Chapter 1
International business (IB): (1) a business (firm) that engages in international (cross-border)
economic activities, and/or (2) the action of doing business abroad
Multinational enterprise (MNE): A firm that engages in foreign direct investment
Foreign direct investment (FDI): investment in, controlling, and managing value-added activities in
other countries.
Global business: business around the globe (IB and domesticc business activities)
(traditional) Emerging economy/Emerging market: a term that has gradually replaced the term
‘developing country’ since the 1990s (week & less institutional development & infrastructure and
facture market development)
Mid-range emerging economy: One less and one weak institutional development & infrastructure
and facture market development.
Newly developed economies: Strond and more Institutional development & infrastructure and
factor market development
Purchasing power parity (PPP): a conversion that determines the equivalent amount of goods and
services that different currencies can purchase
Gross domestic product (GDP): the sum of value added by resident firms, households, and
governments operating in an economy
Gross national product (GNP): GDP plus income from nonresident sources abroad
Gross national income (GNI): GDP plus income fron n onresident sources abroad. GNI is the term
used by the World Bank and other international Organizations to supersede the term GNP.
BRIC: Brazil, Russia, India, and China
BRICS: Brazil, Russia, India, China and South Africa
Great transformation: transformation of the global economy that is embodied by the tremendous
shift in economic weight and engines of growth toward emerging economies in genera land BRIC(S)
in particular.
Triad: North America, Western Europe and Japan (Top Tier)
The global economic pyramid:
- Top Tier: per capita GDP > $20000 (1 billion people)
- Second Tier: per capita GDP $2000 - $20000 (1 billion people)
- Base of the puramid (BoP): Economies where people make less dan $2000 per capita per
year: per capita GDP < $2000 (5 billion people)
Reverse innovation: an innovation that is adopted first in emerging economies and is then diffused
around the world
Why study global business?
- Enhance your employability and advance your career in the global economy
- Better preparation for possible expatriate assignments abroad
- Stronger competence in interacting with foreign suppliers, partners, and competitors, and in
working for foreign-owned employers in your own company.
Group of 20 (G-20): the group of 19 major countries plus the EU whose leaders meet on a biannual
(two years) basis to solve global economic problems.
Expatriate manager (expat): a manager who works abroad
International premium: a significant pay raise when working overseas
What determines the succes and failure of firms around the globe?:
- Institution-based view: formal (laws, regulations and rules) and informal (cultures, ethics
and norms) rules of the game. (external environment)
- Resource-based view: firm-specific resources and capabilities
Liability of foriegnness: the inherent disadvantage that foriegn firms experience in host countries
because of their nonnative status.
Globalization: the close integration of countries and peoples of the world
Risk management: the indentification and assessment of risks and the preparation to minimize the
impact of high-risk, unfortunate events
,Scenario planning: a technique to prepare and plan for mutiple scenarios (either high- or low-risk)
Three views on globalization:
- A new force sweeping through the world in recent times
- A long-run historical evolution since the dawn of human history
- A pendulum that swings from one extreme to another from time to time (!!!!)
Semiglobalization: a perspective that suggests that barriers to market integration at borders are
high, but not high enough to insulate countries from each other completely.
Nongovernmental organization (NGO): an organization that is not affiliated with governments
Chapter 2
Institutional transition: fundamental and comprehensive changes introduced tot he forma land
informal rules of the game that affect firms as players
Institution-based view: a leading perspective in global business that suggests that the success and
failure of firms are enabled and constrained by institutions
Institution: forma land informal rules of the game
Institutional framework: formal and informal institutions that govern individual and firm behavior
Formal institution: institution represented by laws, regulations, and rules
Regulatory pillar: the coercive power of governments (supports formal institutions)
Informal institution: institution represented by cultures, ethics, and norms
Normative pillar: the mechanism through which norms influence individual and firm behaviour
(supports informal institution)
Norms: values, beliefs, and actions of relevent players that influence the focal individuals and firms
Cognitive pillar: the internalized (or taken-for-granted) values and beliefs that guide individual and
firm behavior
What do institutions do:
- Reduce uncertainty
- Lower transaction costs
- Combat opportunism
Transaction cost: the cost associated with economic transactions or, more broadly, the costs of doing
business
Opportunism: the act of seeking self-interest with guile
Transition economies: a subset of emerging economies, particularly those moving from central
planning to market competition (such as China, Poland, Russia, and Vietnam)
Propositions of the institution-based view:
- Managers and firms rationally pursue their interests and make choices within the forma land
informal constraints in a given insitutional framework
- While forma land informal institutions combine to govern firm behavior, in situations where
