Globalization and International Business Essay

Globalization and International Business The Concept of Globalization – putting everything into one village * The process of integration and convergence of economic, financial, cultural and political systems across the world. * Globalization – refers to the integration and interaction between different people and nations. * Globalization is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture. Globalization – A holistic approach 1. Economic Globalization: the increasing integration of national economic systems through the growth in international trade, investments and capital flow. 2. Financial Globalization: the liberalization of capital movements and deregulations, especially of financial services that led to a sport in cross boarder capital flows. 3. Cultural Globalization: convergence of cultures across the world E.g. Dress codes, ways of living. 4. Political Globalization: the convergence of political systems and processes around the world. Dimensions of Economic Globalization {what has changed} * Globalization of production – the increased mobility of the factors of production especially the movement of capital that has changed countries’ traditional specialization roles. (process is made shorter and cheaper) * Globalization of Markers – technological strides in communication, transport and travel have created new consumer segments. The global markets have become easily accessible. (producing standardized products that are advanced, functional reliable and low priced). * Globalization of competition – it has intensified in such a way that businesses are forced to form mergers or enter into new strategic alliances, competing with new players around the globe. * Globalization of technology – it has advanced rapidly and thus creating shorter cycles for production of goods and services. The running of businesses becomes more effective and efficient. In some cases though, several businesses might have difficulty keeping up with the advancements due to financial constraints. * Globalization of corporations and Industries: – Economic liberalization has led to economic growth in Foreign Direct Investments and relocation of business enterprises as a result, there has been fragmentation in business processes. Where different stages of production are coming out in different countries E.g. Toyota manufactures in Japan and assembles in South Africa. Factors influencing Globalization (Movers) * Economic Liberalization * Technological Breakthrough * Multilateral Institutions * International Economic Integrations * Move towards free marketing systems * Rising research and development costs * Global expansion of business operations * Adverts in logistics management * Emergence of the global customer segment Factors restraining Globalization * Regulatory controls * Emerging trade barriers * Cultural factors * Nationalism * War and civil disturbances * Management myopia – thinking within the box/boarders Quiz: what is meant by internationalization of a firm’s value chain? Reasons for support of Globalization * Maximization of economic efficiencies (learning to use economic resources of a country to the fullest potential) * Enhancing trade * Increase cross-boarder capital movement * Improves efficiency of local firms * Increases consumer welfare Criticism of globalization * Developed Vs Developing countries: unequal players in globalization * Widening gap between the rich and poor * Wipes out domestic industry * Leads to massive layoffs and unemployment * Brings in problems related to balance of payments * Increased volatility of markets * Diminishing power of nation states * Loss of cultural identity * Shift of power to multinationals Response Strategies to Globalization forces for emerging market companies: Defender Extender Dodger Contender 1. Defender Strategy – When pressure to globalize is low, local companies adopt the defense strategy that focuses on leveraging local assets in the market segments where multinationals are weak. 2. Extender strategy – when companies’ posses competitive skills and assets that can be transferred abroad, companies can focus on expanding to markets similar to home base using competencies developed at home. 3. Dodger strategy – when pressure to globalize is high, local companies have no option but to dodge competition by cooperating through a joint venture or becoming a supplier or service provider selling off to multinational enterprises e.g. Skoda Czech car maker sold to Volkswagen. 4. Contender strategy – companies that have high pressure to globalize and competitive advantages that can be leveraged overseas can aggressively compete by focusing on upgrading their capabilities in the niche segment to match multinationals globally ie. TATA India Concepts of International Business 1. International Trade – exports of goods and services to a foreign-based buyer (importer) 2. International Marketing – refers to marketing carried out by firms/companies across the national boarder line. 3. International Investment – cross boarder transfer of resources to carry out business activities. 4. International Management – application of management concepts and techniques in a cross country environment an adaptation to different social-cultural, economic, legal, political and technological environments. 