies
• The Case for Government Intervention
• Political Arguments for Intervention
• Protecting jobs and industries national
  security retaliation protecting consumers
  furthering foreign policy objectives protecting
  human rights
• Economic Arguments for Intervention
• The infant industry argument strategy trade
  policy
•  The Revised Case for Free Trade (or,
  counter-arguments to the case for government
  intervention)
• Retaliation and Trade War
• Domestic Politics
• Development of the World Trading System
• From Smith to the Great Depression ? 19471979
  GATT, Trade Liberalization, and Economic Growth ?
  19801993 Protectionist Trend ? The Uruguay
  Round and the World Trade Organization ?WTO
  Experience to Date ?The Future of the WTO
  Unresolved Issues and the Doha Round

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Chapter 6 Learning Goals

• Describe the policy instruments used by
  governments to influence international trade
  flows.
• Understand why governments sometimes intervene in
  international trade.
• Articulate the arguments against strategic trade
  policy.
• Describe the developments of the world trading
  system and the current trade issues.
• Explain the implications for managers of
  developments in the world trading system.

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Chapter 6 Critical Thinking

• Do you think that governments should consider
  human rights when granting preferential trading
  rights to countries? What are the arguments for
  and against taking such a position?

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Chapter 6 Critical Thinking

• Whose interests should be the paramount concern
  of government trade policy - the interests of
  producers (businesses and their employees) or
  those of consumers?

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Chapter 6 Critical Thinking

• Given the arguments relating to the new trade
  theory and strategic trade policy, what kind of
  trade policy should business be pressuring
  government to adopt?

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Chapter 6 Critical Thinking

• You are an employee of an U.S. firm that produces
  personal computers in Thailand and then exports
  them to the U.S. and other countries for sale.
  The personal computers were originally produced
  in Thailand to take advantage of relatively low
  labor costs and a skilled workforce. Other
  possible locations considered at that time were
  Malaysia and Hong Kong. The US government
  decides to impose punitive 100 ad valorem
  tariffs on imports of computers from Thailand to
  punish the country for administrative trade
  barriers that restrict U.S. exports to Thailand.
  How do you think your firm should respond? What
  does this tell you about the use of targeted
  trade barriers?

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Boeing versus Airbus

• Boeing 787 Dreamliner
• http//www.youtube.com/watch?vmBuC9_jRVQ0
• Airbus A380
• http//www.youtube.com/watch?vAK10MxtCAHc

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Subsidy Dogfight Boeing v. Airbus

• What are the facts?
• Boeings development of Boeing 7E7 (now 787),
  which promises as much as 20 reduction in
  operating costs
• Alliance with three Japanese companies
• 1992 Agreement limits state aid that both
  companies can receive from respective governments
• Does 1992 Agreement extend to other parties in
  the project? Japanese MET? State of Washington
  and Kansas
• Airbus applies for launch aid for A350, direct
  competitor to 787
• Dispute now before WTO as to the legality of the
  various subsidies

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Boeing v. Airbus

• Boeings Claim
• Airbus receives subsidies from UK, France, German
  and Spain
• Why is this bad?
• 13.5 billion government subsidies between 1970
  and 1990 (25.9 billion if commercial interest
  rates applied)
• Loans at below market interest rates and tax
  breaks
• Airbus is believed to have financed 80 of the
  cost of aircraft for a term of 8 to 10 years at
  an annual interest rate of approximately 7
• In contrast, US Export Import Bank required 20
  down payments from Boeing customers, financed
  only 40 of the cost of an aircraft directly, and
  guaranteed financing of the remaining 40 by
  private banks at an average interest rate to 8.5
  for 10 years
• Airbus received government 3.7 billion launch
  aid and 2.8 billion in indirect subsidies for
  the development of the A380 superjumbo and need
  not repay the aid if the aircraft is not a
  commercial success
• Catalyst for latest dispute launch aid for A350,
  direct competitor to B-787 (700 million by UK,
  30 launch aid from EU)

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Boeing v. Airbus

• Airbus claims
• Airbus success due not to subsidies but to good
  products and strategy
• Boeing benefited from US government aid for a
  long time
• Planes were built under government WWI, WWII.
  Boeing 707, for example, was subsidized by the US
  government
• 1991 EC study contended that Boeing/McDonnell
  Douglas received 18 to 22 billion in indirect
  aid between 1976 and 1990. US Dept of Defense
  gave as much as 6.34 billion from 1976 to 1990,
  and NASA gave 8 billion to commercial aircraft
  production. Moreover, tax exemptions gave an
  addition 1.7 billion to Boeing and 1.4 billion
  to MD
• Boeing rejected these claims, saying no
  additional 5 for commercial work for every
  defense contract only 3 of Boeings RD from
  Department of Defense, and only 4 from NASA
  funding
• Airbus contends Boeing received some 12 billion
  from NASA to develop technology, much of it found
  its way to commercial jet aircraft
• Airbus further contends Boeing would receive as
  much as 3.2 billion in tax breaks from
  Washington, 1 billion in loans from the Japanese
  government

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Boeing v. Airbus

• How might the repayable launch aid for Airbus
  change its decision making on launching a new
  aircraft? What are the potential consequences for
  (a) Boeing, (b) airlines, and (c) the
  profitability of both Boeing and Airbus?

35
Boeing v. Airbus

• When Airbus originally received government aid
  back in the 1960s, it was a new enterprise. Today
  it is the global market share leader in the
  commercial aerospace business. How do gains in
  market share effect the legitimacy of claims for
  subsidies?

36
Boeing v. Airbus

• Do you think that RD contracts from NASA and the
  Pentagon benefit Boeings commercial aerospace
  business? How?

37
Boeing v. Airbus

• At this point, what do you think is the most
  equitable solution to the long running battle
  between the US and EU on subsidies for commercial
  aircraft development?