4 steps to reduce cultural bias

1. define problem/goal in terms of cultural traits/norms

2. define problem in terms of foreign cultural
traits/norms
3. isolate the self-reference criterion influence in the
problem, and examine it carefully to see how it
complicates the problem
4. redefine the problem without the self-reference
criterion influence, and solve for the optimum-goal
situation

5 things firms should seek for
seeking resources, seeking factor advantages, seeking
knowledge, seeking security, and seeking markets

5 ways in which negotiators may come unprepared
insufficient understanding of different ways of thinking,
insufficient attention to the necessity to save face,
insufficient knowledge and appreciation of the host
country (history, culture, government, etc.), and
insufficient recognition of the decision making process
and role of personal relations and personalities and
insufficient allocation of time for negotiations

1971 Group of Ten
gets rid of fixed exchange rate, then recognizes through
Jamaica Agreement that floating exchange rates are
necessary

abandoned product ranges
the outcome of a firm narrowing its range of products to
obtain economies of scale, which provides opportunities
for other firms to enter the markets for the abandoned
products

absolute advantage
the ability to produce a good or service it more efficiently
than it can be produced elsewhere

Administrative Shelter
protecting firms through laws and regulations

adoption tendency
the likelihood that the product or process will be
accepted

applied tariff
duty level actually charged at border crossing

arbitration
the procedure for settling a dispute in which an objective
third party hears both sides and makes a decision; a
procedure for resolving conflict in the international
business arena through the use of intermediaries such as
representative of chambers of commerce, trade
associations, or third-country institutions

autarky
self-sufficiency: a country that is not participating in
international trade

backtranslation
the retranslation of text to the original language by a
different person than the one who made the first
translation

balance of payments (BOP)
a statement of all transactions between one country and
the rest of the world during a given period; a record of
flows of goods, services, and investments across borders

bearer bond
a bond officially owned by whoever is holding it

bound tariff
duties agreed upon in international negotiations, often
higher than those duties actually charged

brain drain
a migration of professional people from one country to
another, usually for the purpose of improving their
incomes or living conditions

Bretton Woods agreement
1944-1971--44 governments of the Allied Powers
gathered together in Bretton Woods in NH. says that
postwar system would be stable and sustainable only if it
was bale to provide sufficient liquidity to countries
during periods of crisis--fixed exchange rates (adjustable
peg), establishment of IMF, and establishment of World
Bank.

the Capital Account
made up of transfers of financial assets and the
acquisition and disposal of nonproduced/nonfinancial
assets

capital flight
the rapid flow of private funds abroad because investors
believe that the return on investment or the safety of
capital is not sufficiently ensured in their own countries

change agent
a person or institution who facilitates change in a firm or
a country

Committee on Foreign Investments into the United
States (CFIUS)
federal committee, chaired by the US Treasury, with the
responsibility to review major foreign investments to
determine whether national security or related concerns
are at stake

comparative advantage
the ability to produce a good or service more cheaply,
relative to other goods and services, than is possible in
other countries

competitive advantage of nations
factor conditions, demand conditions, related and
supporting industries, and firm strategy, structure, and
rivalry

Composition of Trade
the ratio of primary commodities to manufactured goods
in a company's trade

Correspondent bank
banks located in different countries and unrelated by
ownership that have a reciprocal agreement to provide
services to each other's customers

critical commodities list
governmental information about the products that are
either particularly sensitive to national security or
controlled for other purposes

cultural convergence
creasing similarity among cultures accelerated by
technological advances

cultural imperialism
the imposition of a foreign viewpoint, non-local
perspective, or civilization on a people

cultural risk
the risk of business blunders, poor customer relations,
and wasted negotiations that results when firms fail to
understand and adapt to the differences between their
own and host countries' culture

cultural universals
similarities in the total way of life of any group of people

currency flows
the movement of currency from nation to nation. which
in turn determines exchange rates

current account
an account in BOP that records results of transactions
involving goods trade, services trade, income, and
current transfers

deemed exports
addresses people rather than products where knowledge
transfer could lead to a breach of export restrictions

division of labor
the premise of modern industrial production where each
stage in the production of a good is performed by one
individual separately, rather than one individual being
responsible for the entire production of the good

Doha Round
Currently (2010) ongoing international trade and
investment liberalization negotiations within the WTO
initiated in 2001 in Doha Quatar

Domestic Borrower/Domestic Currency
Category 1: most likely in international bond market