5. International Business – all those business activities which involve cross-border transactions of goods and services and resources between two or more nations. 6. Global business – conduct of business activities in several countries using a highly co-ordinate and single strategy across the world. Types of International Business Transactions * Transactions – exchange of values between buyer and seller typically involving intermediaries and currency as medium of exchange. * Exchange of: production inputs, components partially/nearly finished products, goods/services, ideas/know how. Boarders: their significance * State boundaries – denote sovereignty, citizenship (political authority), legal jurisdiction, security. When there’s no boarder, there’s no state!! * National cultures, National Identity * Economic Unit – eroded due to globalization, economic transactions are mainly domestic. * Boundaries – of mind and habit, boundaries are psychological not just physical. How boarders make a difference: As soon as you have different cultures, different contact forms, different legal structures, different taxation environments, the complexity introduced by that is immense. The reason why businesses that expand overseas fail is: they underestimate the complexity that’s enlarged in an international organization. The Internationalization of Business: * Bringing in new ideas * Moving across the boarders * Companies conduct value adding actitvities on a global scale, primarily to organize, source, manufacture and market. * A Level play field – international activities appealing to all types of firms; large or small. Manufacturing and services sectors E.g. Banking, Transportation, Design, Advertising and retailing. Nature of International Business * Value adding activities * Firms internationalize via experts, foreign direct investment, licensing, and collaborative ventures. * Foreign portfolio investment – less than 10% * Foreign Direct Investment – More than 10% Reasons for International Business Expansion 1. Market seeking motives * Marketing opportunities due to lifestyle cycles * Uniqueness of products or services 2. Economic motives * Economies of scale are achieved * Profitability * Spreading research and development costs 3. Strategic motives * Growth * Risk spread Differences between Domestic and International Business * Economic environment * Social * Infrastructure * Legal * Political * Competition * Technology The Four risks of International Business 1. Cross- cultural risk – occurs when a cultural misunderstanding puts some human value at stake. * Cultural differences * Negotiation patterns * Decision making styles * Ethical practices 2. Commercial risk – refers to a firm’s potential loss or failure from poorly developed or executed business tactics. * Weak partners * Operational problems * Timing of entry * Competitive intensity * Poor execution of strategy 3. Currency risk (financial risk) – the risk of adverse fluctuations in exchange rates * Currency exposure * Asset evaluation * Foreign taxation * Inflation and transfer 4. Country risk (political risk) – refers to the potentially adverse effects on company operations and profitability caused by developments in political, legal and economic environments in a foreign country. Risks: will always be present but can be managed: Managers is such situations should: * Anticipate the risks * Understand the implications thereof * Take pro-active action * Reduce adverse effects Some risks are extremely challenging e.g. the East Asian Economic Crisis in 1998. It generated substantial commercial, currency and country risks. Participants in International Business: 1. Multinationals E.g. Kodak, Nokia, Samsung, Multinational Enterprises own worldwide network of subsidiaries. 2. Other participants * Small and medium sized enterprises; In the USA a small/medium enterprise sized entity is described as that having 500 or fewer employees. * Comprises of 90-95% of all firms in most countries . * Increasingly more SME’s participate in International Business. Why do firms Internationalize? * Seek growth opportunities through market diversification * To earn higher margin profits * Gain new ideas about products, services * Better service to customers that have relocated abroad * Be closer to supply sources * Benefit from global sourcing advantages * Gain flexibility in sourcing products * Gain access to better value factors of production * Develop economies of scale in sourcing, production, marketing and R&D * Confront international competitors more effectively or thwart the growth of competition in the home market. * Invest in a potentially rewarding business venture. What caused the East Asian Economic Crisis Theories of Trade Absolute Advantage: when a country is efficient in producing a commodity than any other country. Countries should therefore specialize in producing a product of which they are efficient in producing and then trade such product for goods produced by other countries. Output per hour of labour – using the same resources | Cloth| Wheat| Country A| 100| 200| Country B| 250| 160| Total| | | Interpretation: clearly The Political Economy of International Trade The political reality of International Trade is that while many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interest of politically important groups. Instruments of trade policy are tariffs, subsidies, import quota, voluntary export restraints, local