2-1. 2-2 BADM 633 - Wks 5-8 International Business Culture Terry Ryan

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BADM 633 - Wks 5-8

International Business Culture

Terry Ryan

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LEARNING TEAM PRESENTATIONSCompany Paper – Analyse the country for “your company” to expand globally. Conduct regional and country analyses for your new global venture. Describe your product or service.

Region Analysis Regional alliances and economic integration Physical environment and its effect on trade Political stabilityEconomic conditionsSocial, health, and environmental conditionsTerrorism threats

Country Analysis Political stabilityEconomic conditionsPhysical environment and its effect on tradeSocial, health, and environmental conditionsCultural considerations (High Level)

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Irish Vote Decisively to Support EU Reform

Irish voters approved the European Union's Lisbon Treaty, which will establish a permanent president and foreign minister for the EU, by a nearly 2-to-1 margin Saturday.

The final tally, with 67% voting in favor, marked a substantial shift of sentiment after the treaty was defeated last June. Irish government leaders, who strongly supported the treaty in a campaign that closely tied Ireland's economic future to the EU, were aided by strong voter turnout across the country. Finance minister Brian Lenihan said the "yes" vote is a "first step" toward economic recovery.

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DOES MONA LISA LIKE McNUGGETS?McDonald's is banking on it, opening an outpost in Paris's Louvre museum.

Elizabeth Strott on Monday, October 5, 2009 9:51 AM

Sacrebleu! McDonald's (MCD) plans to open its 1,142nd outlet in France next month to celebrate its 30th anniversary in the Gallic country, according to the U.K. paper The Daily Telegraph, and the location is at the pinnacle of all things cultural and classy: the Louvre.

Visitors to the museum will soon be able to enjoy their Le Big Macs and pommes frites after studying the likes of Leonardo da Vinci's "Mona Lisa" or the Winged Victory of Samothrace at McDonald's new burger bar and a McCafe. They will be sited in the underground approach to the museum in central Paris, known as the Carrousel du Louvre.

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McCurry Wins Big McAttack in Malaysia Kuala Lumpur Eatery Defeats Trademark Challenge From McDonald's in Country's Top CourtBy JAMES HOOKWAY

American fast-food giant McDonald's Corp. on Tuesday lost an eight-year battle to prevent a family-run Kuala Lumpur restaurant from calling itself McCurry, after Malaysia's top court said the Indian-food joint could use the prefix "Mc" in its name.

A McCurry lawyer, Sri Dev Nair, said the ruling means McDonald's doesn't have a monopoly on the prefix "Mc," and that other restaurants could also use it as long as they distinguished their food from McDonald's.

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To Outfox the Chicken Tax, Ford Strips Its Own Vans Logic Takes a Back Seat -- and Windows, as Auto Maker Plays Tariff Games

By MATTHEW DOLAN SEPTEMBER 22, 2009

BALTIMORE -- Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor. Their first stop in America is a low-slung, brick warehouse where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out.

The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled. Why all the fuss and feathers? Blame the "chicken tax."

The seats and windows are but dressing to help Ford navigate the wreckage of a 46-year-old trade spat. In the early 1960s, Europe put high tariffs on imported chicken, taking aim at rising U.S. sales to West Germany. President Johnson retaliated in 1963, in part by targeting German-made Volkswagens with a tax on imports of foreign-made trucks and commercial vans.

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To Outfox the Chicken Tax, Ford Strips Its Own Vans Logic Takes a Back Seat -- and Windows, as Auto Maker Plays Tariff Games

The 1960s went the way of love beads and sitar records, but the chicken tax never died. Europe still has a tariff on imports of U.S. chicken, and the U.S. still hits delivery vans imported from overseas with a 25% tariff. American companies have to pay, too, which puts Ford in the weird position of circumventing U.S. trade rules that for years have protected U.S. auto makers' market for trucks.

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Kraft Covets Cadbury's Know-How in India

By SONYA MISQUITTA and CECILIE ROHWEDDER Associated Press

At the heart of Kraft Foods Inc.'s craving for British confectionery maker Cadbury PLC are consumers such as Divya Rodrigues.

Ms. Rodrigues, a 21-year-old accounting student in Mumbai, regularly munches on Cadbury's Crackle and Dairy Milk brands, eats twice as much chocolate as she used to and might buy even more as presents for India's Diwali holiday.

Cadbury estimates that more than half of

India's population has never tasted

chocolate , providing opportunity for

growth.

a shop in New Delhi.

