IB Daniel Chapter

International Business
Environments & Operations

Chapter 2
The Cultural
Environments
Facing Business
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall
2-1
Learning Objectives
p To
understand methods for learning about

cultural environments
p To analyze the major causes of cultural
difference and change
p To discuss behavioral factors influencing
countries business practices
p To understand guidelines for cultural
adjustment

2-2
Introduction
p Culture
refers to the learned norms based

on values, attitudes, and beliefs of a group
of people
p Culture is an integral part of a nations
operating environment
n
every business function is subject to potential

cultural differences

2-3
Introduction
Cultural Factors Affecting International Business Operations

2-4
Introduction
p Companies
need to decide when to make

cultural adjustments
p Fostering cultural diversity can allow a
company to gain a global competitive
advantage by bringing together people of
diverse backgrounds and experience

2-5
Culture and the Nation-State

p The
nation is a useful definition of society

because similarity among people is a
cause and an effect of national boundaries
laws apply primarily along national lines
n language and values are shared within borders
n rites and symbols are shared along national
lines
n

2-6
How Cultures Form and Change

Learning Objective 2:
To analyze the major causes of cultural
difference and change

2-7
How Cultures Form and Change

p Cultural
value systems are established

early in life but may change through
choice or imposition
p cultural imperialism
n contact with other cultures
p cultural diffusion
p creolization
n

2-8
Language:
Cultural Diffuser and Stabilizer
p A
common language within a country is a

unifying force
p A shared language between nations
facilitates international business
Native English speaking countries account for a
third of the worlds production
n English is the international language of
business
n

2-9
Language:
Distribution Of The Worlds Major Languages

2-10
Language:
Major Language Groups: Population and Output

2-11
Religion: Cultural Stabilizer

p Religion
impacts almost every business
function
p Centuries of profound religious influence
continue to play a major role in shaping
cultural values and behavior
n
many strong values are the result of a

dominant religion

2-12
Religion: Cultural Stabilizer

Distribution Of The Worlds Major Religions

2-13
Behavioral Practices
Affecting Business
To discuss behavioral factors influencing
countries business practices

2-14
Social Stratification
p Social
ranking is determined by
n an individuals achievements and
qualifications
n an individuals affiliation with, or
membership in, certain groups

2-15
Work Motivation
p The
motivation to work differs across

cultures
p Studies show
the desire for material wealth is a prime
motivation to work
p promotes economic development
n people are more eager to work when the
rewards for success are high
n masculinity-femininity index
p high masculinity score prefers to live to
work than to work to live
n

2-16
Work Motivation
p Hierarchy
n
of needs theory
fill lower-level needs before moving to higher

level needs
p The
ranking of needs differs among

cultures

2-17
Relationship Preferences
p Relationship
preferences differ by culture

p Power distance
high power distance implies little superiorsubordinate interaction
p autocratic or paternalistic management style
n low power distance implies consultative style
n
p Individualism
versus collectivism
high individualism welcome challenges

n high collectivism prefer safe work
environment
n

2-18
Risk Taking Behavior

p Risk
taking behavior differs across cultures
Uncertainty avoidance
p handling uncertainty
n Trust
p degree of trust among people
n Future orientation
p delaying gratification
n Fatalism
p attitudes of self-determination
n

2-19
Communications
p Cross
border communications do not

always translate as intended
p Spoken and written language
p Silent language
Color
n Distance
n Time and punctuality
n Body language
n Prestige
n

2-20
Communications
Body Language Is Not A Universal Language

2-21
Dealing with
Cultural Differences
To understand guidelines for cultural
adjustment

2-22
Dealing with
p Do
managers have to alter their

customary practices to succeed in
countries with different cultures?
p Must consider
Host society acceptance
n Degree of cultural differences
p cultural distance
n Ability to adjust
p culture shock and reverse culture shock
n Company and management orientation
n

2-23
Dealing with
p Three
company and management

orientations
Polycentrism
p business units abroad should act like local
companies
n Ethnocentism
p home culture is superior to local culture
p overlook national differences
n Geocentrism
p integrate home and host practices
n