content requirements, administrative policies and anti-dumping duties. * A tariff is a tax levied on imports that effectively raises the cost of imported products relative to domestic products. * Specific tariffs are levied as a fixed charge for each unit of a good imported. * Ad valorem tariffs are levied as a proportion of the value of the imported good. * A subsidy is a government payment to a domestic producer. Subsidies may take form of a tax break, cash grants, low-interest loan. * Subsidies help domestic firms by lowering production costs * Help them compete against foreign imports * Gain export markets * Government pay for subsidies by taxing individuals(consumers) * Import Quota – is a direct restriction on the quantity of some good that may be imported into a country. * Voluntary export restraints – are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government. * A local content requirement demands that some specific fraction of a good be produced domestically. * The requirement can be in physical or value terms. * Local content requirements benefit domestic producers and jobs, but consumers face higher prices. * Administrative policies are informed bureaucratic rules designed to make it difficult for imports to enter a country. For example Japanese customs inspectors insist on opening a large proportion of express packages to check for pornographic materials. * This process that can delay express packages has made it difficult for FedEx to expand its global shipping services to Japan. * These policies hurt consumers by denying access to possibly superior foreign products. * Dumping is selling goods in foreign markets below their cost of production/fair market value. * Anti-dumping policies are designed to punish foreign firms that engage in dumping. Dumping is viewed as a method by which firms unload excess production in foreign markets sometimes at prices below the cost of production. * The goal is to protect domestic producers from unfair foreign competition. * US firms that believe a foreign firm is dumping can file a complaint with the government. * If the complaint has merit, antidumping duties, also known as countervailing duties may be imposed. Why Governments intervene? Basically there are three reasons: Political, Economic and Cultural 1. Political reasons include: * Protecting jobs and industries from foreign competition, trade controls usually result in higher price for consumers. * National Security – defense related industries often get this kind of protection. * Retaliations are threats used as bargaining tasks to help open foreign markets and force trading partners to play by the rules. It is usually in retaliation to a trading partner’s trade policy. Protect consumers from unsafe products. 2. Economic Reasons: * The infant industry argument(protecting them) * Strategic trade policy – policies that government enact to ensure that firs-mover advantages are reserved for local firms in industries where substantial economies of scale exist. 3. Cultural Motives – unwanted influence causes great distress and can force governments to block imports. Many countries have laws that protect their media programming for cultural reasons – for example in Canada about 35% of music played on TV and radio must be of Canadian origin. Economic Integration The abolition of trade restraints between nations. It is the growing economic interdependence that results when countries within a geographic region form an alliance aimed at reducing barriers to trade and investment. * Three Levels of Economic Integration * Global: trade liberalization by GATT or WTO * Regional: preferential treatment of member countries in the group ie. SACU, SADC, COMESA ,etc. * Bilateral: preferential treatment between two countries * Regional and Bilateral agreements are against the MFN clause (normal trading relations), but allowed under WTO. * Visit www.wto.org for regional trade agreements. Regional Economic Integration * Growing economic interdependence that results when countries within a geographic region form an alliance aimed at reducing barriers of trade and investment. About 40% of the world trade now occurs via economic bloc agreement. Cooperating nations obtain: * Increased product choices, productivity, living standards * Lower prices and * More efficient resource use. Economic Bloc A geographical area that consists of two or more countries that agree to pursue economic integration by reducing tariffs and other restrictions to cross-border flow of products, services, capital and in more advanced stages, labor. Examples: EU, NAFTA, MERCOSUR, APEC, ASEAN and many others. There are five possible levels of economic integration * Customs Union * Common Market * Economic Union * Political Union 1. Free Trade Area – countries agree to reduce tariffs but not eliminate everything The simplest most common arrangement, member countries agree to gradually eliminate formal trade barriers within the bloc, while each member country maintains an independent international trade policy with countries outside the bloc. Eg. NAFTA 2. Customs Union – similar to a free trade area except that the members harmonize their trade policies toward non-member countries, by enacting common tariff and non-tariff barriers on imports from non-member countries. E.g. SACU(Lesotho, Swaziland, Namibia, SA). Members have a revenue pool and it is shared according to how much each has contributed. 