Domestic Borrower/Foreign Currency
Category 3: restrict the amount and types of financial
transactions in foreign currency--usually in international
financial centers such as London and Zurich, technically
eurocurrency

domestication
government demand for partial transfer of ownership
and management responsibility from a foreign company
to local entities, with or without compensation

eclectic paradigm
representing a collection of forces or drivers

economic infrastructure
the transportation, energy, and communication systems
in a country

embargo
a governmental action, usually prohibiting trade entirely,
for a decidedly adversarial or political rather than
economic purpose

ethnocentrism
the regarding of one's own culture as superior to those of
others

euromarkets
money and capital markets in which transactions are
denominated in a currency other than that of the place of
their transaction (not confined to europe)

exchange controls
controls on the movement of capital in and out of a
country, sometimes imposed when the country faces a
shortage of foreign currency

expropriation
government takeover of a company with compensation,
frequently a level lower than the investment value of the
company's assets

factor intensity
the proportion of capital input to labor input used in
good production of a good

factor proportions theory
systematic explanation of the source of comparative
advantage

factors of production
all inputs into the production process, including capital,
labor, land, and technology

the financial account
consists of direct investment, portfolio investment, and
other asset investment

financial account
an account in the BOP statement that records
transactions involving borrowing, lending, and investing
across the borders

financial incentives
monetary offers intended to motivate; special funding
designed to attract foreign direct investors that may take
the form of land, buildings, loans, or loan guarantees

financial infrastructure
facilitating financial agencies in a country; for example,
banks

fiscal incentives
incentives used to attract foreign direct investment that
provide specific tax measures to attract the investor

fixed-exchange-rate
the government of a country officially declares that its
currency is convertible into a fixed amount of some other
currency

floating-exchange-rate
the government possesses no responsibility to declare
that its currency is convertible into a fixed amount of
some other currency; this diminishes the role of official
reserves

foreign availability
the degree to which products similar to those of a firm
can be obtained in markets outside the farm's home
country; crucial to export determination

Foreign Borrower/Domestic Currency
Category 2: most likely in international bond market,
limited by governmental restriction on who can
borrow/lend to foreign companies

Foreign Borrower/Foreign Currency
Category 4: strictest form of the traditional eurocurrency
financial transaction, a foreign firm borrowing foreign
currency (may be restricted). This banking dominates
offshore banking market

foreign corrupt practices act
a 1977 law making it a crime for US executives of publicly
traded firms to bribe a foreign official in order to obtain
business

four components of strategic trade
price, cost, repetition, and externalities

four dimensions of culture
1. individualism (I vs. We)
2. power distance (levels of equality in society)
3. uncertainty avoidance (need for formal
rules/regulations)
4. Masculinity (attitude toward achievement, roles of
men/women)

General Agreement on Tariffs and Trade (GATT)
an international code of tariffs and trade rules signed by
23 nations in 1947; headquartered in Geneva,
Switzerland; now part of the World Trade Organization
with 148 members

high-context cultures
cultures in which behavioral and environmental nuances
are important means of conveying information

imperative cultural knowledge
an acquired ability to understand and appreciate the
nuances of foreign cultural traits and patterns

Imperfections in factor mobility
the low-cost resources or factors often located in less-
developed countries or countries with restriction on the
mobility of labor and capital

imperfections in management
the ability of multinational firms to successfully exploit
or at least manage imperfections still relies on their
ability to gain an "advantage"

import substitution
a policy for economic growth adopted by many
developing countries that involves the systematic
encouragement of domestic production of goods
formerly imported

input-output analysis
a method for estimating market activities and potential
that measures the factor inflows into production and the
resultant outflow of products

intellectual property right (IPR)
legal right resulting from individualistic, scientific,
literary or artistic activity

internalization
occurs when a firm establishes its own multinational
operation, keeping information that is at the core of its
competitiveness within the firm

international law
the body of rules governing relationships between
sovereign states; also certain treaties and agreements
respected by a number of countries

International Monetary Fund (IMF)
A specialized agency of the UN established in 1944. An
international financial institution for dealing with
balance of payment problems; the first international
monetary authority with at least some degree of power
over national authorities