2-24
Strategies for Instituting Change

p Value
Systems
p Cost-Benefit Analysis of change
p Resistance to too much change
p Participation
p Reward Sharing
p Opinion Leadership
p Timing
p Learning Abroad
2-25
The Future of National Cultures

p
Scenario 1:
n
Scenario 2:
n
Outward expressions of national culture will continue to

become homogeneous while distinct values will remain
stable
Scenario 3:
n
New hybrid cultures will develop and personal horizons

will broaden
Nationalism will continue to reinforce cultural identity
Scenario 4:
n
Existing national borders will shift to accommodate

ethnic differences
2-26
Chapter 3
The Political and
Legal Environments
Facing Business
3-27
Learning Objectives
p
p
p
p
p
p
To discuss the philosophy and practices of the

political environment
To profile trends in contemporary political
systems
To explain the idea of political risk and
approaches to managing it
To discuss the philosophy and practices of the
legal system
To describe trends in contemporary legal systems
To explain legal issues facing international
companies
3-28
Introduction
To discuss the philosophy and practices of
the political environment

3-29
Introduction
p Every
country has its own political and

legal environment
p Companies must determine where, when,
and how to adjust their business practices
without undermining the basis for success

3-30
Introduction
Political and Legal Factors Influencing International Business Operations

3-31
The Political Environment

p Managers
evaluate, monitor, and forecast

political environments
p A countrys political system refers to the
structural dimensions and power dynamics
of its government that specify institutions,
organizations, and interest groups, and
define the norms that govern political
activities

3-32
Individualism vs. Collectivism

p Individualism
n primacy
of the rights and role of the

individual
p Collectivism
n primacy of the rights and role of the
community

3-33
Political Ideology
p A
political ideology stipulates how

society ought to function and outlines the
methods by which it will do so
p Most modern societies are pluralistic
n
different groups champion competing political

ideologies
p Democrats vs. Republicans in the United
States
p Democratic Party vs. Liberal Party in Japan

3-34
Spectrum Analysis
p A
political spectrum outlines the various

forms of political ideology
p Political freedom measures
the degree to which fair and competitive
elections occur
n the extent to which individual and group
freedoms are guaranteed
n the legitimacy ascribed to the general rule of
law
n the freedom of the press
n

3-35
Spectrum Analysis
The Political Spectrum

3-36
The Standard of Freedom

p Freedom
House assesses political and civil

freedom around the world
p Freedom House recognizes three types of
political systems
Free
n Partly free
n Not free
n

3-37
The Standard of Freedom

Map of Political Freedom, 2010

3-38
Trends in Political Ideologies

To profile trends in contemporary political
systems

3-39
Third Wave of Democratization

p
Third Wave of Democratization

n
number of democracies doubled in two

decades
Engines of Democracy
1. The failure of totalitarian regimes to deliver
economic progress!
2. Improved communications technology!
3. Economic dividends of increasing political freedom

3-40
Democracy:
Recession and Retreat
p Democracys
n
retreat
just 26 of the worlds democracies are full

democracies
p Engines
of totalitarianism
Economic development
n Inconsistencies
n Economics problems
n Standards of democracy
n

3-41
Democracy:
Recession and Retreat
Freedom in the World: Gains and Declines

3-42
Political Ideology and the MNE

p What
will the political map look like in the

future?
The Washington Consensus
n The Beijing Consensus
n The Clash of Civilizations
n

3-43
Political Risk
To explain the idea of political risk and
approaches to managing it

3-44
The Legal Environment

To discuss the philosophy and practices of
the legal system

3-45

p The
legal system is the mechanism for

creating, interpreting, and enforcing the
laws in a specified jurisdiction
p Types:
Common law
n Civil law
n Theocratic law
n Customary law
n Mixed systems
n

3-46

The Wide World of Legal Systems

3-47
Trends in Legal Systems

To describe trends in contemporary legal
systems

3-48

p What
is the basis of rule in a country?
The rule of man

p legal rights derive from the individual who
commands the power to impose them
p associated with a totalitarian system
n The rule of law
p systematic and objective laws applied by
public officials who are held accountable for
their administration
p associated with a democratic system
n