3. Common Market (single market)- like a custom union except products, services and factors of production such as capital, labor, and technology can move freely among the member countries. E.g. COMESA – requires much cooperation among the member countries on labor and economic policies. 4. Economic Union – like a common market, but members also aim for common fiscal and monetary policies, standard commercial regulations, social policy, etc. E.g. the EU is moving toward economic union by forming a monetary union with a single currency the EURO. 5. Political Union – perfect unification of all policies by a common organization. Submersion of all separate national institutions e.g. former USSR * Remains ideal, but yet to be achieved. The European Union What is the European Union? * Shared values: liberty, democracy, respect, for human rights and fundamental freedom, and the rule of law. European Coal and Steel Community * In the aftermath of the World War II, the aim was to secure peace among Europe’s victorious nations an bring them together as equals, cooperating within shared institutions. * Based on a plan by French foreign minister Robert Schuman. * Six founding states/countries: Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands – signed a treaty. History of the EU * Treaty of Paris (1951) Formation of ECSC Treaty of Rome (1957) Formation of ECC (European Economic Community) -initially free trade area, becoming a customs union in 1967. * The Stockholm convention in 1960 created EFTA by seven countries to counteract ECC. * Single European Act of 1993 * Creation of single market (common Market) effective on January 1 1993 * Rename EEC by EU (15 members) * Treaty of Maastricht (1992) * Creation of an economic union, EMU * Establishment of European Central Bank on July 1998 * Introduction of a common currency, Euro on 1 January 1999 * Circulation of Euro on 1 January 2002. The EU features: A full-fledged Economic Union 1. Market access: tariffs and most non-tariff barriers have been eliminated. 2. Common market: removed barriers to cross national movement of production factors i.e labor, capital and technology. 3. Trade rules: eliminated customs procedures and regulations, streamlining transportation and logistics within Europe. 4. Standards harmonization: harmonizing technical standards, regulations, and enforcement procedures on products, services and commercial activities. 5. Common fiscal, monetary, taxation and social The European Union Today * 27 members * New members e.g. Poland, Hungary, Czech Republic are low-cost manufacturing sites. * Peugeot, Citroen(france) – factories in Czech Republic. * Hyundai (South Korea) – Kia plant in Slovakia. * Suzuki (Japan) – factory in Hungary. * Most new EU entrants are one-time satellites of the Soviet Union, and have economic growth rates for higher than the 15 Western European counterparts. * Developing economies e.g Romania, Bulgaria, may take decades of foreign aid to catch up. Four Institutions that govern the EU 1. Council of the European Union – the main decision-making body. Makes decisions on economic policy, budgets, and foreign policy and admission of new member countries. 2. European Commission – represents the interest of the EU as a whole. Proposes legislation and is responsible for implementing decisions of the Parliament and the council. 3. European Parliament – up to 732 representatives, hold joint sessions each month. Three main functions are: * Devise EU legislation * Supervise EU Institutions * Make decisions on the EU budget. NAFTA (Canada, Mexico, USA) NAFTA passage (1994) was facilitated by the maquilladora program, in which US firms allocated manufacturing plants just South of the USA border to access low-cost labor without significant tariffs. NAFTA has: * Eliminated tariffs and most non-tariff barriers for products and services. * Established trade rules and uniform customs procedures. * Instituted investment rules and intellectual property rights. * Provided for dispute settlements for investment, unfair pricing, labor issues, and the environment. NAFTA Results: * Trade among the members more than tripled, and now exceeds 1 trillion per year. * In the early 1990’s Mexico’s tariffs averaged 100% and gradually. How the Mexican Economy benefited from NAFTA * Mexico exports to the US grew from 50 billion to over 100 billion per year. * Access Canada and the US helped launch many Mexican firms in industries such as electronics, cars, textiles, medical products, and services. * Yearly US and Canadian investment in Mexico rose from 4 billion in 1993 to nearly 20 billion by 2006. * Mexico’s per capita income rose to about 11 000 in 2007, making it the richest country in Latin America. * Why nations pursue economic integration 1. Expand market size * Greatly increases the scale of the market place for firms inside the economic bloc. Eg. Belgium has a population of just 10 million; the EU has a population of nearly 500 mil. * Consumers can access much bigger selection of products and services. 2. Achieve economies of scale and enhance productivity * Bigger market facilitates economic scale * Internationalization inside the bloc helps firms learn to compete more effectively outside the bloc. * Labor and other inputs allocated more efficiently among the member countries, leading to lower consumer prices. 