formal constraints are unclear or fail, informal constraints will play a larger role in reducing
uncertainty and prociding constancy to managers and firms
Bounded rationality: the necessity of making rational decisions in the absence of complete
information
Formal institutions have:
- Political systems
- Legal systems
- Economic systems
Political system: the rules of the game on how a country is governed politically
Totalitarism (dictatorship): a political system in which one person or party exercises absolute
political control over de population:
- Communist totalitarianism (China, Cuba, Laos, North Korea and Vietnam)
- Right-wing totalitarianism: intense hatred against communism
- Theocratic totalitariansim: (Iran and Saudi Arabia)
- Tribal totalitarianism: one tribe or ethic group has the lead
,Democracy: a political system in which citizens elect representatives to govern the country on their
behalf
Political risk: risk associated with political changes that may negatively impact domestic and foreign
firms
Legal system: the rules of the fame on how a country’s laws are enacted and enforced
Civil law: a legal tradition that uses comprehensive statutes and codes as a primary means to form
legal judgments
Common law: a legal tradition that is shaped by precedents and traditions from precious judicial
decisions
Theocratic law: a legal system based on religious teachings
Propery right: the legal right to use an economic propery (resource) and to derive income and
benefits from it
Property right is good for the economy, because without property rights the bank won’t give you a
loan. (happens a lot in developing countries)
Intellectual propery (IP): intangible propery that is the result of intellectual activity
Intellectual property right (IPR): right associated with the ownership of intellectual property
- Patent: exclusive legal rights of inventors of new products or processes to derice income
from such inventions
- Copyright: exclusive legal rights of authors and publishers to publish and disseminate their
work
- Trademark: exclusive legal rights of firms to use specific names, brands, and designs to
differentiate their products from others
Piracy: unauthorized use of intellectual propery
Economic system: rules of the game on how a country is governed economically
Market economy: an economy that is characterized by the ‘invisible hand’ of market forces
Command economy: an economy that is characterized by government ownership and control of
factors of production
Mixed economy: an economy that has elements of both a market economy and a command
economy (everyone actually)
State-owned enterprises (SOE): a firm owned and controlled by the state (government)
Institutions are the basic determinants of the performance of an economy
Rich countries are rich because they have better developed better market-supporting institutional
frameworks
Several points:
- It is economicaaly advantageous for individuals and firms to grow and specialize (division of
labor)
- A lack of strong formal, market-supporting institutions forces individuals tot rade on an
informal basis with a small neighboring group and forces firms to remain small
- Emergence of formal, market-supporting institutions encourages individuals to specialize and
firms to grow in size to capture the gains from complicated long-distrance trade
- When formal, market-supporting institutions protect property rights, they will fuel more
innovation, entrepreneurship, and, thus, economic growth
Capitalism: private ownership
Socialism: state ownership
Washington consensus: a view centered on the unquestioned belief in the superiority of private
ownership over state ownership in economic policy making, which is often spearheaded by the US
government and two Washington-based international organizations: the IMF and the World Bank
Moral hazard: recklessness when people and organizations (including firms and governments) do not
have to face the full consequences of their actions (happens often when governments support firms)
, Beijing consensus: a view that questions Washington consensus’s belief in the superiority of private
ownership over state ownership in economic policy making, which is often associated with the
position held by the Chinese government
Chapter 3
Informal institution: institution represented by cultures, ethics, and norms
Ethnocentrism: a self-centered mentality by a group of people who perceive their own culture,
ethics, and norms as natural, rational, and morally right
Culture: the collective programming of the mind that distinguishes the members of one groep or
category of people from another
Major components of culture:
- Language
- Religion
- Social structure
- Education
Lingua france: a global business language
Four leading religions:
- Christianity
- Islam
- Hinduism
- Buddhism
Social structure: the way a society broadly organizes its members
Social stratification: the hierarchical arrangement of individuals into social categories (strata) such as
classes, castes, and divisions within a society
Social mobility: the degree to which members from a lower social category can rise to a higher status
How to understand cultural differences:
- Context
- Cluster
- Dimension approaches (!)
Context: the underlying background upon which social interaction takes place
Low-context culture: a culture in which communication is usually taken at face value without much
reliance on unspoken context (no is no)
High-context culture: a culture in which communication relies a lot on the underlying unspoken
context, which is as important as the words used (no does not necessarily means no)
Cluster: countries that share similar cultures
Civilization: the highets cultural grouping of people and the broadest elvel of cultural identity people
have