3-49

The Worldwide Distribution of the Rule of Law

3-50
Legal Issues in IB
To explain legal issues facing international
companies

3-51
Strategic Concerns
p Strategic
issues
p Country of origin and local content
p Marketplace behavior
p Product safety and liability
p Legal jurisdiction
p Intellectual property

3-52
Intellectual Property:
Rights and Protection
p Intellectual
property refers to creative

ideas, expertise, or intangible insights that
grant its owner a competitive advantage
p Intellectual property rights refer to the
right to control and derive the benefits
from writing, inventions, processes, and
identifiers
n
no global patent, trademark or copyright

exists

3-53
Intellectual Property:
Rights and Protection
p Attitudes
towards intellectual property
Legal legacies
p rule of man versus rule of law
n Wealth, poverty, and protection
p levels of economic development
n Cultural orientation
p individualism versus collectivism
n

3-54
Chapter 4
The Economic
Environments Facing
Business
4-55
Learning Objectives
p To
communicate the importance of

economic analysis
p To discuss the idea of economic freedom
p To profile the characteristics of the types
of economic systems
p To introduce the notion of state capitalism
p To profile indicators of economic
development, performance, and potential

4-56
Introduction
To communicate the importance of
economic analysis

4-57
Introduction
p Managers
assess a countrys economic

environment knowing
Countries differ in different ways
n Economic and political changes alter market
circumstances
n It is important to understand connections,
change, and consequences
n The challenges of the comeback
n Choices of citizens, policymakers, and
institutions
n

4-58
International
Economic Analysis
Economic Factors Affecting International Business Operations

4-59
Economic Freedom
To discuss the idea of economic freedom

4-60
Economic Freedom
p Economic
freedom people have the

right to work, produce, consume, save,
and invest the way they prefer
n
measured across business freedom, monetary

freedom, fiscal freedom, investment freedom,
freedom from corruption, property rights, trade
freedom, government size, financial freedom,
and labor freedom

4-61
Economic Freedom
Global Distribution of Economic Freedom

4-62
Value of Economic Freedom

p Economic
freedom affects
Growth rates
n Productivity
n Income levels
n Inflation
n Employment
n Life expectancy
n Literacy
n Political openness
n Environmental sustainability
n

4-63
Types of Economic Systems

To profile the characteristics of the types
of economic systems

4-64

p An
economic system refers to the

mechanism that deals with the production,
distribution, and consumption of goods
and services
p Types
Market economy
n Command economy
n Mixed economy
n

4-65


4-66
State Capitalism:
Detour or Destination?
p State
capitalism refers to a system in

which the government explicitly
manipulates market outcomes for political
purposes
promote certain industries to encourage
economic development
n develop national companies into global leaders
n foreign companies restricted from strategic
industries
n

4-67
Economic Development,
Performance, and Potential
To profile indicators of economic
development, performance, and potential

4-68
Economic Development,
Performance, and Potential
p Broad
classes of countries include
developing countries
p largest number of countries
p low per capita income
n emerging economies
p fast growing, relatively prosperous
p BRICs Brazil, Russia, India, and China
n developed countries
p high per capita income and standard of
living
p like the U.S., Japan, France, Australia
n

4-69
Broader Conceptions of
Performance and Potential
p Green
n
economics
gauge economic performance in terms of the

effect of current choices on long-term
sustainability
p Sustainable
n
development
meet the needs of the present without

compromising the ability of future generations
to meet their own needs
p Happynomics
n
importance of emotional prosperity in addition

to financial prosperity
4-70
Features of an Economy
p Managers
should also consider
Inflation
n Unemployment
n Debt
n Income distribution
n Poverty
n Balance of payments
n

4-71
Inflation
p Inflation
n
a measure of the increase in the cost of living
p Deflation
n
when prices for products go down not up
p Reflation
n
increase the money supply and reduce taxes to

accelerate economic activity

4-72
Unemployment
p Unemployment
n
share of unemployed workers seeking

employment for pay relative to the total
civilian labor force
p Misery
n
rate
index
the sum of a countrys inflation and

unemployment rates

4-73
Debt
p Debt
n
the total of a governments financial obligations

p internal debt
p external debt
p Growing
public debt signals
tax increases
n reduced growth
n rising inflation
n increasing austerity
n