International Trade Organization (ITO)
a forward-looking agreement on the approach to
international trade and investment embodied in the 1948
Havana Charter; due to disagreements among
sponsoring nations, its provisions were never ratified

intra-industry trade
the simultaneous export and import of the same good by
a country. It is of interest due to the traditional theory
that a country will either export or import a good, but not
do both at the same time

knowledge transfer
the movement, communication, implementation of
insights and information across international borders
between individuals, organizations, or corporate units

language's distinct roles in international business
aids in information gathering and evaluation, provides
access to local society, it encourages company
communications with both corporate and channel
members, and it works passed simple mechanics to
interpret contexts of business operations

Launch of Euro effects
1. countries within Euro had quick transactions
2. currency risks and costs related to exchange rate
uncertainty were reduced
3. all consumers and businesses (inside and out) enjoy
price transparency and increased price-based
competition

Leontief Paradox
the general belief that the US, as a capital-abundant
country, should be exporting capital-intensive products
whereas its exports are labor intensive

local content
regulations to gain control over foreign investment by
ensuring that a large share of the product is locally
produced or a larger share of the profit is retained in the
country

low-context cultures
cultures in which most information is conveyed explicitly
rather than through behavioral and environmental
nuances

making culture work for business success
embrace local culture, build relationships, employ locals
in order to gain cultural knowledge, help employees
understand you, adapting products and processes to
local markets, coordinate by region

marketing infrastructure
facilitating marketing agencies in a country; for example,
market research firms, channel members

mixed aid credits
credits at rates composed partially of commercial
interest rates and partially of highly subsidized
developmental aid interest rates

Most-Favored Nation (MFN)
a term describing a GATT clause that calls for member
countries to grand other member countries the same
most favorable treatment they accord any country
concerning imports and exports. In the U.S. now called
Normal Trade Relations (NTR)

National sovereignty
the supreme right of nations to determine national
policies; freedom from external control

Negative impacts on foreign direct investment on host
countries
industrial dominance, technological dependence,
disturbance of economic plans, cultural change,
interference by home government of multinational
corporation

nonfinancial incentives
nonmonetary offers intended to motivate; special offers
designed to attract foreign direct investors that may take
the form of guaranteed government purchases, special
protection from competition, or improved infrastructure
facilities

nontariff barriers
barriers to trade, other than tariffs. I.e. buy-domestic
campaigns, preferential treatment for domestic bidders,
and restrictions on market entry of foreign products such
as involved inspection procedures

official reserves account
an account in the BOP statement that shows the change
in the amount of funds immediately available to a
country for making international payments and the
borrowing and lending that has taken place between the
monetary authorities either directly or through the IMF

operating risk
the danger of interference by governments or other
groups in one's corporate operating abroad

ownership risk
the risk inherent in maintaining ownership of property
abroad. The exposure of foreign owned assets to
governmental intervention

Patent Cooperation Treaty (PCT)
an agreement that outlines procedures for filing one
international patent application rather than individual
national applications

political risk
risk of loss by an international corporation of assets,
earning power or managerial control as a result of
political actions by the host country

Positive impacts on foreign direct investment on host
countries
capital formation, technology and management skills
transfer, regional and sectoral development, internal
competition and entrepreneurship, favorable effect on
balance of payments, and increased employment

price controls
regulation of the prices of goods and services

product cycle theory
a theory that views products as passing through four
stages: introduction, growth, maturity, decline; during
which the location of production moves from
industrialized to lower-cost developing nations

production possibilities frontier
a theoretical method of representing the total productive
capabilities of a nation used in the formulation of
classical and modern trade theory

propensity to change model
1. cultural lifestyle of individuals in terms of how deeply
held their traditional beliefs/attitudes are, 2.
change agents (such as multinational corporations and
their practices) and strategic opinion leaders;
3. communication about the innovation from commercial
sources,

protectionist legislation
a trade policy that restricts trade between (to or from)
one country and another

punitive tariff
a tax on an imported good or service intended to punish
a trading partner (usually unsuccessful in initial goal--
tariff limits imports of American produced goods or sub-
goods)

quality of life
the standard of living combined with environmental
factors, it determines the level of well-being of
individuals

retaliation
the trade or investment policy response to one nation's
or group of nations' trade actions or restrictions,
undertaken by another nation or group of nations in
order to demonstrate displeasure or to seek retribution
and change for this action

sanction
a governmental action, usually consisting of specific
coercive trade measure, that distorts the free flow of
trade for an adversarial or political purpose rather than
an economic one

scale economies
the increasing efficiency gains from greater size or scale,
often described as lower cost per unit of output

self-reference criterion
the unconscious reference to one's own cultural values

Smoot-Hawley Act
1930 Act that raised import duties to the highest rates
ever imposed by the United States; designed to promote
domestic production, it resulted in the downfall of the
world trading system

social infrastructure
housing, health, educational and other social systems in
a coungry

social stratification
the division of a particular population into class

Sovereign Wealth Fund
investment vehicle containing only government financial
assets, which are invested globally

standard of living
the level of material affluence of a group or nation,
measured as a composite of quantities and qualities of
goods