3. Attract investment from outside the bloc * Compared to investing in stand-alone countries, foreign firms prefer to invest in countries that are part of an economic integration bloc. E.g General Mills, Samsung, TATA invested heavily in the EU. 4. Acquire stronger defensive and political posture * Provide member countries with a stronger defensive posture relative to other nations and world regions, an original motive of the EU. Factors contributing to the success of Regional Integration 1. Economic Stability – the more similar the economies of the member states, the more likely the bloc will succeed. Eg. Wage rates, economic stability e.g. SADC, EU 2. Political Stability – similarity in political systems is key. Countries should share similar aspirations and a willingness to surrender national autonomy e.g EU 3. Similarity of culture and language – Helpful but not absolutely necessary. 4. Geographic proximity – facilitates transportation of products, labor, and other factors. Neighboring countries tent to share a common history, culture and language E.g. NAFTA, EU Consequences of Regional Integration * Trade Creation – as barriers fall, trade is generated inside the bloc. * Trade Diversion – as within the bloc trade becomes more attractive, member countries discontinue some trade with non-member countries. * Aggregate effect – National patterns of trade are altered. More trade occurs inside the bloc. * A concern: a bloc might become an economic fortress leading to more within-bloc trade and less between bloc trade: can harm global free trade. * Loss of National Identity – increased cross-boarder contact makes members more similar to each other E.g. in response Canada has restricted the ability of US movie and TV producers to invest in the Canadian film and broadcasting industries. * Sacrifice of Autonomy – in later stages of regional integration a central authority is  set up to manage the bloc’s affairs. Members must sacrifice some autonomy to the central authority, such as control over their own economy. E.g Britain in the EU. * Transfer of power to advantaged firms – can concentrate economic power in the hands of fewer larger firms, often in the most advantaged member countries. * Failure of small or weak firms – as trade and investment barriers fall, protection is eliminated that previously shielded smaller or weaker firms from foreign competitions. * Corporate restructuring and job loss – Increased competitive pressures and corporate restructuring may lead to worker layoffs or re-assigning employees to distant locations, disrupting worker’s lives and entire communities. * Internationalization by firms inside the bloc – internationalization gets easier after regional integration. * Rationalization of operations – managers develops strategies and value-chain activities suited to the region as whole, not individual countries, by restructuring and consolidation company operations. The goal is to reduce costs and redundancy, increase centralized distribution, instead of decentralization to individual countries. * Mergers and acquisitions – Economic blocs lead to mergers and acquisitions, the tendering of one firm to buy another, or of two or more firms to merge and form acquisitions. Cross – Cultural risk * A situation or event where a cultural mis-communication puts some human value at stake. * Arises when we enter environments characterized by unfamiliar languages and unique value systems, beliefs, attitudes and behaviors. * One of the four major risks in international business. Manifestations of Cross-Cultural risk * Ethnocentric orientation – using our own culture as the standard for judging other cultures. * Polycentric orientation – a mindset in which the manager develops a greater affinity with the country in which he/she does business than the home country. * Geocentric orientation: a global mindset in which the manager is able to understand a business or market without regard to national boundaries. * Managers should strive for a  geocentric orientation. Definitions of Culture: * Incorporates both objective and subjective elements. * Objective aspects of culture include tools, roads, television programming, architecture and other physical artifacts. * Subjective aspects include norms and values, ideas, customs and other meaningful symbols. * Hofstede, a well-known Dutch organizational anthropologist views culture as a collective mental programming of people and the software of the mind; how we think and how we reason. Culture Is: * Not right or wrong – it is relative. There is no cultural absolute, different nationalities simply perceive the world differently. * Not about individual behavior – culture is about groups. It refers to a collective phenomenon of shared values and meaning. * Not inherited – culture is derived from the social environment. We are not born with a shared set of values and attitudes, we learn and acquire as we grow up. Culture is learned: * Socialization – the process of learning the rules and behavioral patterns appropriate to ones given society. Eg. Cultural learning * Acculturation – the process of adjusting and adapting to a culture other than one’s own. Commonly experienced by expatriate workers. * Culture is like an ice-berg-above the surface. Certain characteristics are visible, below the surface is massive base of assumptions, attitudes and values that strongly