4-74
Income Distribution
p Income
n
estimates the proportion of the population that

earns various levels of income
p Gini
n
distribution
coefficient
measures the extent to which the distribution

of resources deviates from a perfectly equal
distribution

4-75
Poverty
p Poverty
the state of having little or no

money and few or no material possessions
extreme poverty
p less than $1.25 per day
n moderate poverty
p less than $2.00 per day
n
p Today
the world population is 80% poor,

10% middle income, and 10% rich
p Base of the Pyramid
n
Frugal engineering
4-76
Chapter 5
Globalization
and Society

5-77
Learning Objectives
p
p
p
p
p
To examine the broad foundation of ethical

behavior
To demonstrate the cultural and legal foundations
of ethical behavior
To discuss the importance of social responsibility
when operating internationally, especially in the
areas of sustainability
To discuss some key issues in the social activities
and consequences of globalized business
To examine corporate responses to globalization
in the form of codes of conduct, among other
things
5-78
Introduction
p Companies
must satisfy stakeholders
Shareholders
n Employees
n Customers
n Society
n

5-79
Foundations of Ethical Behavior

To examine the broad foundation of
ethical behavior.

5-80

p
Three levels of moral development

1. Preconventional
2. Conventional
3. Postconventional, autonomous,
principled

5-81

p Teleological
approach
n decisions are based on the
consequences of the action
p Utilitarianism
n an action is right if it produces the
greatest amount of good
p Deontological approach
n
moral judgments are made and moral

reasoning occurs independently of
consequences
5-82
Why Do Companies Care?

p Ethical
behavior can help a company

n develop a competitive advantage
n avoid being perceived as irresponsible

5-83
The Cultural and Legal

To demonstrate the cultural and legal
foundations of ethical behavior

5-84
Legal Justification: Pro and Con

p The
law is inadequate because
Some things that are unethical are not illegal

n Laws are slow to develop in emerging areas of
concern
n Laws may be based on imprecisely defined
moral concepts
n The law often needs to undergo scrutiny by the
courts
n The law is not very efficient
n

5-85
Legal Justification: Pro and Con

p Legal
justification is appropriate because
The law embodies many of a countrys moral

principles
n The law provides a clearly defined set of rules
n The law contains enforceable rules that apply
to everyone
n The law reflects careful and wide-ranging
discussions
n

5-86
Ethics and Corporate Bribery

p Regardless
of the reasons for not using

the law as a starting point for ethical
behavior, it remains a good starting point
p Countries looking for solutions to common
problems take similar legal steps
n
Consider
p activities that affect the well-being of people
p activities that affect the environment

5-87
Corruption and Bribery

p Corruption
n
the misuse of entrusted power for private gain
p Bribes
payments or promises to pay cash or anything

of value
n Occurs
p to obtain government contracts
p to get public officials to do what they should
be doing anyway
n

5-88

Where Bribes Are Business As Usual

5-89

p International
accords to stop bribery
OECD Anti-Bribery Convention

n ICC code of rules
n UN Convention against Corruption
n
p Regional
initiatives include
EU efforts
n U.S. Foreign Corrupt Practices Act and
Sarbanes-Oxley legislation
n
Industry initiatives include

n
2005 World Economic Forum zero tolerance

pact
5-90
Ethics and the Environment

To discuss the importance of social
responsibility when operating
internationally, especially in the areas of
sustainability

5-91
Ethics and the Environment

p Companies
compromise the environment
contamination of air, soil, or water during

manufacturing
n producing products that emit fossil-fuel
contaminants
n
p Effect
n
of natural resource extraction
renewable versus non-renewable

5-92
What is Sustainability?
p Sustainability
n
p Is
n
meeting the needs of the present without

compromising the ability of future generations
to meet their own needs
sustainability good business practice?