Three main elements to measuring international
economic activity
identify what is and is not an international economic
transaction, understand how the flow of goods, services,
assets, and money creates debits and credits to the
overall BOP, and understand the bookkeeping
procedures for BOP accounting (double-entry)

trade promotion authority
the right of the US president to negotiate trade treaties
and agreements with the US Congress' authority to
accept, or reject, but not amend

transfer risk
the danger of having one's ability to transfer profits or
products in and out of a country inhibited by
governmental rules and regulations

voluntary restraint agreements
trade-restraint agreements resulting in self-imposed
restrictions not covered by WTO rules; used to manage
or distort trade flows. For example. Japanese restraints
on the export of cars into the US, often the direct result
of trade measure threats

Webb-Pomerene Act
a 1918 statute that excludes from antitrust prosecution
US firms cooperating to develop foreign markets

World Bank
An international financial institution created in 1944 to
facilitate trade

World Trade Organization (WTO)
the institution that supplanted GATT in 1995 to
administer international trade and investment accords

Government policies are designed...
to regulate, stimulate, direct and protect national activities
the exercise of these policies is the result of national sovereignty
National sovereignty
the supreme right of nations to determine national policies
freedom from external control
Standard of Living
the level of material affluence of a group or nation, measured as composite of quantities and
qualities of goods
Quality of Life
the standard of living combined with environmental factors, it determines the level of well-
being of individuals
2 factors that can influence trade and investment indirectly
standard of living
quality of life
2 factors that can influence trade and investment directly
tech transfer
exclusion of foreign industries
Foreign policy
the area of policy concerned with relationships with other countires
ITO
international trade organization
forward looking agreement on the approach to IT&I embodied in 1948.
disagreement on sponsoring nations meant it was never implemented
GATT
General Agreement on Tariffs and Trade
an international code of tariffs and trade rules signed by 23 nations in 1947. HQ in
Switzerland
now apart of WTO - 148 members
Most Favored Nations (MFN)
a term describing a GATT clause that calls for member countries the same most favorable
treatment they accord any country concerning imports and exports.
equal rather than special treatment
WTO
world trade organization
the institution that supplanted GATT in 1995 to administer international trade and investment
accords
Doha Round
currently ongoing IT&I liberalization negotiation within WTO initiated in 2001 in Doha.
Aim to liberalize impoverished and developing nations
Changes in the Global Policy Environment (3)
1) a reduction of domestic policy influence
2) A weakening of traditional international institutions
3) Sharpening of the conflict between industrialized and developing nations.
These 3 changes have had a major effect on policy responses in the IT&I field
Limits of Domestic Policy Influences
Domestic policy measures are often vetoed or counteracted by the activities of global market
forces
currency flows
the movement of currency from nations to nation which in turn determines exchange rates
Punitive Tariff
a tax on an imported good or service intended to punish a trading partner
What did Gatt focus on?
Reducing Tariffs
What does WTC focus on?
nontariff barriers
shouldn't focus on social issues
future of overall multilateral trading systems
International Monetary Fund
IMF
1944, UN, an international financial institution for dealing with balance of payment problems;
the first international monetary authority with at least some degree of power over national
authorities
often its lending policies are too austere and inflexible
World Bank
an international financial institution created in 1944 to facilitate trade
Conflict between developed and developing countries
in 1960's and 70 it was hoped that the gap would be closed. tech flow and loans issued. only
caused more issues.
environmental awareness is another example of separation
Tariffs
taxes imposed on imported goods and services instituted by gov'ts as means to raise
revenue and as barriers to trade
Bound Tariff
duties agreed upon in international negotiations often higher than those duties actually
changed.
Applied Tariff
duty level actually charged at border crossing
Quotas
restrictions on the number of foreign products that can be imported
Non-Tariff Barriers
consists of a variety of measures such as testing, certification or simply bureaucratic hurdles
that have the effect of restricting imports
Voluntary Restraint Agreements
designed to help domestic industries re-organize restructure and recapture production
prominence.. Not covered by WTO rules and are often threats
ex) Japan restraints on the export of cars to the US
Antidumping
laws that many countries use to impose tariffs on foreign imports. They are designed to help
domestic industries that are injured by competition from abroad due to imports being sold at
competitively low prices
Effects of Import Restriction
most of the time controls exact a huge price from domestic consumers results either in 2nd
best products or higher cost for restricted supplies
downstream change in composition of imports may result
lagging efficiency of tech. advancements
gov'ts may retaliate