influence decision making relationships, conflict and other dimensions of business. Cross-cultural proficiency is paramount in Managerial tasks. Examples: * Developing products and services * Communicating and interacting with foreign business partners * Negotiating and structuring international business ventures * Interacting with current and potential customers * Preparing advertising and promotional materials. Cross cultural differences may create challenges: * Teamwork – what should managers do if foreign and domestic nationals don’t get along? * Lifetime employment – workers in Japan often expect to work for the same firm throughout their careers; How should foreign firms handle that? * Pay for performance system – In China and Japan, a person’s age is important in promoting workers. Yet how do such workers perform when merit performance-based measures are used? * Organizational Structure – preferences for centralized, bureaucratic structures may deter information sharing. * Union-management relationships – workers in European firms enjoy a more equal status with managers. * Attitudes towards ambiguity – if you’re uncomfortable working with minimum guidance or taking independent action, you may have difficulty fitting into some cultures. Three approaches to interpreting culture: * Metaphors – refer to a distinctive tradition or institution strongly associated with a society – a guide to deciphering attitudes, values and behaviors. * Stereotypes – are generalizations about a group of people that may or may not be factual, often over looking real, deeper differences. * An Idiom – is an expression whose symbolic meaning is different from its literal meaning. The Nature of Stereotypes * Are often erroneous and lead to unjustified conclusions about others. * Still most people employ stereotypes, either consciously or unconsciously, because they are an easy means to judge situations and people. * There are real differences among groups and societies, we should examine descriptive behaviors rather than evaluate stereotypes. * An example: some Latin Americans procrastinate via the manana syndrome. E.T. Hall’s High and Low context cultures: Low Context * Rely on elaborate verbal explanations putting much emphasis on spoken words. * Tend to be in northern Europe and North America which place central importance on the efficient delivery of messages. * Communication is direct and explicit – don’t beat around the bush. High Context * Establish trust first * Personal relations and goodwill are valued * Agreements emphasize trust * Negotiations slow and ritualistic * Emphasis is on non-verbal messages and use communication as a means to promote smooth harmonious relationships. * Prefer an indirect, polite, face-saving style that emphasizes a mutual sense of care and respect for others, careful not to embarrass or offend others. * It is difficult for Japanese people to say No when expressing disagreement. Much more likely to say it is different – an ambiguous response. * In East Asian cultures, showing impatience, frustration, irritation, or anger disrupts harmony and is considered rude and offensive. * To succeed in Asian cultures, it is critical to notice non verbal signs and body language. Hofstede’s Classification of National culture 1. Individualism Versus Collectivism – refers to whether a person primarily functions as an individual or within a group. 2. Power Distance – describes how a society deals with inequalities in power that exists among people. 3. Uncertainty avoidance – refers to the extent to which people can tolerate risk and uncertainty in their lives. 4. Masculinity Vs Femininity 1.1 Individualistic Society – ties among people are relatively loose,  each person tends to focus on his/her own self interests. E.g Australia, Canada and the UK 1.2 Collectivist Societies – ties among individuals are more important than individualism: business is conducted in the context of groups where everyone’s norms are strongly considered. E.g China, Panama, and South Korea. 2.1 High Power distance societies – have substantial gaps between the powerful and the weak: are relatively indifferent to inequalities and allow them to grow. E.g. Guatemala, Malaysia, the Philippines. 2.2 Low-power distance socities – have minimal gaps between the powerful and weak. E.g. Denmark and Sweden governments instituted tax and social welfare systems that ensure their nationals are relatively equal in terms of income and power. * Social stratification affects power distance. In Japan almost everybody belongs to the middle class, while in India the upper stratum controls decision making and buying power. * In high distance firms, autocratic management styles focus power at the top 3.1 High Uncertainty avoidance societies create institutions that minimize risk and ensure financial security, companies emphasize stable careers and produce many rules to regulate worker actions and minimize ambiguity. 3.2 Low-uncertainty avoidances societies – socialize their members to accept and become accustomed to uncertainty: managers are entrepreneurial and comfortable with risk taking, decisions are made quickly, people accept each day as it comes. 