Cadbury's hold on consumers in India and other emerging markets was a factor in Kraft's $16.73 billion takeover offer for the U.K. candy maker. A successful bid would boost Kraft's presence in two fast-growing parts of the global confectionery market: developing countries and the chewing-gum business.

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Kraft Covets Cadbury's Know-How in India

.Kraft, which makes the Milka, Toblerone and Cote d'Or brands, already has

sizable chocolate businesses in Europe and Latin America. But in reaching consumers in overseas growth markets, Cadbury has had a double advantage: It is deeply entrenched in British Commonwealth countries such as India, where it has been selling chocolate for more than 60 years.

Cadbury's 2002 acquisition of several chewing-gum brands from Pfizer Inc. has yielded a strong presence in Latin America. One of those brands, Trident, was Cadbury's main growth motor in South America in the first half of this year. In Mexico, Cadbury's sales of about $500 million far outpace Kraft's sales of $350 million there, according to Andrew Lazar, an analyst with Barclays Capital.

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A Jar of Vegemite, a Window on Kraft By ILAN BRAT WSJ SEPTEMBER 30, 2009

The recipe for Vegemite, a salty brown yeast spread famous in Australia, remained unchanged for more than 80 years. Then Irene Rosenfeld became chief executive of Kraft Foods Inc.

This summer, a milder version of Vegemite appeared on store shelves across Australia. Ms. Rosenfeld had almost nothing to do with the reformulated taste, its new packaging or its rollout – which says a lot about how she has tried to transform Kraft since taking over as the food giant's CEO in 2006.

The new Vegemite, an idea that sprang from regional managers down under who were concerned about changing tastes, is just one result of Ms. Rosenfeld's drive to decentralize decision-making and shift more marketing dollars and attention to the biggest-selling brands at the world's second-largest food company by revenue. As Kraft tries to acquire British confectionery company Cadbury PLC, the results of her changes could be crucial to convincing Cadbury directors and shareholders that Kraft is in better position to grow and profit than Cadbury on its own.

Kraft has proposed to buy Cadbury for $16.7 billion in cash and stock. The chocolate maker has resisted, arguing that shareholders will reap greater long-term value from a stand-alone Cadbury.

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The new Vegemite went from concept to launch in 10 months -- an unthinkable speed before Ms. Rosenfeld, according to former and current Kraft executives. The new product also combines Vegemite with another big Kraft brand, Philadelphia Cream Cheese.

"You love that autonomy to really be agile ... and try to really make your own decisions and be accountable," says George Zoghbi, who became Kraft's managing director in Australia in October 2007.

Two months after the July 7 launch, Kraft had sold more than 2.8 million jars of the new stuff in Australia and New Zealand before it even had a name; the company held a contest for consumers to give it one. It's now called Vegemite iSnack 2.0.

In the same period, Kraft sold about 3.2 million jars of traditional Vegemite, which remains on the shelves. In the year-earlier period, Vegemite sales had totaled 3.3 million jars, indicating that the new product was bringing in new consumers.

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Starbucks Takes New Road With

Instant Coffee Company Launches Marketing Campaign and Taste

Challenge to Tout Its Portable, Less Expensive Product ViaBy JULIE JARGON – WSJ SEPTEMBER 30, 2009

Starbucks Corp. aims to convince Americans and Canadians that its new Via instant coffee is comparable to its brewed product.

The Seattle-based coffee giant on Tuesday is planning to roll out Via to Starbucks stores across the U.S. and Canada after having tested it in Seattle, Chicago and London for several months.

Portability will be an important selling point. As such, Via will be available in stores such as sporting-goods retailer REI and Office Depot Inc. On Tuesday, all customers on domestic United Airlines flights longer than two hours will get free packets of Via; starting Oct. 25, Via will be available for travelers to purchase on those flights.

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Political Systems

The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being

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Political Systems

Political system refers to the system of government in a nation

Political systems can be assessed according to two dimensionsthe degree to which they emphasize collectivism as opposed to individualism the degree to which they are democratic or totalitarian

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Collectivism And Individualism

Collectivism refers to a political system that stresses the primacy of collective goals over individual goalsCollectivism can be traced back to the Greek philosopher, Plato (427-347 BC), but in modern times, collectivism is equated with socialists

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Socialists advocate state ownership of the basic means of production, distribution, and exchangeState-owned enterprises are managed to benefit society as a whole, rather than individual capitalists

In the early 20th century, socialism split into:Communism – socialism can only be achieved through violent revolution and totalitarian dictatorshipSocial democrats – socialism is achieved through democratic means

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Classroom Performance System