Administrative Shelter
protecting firms through laws and regulations

Corps posed with barriers may
shift activities and create foreign direct investment
Restrictions of Exports
used by some countries to help provide local consumer with access to agricultural products
and commodities at lower prices
can cause serious opposition from farmers and owners of commodities
Export Promotion
designed to help domestic firms enter and maintain their position in international markets
gov'ts either offer export services programs or market development programs
direct of indirect subsidization of export activities
reducing gov'ts red tap for exporters
mixed aid credits
Service programs
typically consist of seminars for potential exporters, export counseling, and how to export
handbooks
Market Development programs
provide sales leads to local firms and offer participation in foreign trade shows, preparation of
market analysis and export newspaper.
Mixed Aid Credits
credits at rates composed partially of commercial interest rates and partially of highly
subsidized developmental aid interest rates
Potential exports need ______ or _____ to engage in exporting.
reduction in risk
or an increase in rewards
Import Promotion
measures are implemented primarily by nations that have accumulated and maintained large
balance-of-trade surpluses. They hope to ally other nations fears of continued imbalances
and to gradually redirect trade flows
CFIUS
committee on foreign investments in the US
a federal committee, chaired by the US treasury, with the responsibility to review major
foreign investments to determine whether national security or related concerns are at stake
Host-Country perspective on FDI
(positive)
capital formation
tech and management skills transfer
regional and sectorial development
international competition and entrepreneurship
favorable effect on balance of payments
increased employment
Host-Country perspective on FDI
(negative)
industrial dominance
tech dependence
disturbance of economic plans
cultural change
interference by home gov't of multinational corps
Home- Country Perspective
share most of the host-country impacts
many countries see it as a means to stimulate economic growth
a major issue center on employment
knowledge advantage (gaining)
Restrictions on Investment
many nations also restrict exports of capital, because capital flight is a major problem
Capital Flight
the rapid flow of private funds abroad because investors believe that the return on
investments or the safety of capital is not sufficiently ensured in their own countries.
holders of capital want to invest aboard depriving their domestic economy of much-needed
investment funds
Investment Promotion (to attract FDI)
these policies can be the result of the needs of poorer countries to attract additional foreign
capital to fuel economic growth without taking out more loans that call for fixed schedules of
repayment
industrial nations participate since gov't are under pressure to provide for jobs.
Fiscal Incentives
incentives used to attract FDI that provides specific tax measures to attract the investor
Financial Incentives
monetary offers intended to motivate; special funding designed to attract FDIors that may
take the form of land or buildings, loans, or loan guarantees
Non-financial Incentives
non-monetary offers intended to motivate; special offers designed to attract foreign direct
investors that may take the form of guaranteed government purchases, special protection
from competition, or improved infrastructure facilities
2 approaches of management of the policy relationship
1) attempt to gain support from local market entities if discriminating actions by the gov't take
place
2) make operations of the affiliate impossible without the contribution of the parent
Management of the Policy Relationships Host-Countries
try to enhance their role by instituting control policies and performance requirements
gov'ts attempt to prevent the integration of activities among affiliates and control by the
parent
Result of Host-Country interference of Management of the Policy Relationships
they exclude or limit foreign participation in certain sectors of the economy and require local
participation in the ownership and management of the entities established
IPR
intellectual property rights
legal rights resulting from industrial, scientific, literary or artistic activity. Can have an
important influence on foreign investment decisions
ex) Pharmaceutical companies and china
Protectionist Legislation
a trade policy that restricts trade between (to or from) one country and another
Trade Promotion Authority
the rights of the US president to negotiate trade treaties and agreements with the US
congress' authority to accept or reject, but not amend
Bilateral Negotiations
negotiations carried out between two nations focusing only on their interest
Multilateral Negotiations
Trade negotiations among more than two parties; the intricate relationship among trading
countries