5.1 Masculine cultures – value competitiveness, assertiveness, ambitions and the accumulation of wealth. Both men and women are assertive, focused on career and earning money, and may care little for others. E.g Australia and Japan. The US is a moderately masculine society, as are Hispanic cultures that display a zest for action, daring and competitiveness. In business, the masculinity dimension manifests as self-confidence, pro activeness and leadership. 5.2 Feminine cultures emphasize nurturing roles, interdependence among people, and caring for less fortunate people – for both men and women. e.g. Scandinavian countries welfare systems are highly developed and education is subsidized. Subjective Dimensions of culture Subjective dimensions – values and attitudes, manners and customs, deal versus relationship orientation, perceptions of time, perceptions of space and religion. * Values represent a person’s judgment about what is good or bad, acceptable or unacceptable, important or unimportant and normal or abnormal. * Attitudes and preferences are developed based on values, and are similar to opinions, except that attitudes are often unconsciously held and may not have a rational basis. * Prejudices are rigidly held attitudes, usually unfavorable and aimed at particular groups of people. Examples: values in North America, Northern Europe, and Japan – hard work, punctuality and the acquisition of wealth. Deal Vs Relationship Culture * Deal Oriented cultures- managers focus on the task at hand are impersonal, typically uses contacts and want to just get down to business. Example, Australia, North Europe, and North America. * Relationship Oriented cultures- managers have affiliations with people, rapport and get to know the other party in business interactions, relationships are more important than the deal – trust is highly valued in business, agreements. Example, China, Japan, Latin America etc. It took nine years for Volkswagen to negotiate an automobile factory in China. Manners and Customs * Manners and Customs are ways of behaving and conducting oneself in public and business situations. * Informal cultures – egalitarian in which people are equal and work together cooperatively * Formal cultures – status, hierarchy, power and respect are very important. * Varying Customs: eating habits, mealtimes, work hours and holidays, drinking, appropriate behavior at social gatherings (handshaking, bowing and kissing), gift-giving (complex), roles of women. Religion * A system of common beliefs or attitudes concerning a being or system of thought people consider to be scared, divine, or highest truth as well as the morals codes, values, traditions, and rituals associated with this system. * Influences culture, and therefore business and consumer behavior. * Example: The protestant work ethic emphasizes hard work, individual achievement and sense that people can control their environment – the underpinnings for development of capitalism Language as a key dimension of culture * The mirror or expression of culture, essential for communication; provides insight into culture. * Linguistic proficiency is a great asset in International Business. * Language has verbal and non verbal (unspoken, facial expressions and gestures) * There are nearly 7000 active languages including 2000 in Africa. Technology, the Internet and Culture * Technological advances are a key determinant of culture and cultural change – more leisure time, and computers, multimedia, and communications systems that encourage convergence in global culture. * The â€Å"death of distance refers to the demise of the boundaries that once separated people, due to modern communications, information, and transportation technologies – more homogenized cultures are developed. * The internet also promotes the diffusion of culture, with rapidly growing numbers of internet users. Are cultures converging? The concept of Sovereignty Sovereignty – meaning Self Rule is when a state or government is able to make and enforce laws within its boundaries without interference from foreign nations. It is also connected to the ability of a country to guarantee the best interest of its own citizens. How does Globalization affect sovereignty? Discuss the effect of Globalization on National culture: 1. Stripped us of our culture since people become more attached to western culture and neglect their ways of doing things. Critically evaluate various dimensions of Economic globalization and their impacts on business enterprises: explain how it is affected and give examples. 1. Globalization of Production: increased mobility of the factors of production has changed traditional specialization roles 2. Globalization of Competition: competition with international businesses has intensified and therefore cost reduction is encouraged to improve efficiency. 3. Globalization of markets: markets have become easily accessible, allowing for expansion and growth. Goods are made of a standard level since customers worldwide have the same tastes and preferences. 4. Globalization of Technology: it has advanced rapidly leading to shorter production cycles. It also makes managing a business more effective and efficient. Advancements in technology have also become difficult to maintain due to financial constraints for some businesses. 5. Globalization of Industries: they have the options of putting up shops anywhere in the global village, giving customers a variety of choices in terms of goods and services. Convergence – bringing together two or more things Globalization – putting everything into one village.