yes

5-93
Global Warming, Kyoto Protocol

p Kyoto
n
Protocol (1997)
signed to require countries to cut greenhouse

gas emissions to 5.2% below 1990 levels
between 2008 and 2012
p Some
countries have adopted stricter

requirements
n
others have not ratified the agreement

including
p the U.S., China, India

5-94
Ethical Dilemmas and

Other Business Practices
To discuss some key issues in the social
activities and consequences of globalized
business

5-95
Ethical Dilemmas in the

Pharmaceutical Industry
p Tiered
issues
n
pricing and other price-related
reverse engineering
p WTO
Agreement on Trade-Related Aspects

of Intellectual Property Rights (TRIPS)
n
generic drugs
p R&D
n
and the Bottom Line
India

5-96
Ethical Dimensions of
Labor Conditions
p Labor
issues include
Wages
n Child labor
n Working conditions
n Working hours
n Freedom of association
n

5-97
Labor Conditions
Sources of Worker-Related Pressures in the Global Supply Chain

5-98
Labor Conditions
p Child
labor ILO estimates 250 million

children aged 517 years work
p Some companies avoid operating in
countries where child labor is common
n
or establish responsible policies in those

countries - IKEA
p Some
companies refuse to hire individuals

who want to work long hours
n
concerned about exploitation

5-99
Corporate Codes of Ethics

To examine corporate responses to
globalization in the form of codes of
conduct, among other things

5-100
Corporate Codes of Ethics

p How
should companies behave?

p The UN Global Compact establishes
guidelines for appropriate behavior in
human rights
labor
n the environment
n anti-corruption
n

5-101
Motivations for
Corporate Responsibility
p Unethical
and irresponsible behavior could
result in legal sanctions

n result in consumer boycotts
n lower employee morale
n cost sales because of bad publicity
n
p A
code of conduct
sets global policy that must be complied with

n communicates the code to employees,
suppliers, and subcontractors
n ensures that policies are carried out
n reports results to external stakeholders
n

5-102
Corporate Ethics in The Future

p Two
trends:
There will be greater convergence of proper

ethical conduct
n Individuals will develop skills to address ethical
issues
n
p Impact
of social media
p Impact of future business and government
leaders

5-103
Activities
p Comparative
Frameworks
Environmental
p Chapter
2: The Cultural Environments

Facing Business (ACTIVITIES: p. 24)

2-104
Activities
p Comparative
Frameworks
Environmental
p Chapter
3: The Political and Legal

Environments Facing Business
p (ACTIVITIES: p. 33)

3-105
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2-106

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International Business

Environments & Operations

understand methods for learning about

Copyright 2013 Pearson Education, Inc.

refers to the learned norms based

every business function is subject to potential

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

need to decide when to make

Copyright 2013 Pearson Education, Inc.

Culture and the Nation-State

nation is a useful definition of society

Copyright 2013 Pearson Education, Inc.

How Cultures Form and Change

Copyright 2013 Pearson Education, Inc.

How Cultures Form and Change

value systems are established

Copyright 2013 Pearson Education, Inc.

common language within a country is a

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

Religion: Cultural Stabilizer

impacts almost every business

many strong values are the result of a

Copyright 2013 Pearson Education, Inc.

Religion: Cultural Stabilizer

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

motivation to work differs across

Copyright 2013 Pearson Education, Inc.

fill lower-level needs before moving to higher

ranking of needs differs among

Copyright 2013 Pearson Education, Inc.

preferences differ by culture

high individualism welcome challenges

Copyright 2013 Pearson Education, Inc.

Risk Taking Behavior

taking behavior differs across cultures

Copyright 2013 Pearson Education, Inc.

border communications do not

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

managers have to alter their

Copyright 2013 Pearson Education, Inc.

company and management

Copyright 2013 Pearson Education, Inc.

Strategies for Instituting Change

The Future of National Cultures

Outward expressions of national culture will continue to

New hybrid cultures will develop and personal horizons

Nationalism will continue to reinforce cultural identity

Existing national borders will shift to accommodate

To discuss the philosophy and practices of the

Copyright 2013 Pearson Education, Inc.

country has its own political and

Copyright 2013 Pearson Education, Inc.

Copyright 2013 Pearson Education, Inc.

The Political Environment

evaluate, monitor, and forecast

Copyright 2013 Pearson Education, Inc.