A political system that stresses the primacy of collective goals over individual goals is called

a) individualism

b) collectivism

c) a democracy

d) a market economy

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A political system that stresses the primacy of collective goals over individual goals is called

a) individualism

b) collectivism

c) a democracy

d) a market economy

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By the mid-1990s, communism was in retreat worldwideSocial democracy is also retreating as many countries move toward free market economiesState-owned enterprises have been privatized

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_____ believe (s) that socialism can only be achieved through violent revolution and totalitarian dictatorship.

a) communistsb) social democratsc) social republicansd) Plato

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_____ believe (s) that socialism can only be achieved through violent revolution and totalitarian dictatorship.

a) communistsb) social democratsc) social republicansd) Plato

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Individualism refers to philosophy that an individual should have freedom in his own economic and political pursuitsIndividualism can be traced to Greek philosopher, Aristotle (384-322 BC), who argued that individual diversity and private ownership are desirable Under individualism, individual economic and political freedoms are the ground rules on which a society should be based More practically, individualism means democratic political systems and free market economies

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Democracy And Totalitarianism

Democracy refers to a political system in which government is by the people, exercised either directly or through elected representativesTotalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political partiesDemocracy is usually associated with individualism and communism is usually associated with collectivism and totalitarianism

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Pure democracy is based on the belief that citizens should be directly involved in decision makingMost modern democratic states practice representative democracy where citizens periodically elect individuals to represent them

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A form of government in which one person or political party exercises complete control over all spheres of human life and prohibits opposing political parties is

a) a democracy

b) a representative democracy

c) totalitarianism

d) socialism

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A form of government in which one person or political party exercises complete control over all spheres of human life and prohibits opposing political parties is

a) a democracy

b) a representative democracy

c) totalitarianism

d) socialism

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There are four major forms of totalitarianism:Communist totalitarianism – found in states where the communist party monopolizes powerTheocratic totalitarianism - found in states where political power is monopolized by a party, group, or individual that governs according to religious principlesTribal totalitarianism - found in states where a political party that represents the interests of a particular tribe monopolizes powerRight-wing totalitarianism - permits some individual economic freedom, but restricts individual political freedom

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______ is found in states where political power is monopolized by a party according to religious principles.

a) tribal totalitarianism

b) right-wing totalitarianism

c) theocratic totalitarianism

d) communist totalitarianism

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______ is found in states where political power is monopolized by a party according to religious principles.

a) tribal totalitarianism

b) right-wing totalitarianism

c) theocratic totalitarianism

d) communist totalitarianism

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In which type of economic system are all productive activities privately owned?

a) a mixed economy

b) a command economy

c) a representative economy

d) a market economy

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Legal Systems

The legal system of a country refers to the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained

There are three types of legal systems:Common law - based on tradition, precedent, and customCivic law - based on detailed set of laws organized into codesTheocratic law - law is based on religious teachings

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Which type of law is based on tradition, precedent, and custom?

a) civil law

b) common law

c) theocratic law

d) contract law

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Which type of law is based on tradition, precedent, and custom?

a) civil law

b) common law

c) theocratic law

d) contract law

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Differences In Contract Law

Depending on the legal system, contracts are approached in different ways A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involvedContract law is the body of law that governs contract enforcement

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Under a common law system, contracts tend to be very detailed with all contingencies spelled outUnder a civil law system, contracts tend to be much shorter and less specific because many issues are already covered in the civil code

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Many countries have ratified the United Nations Convention on Contracts for the International Sale of Goods (CIGS) which establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between buyers and sellers who have their places of business in different nations

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Property Rights And Corruption

Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resourceCountries differ in terms of how their legal systems define and protect property rights

Property rights can be violated through:private actionpublic action

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Public action and private action to violate property rights occurs when public officials extort income, resources, or the property itself from property holders This can be done legally through mechanisms like excessive taxation or illegally through corrupt mechanisms like demanding bribes or blackmailing High levels of corruption reduce foreign direct investment, the level of international trade, and the economic growth rate in a country

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Figure 2.1: Rankings of Corruption by Country 2006

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The Foreign Corrupt Practices Act makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authorityThe OECD has also adopted a convention that obliges member states to make the bribery of foreign public officials a criminal offense

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U.S. Cracks Down on Corporate Bribes By DIONNE SEARCEY – WSJ 27 May 2009

The Justice Department is increasing its prosecutions of alleged acts of foreign bribery by U.S. corporations, forcing them to take costly steps to defend against scrutiny. The crackdown under the Foreign Corrupt Practices Act, or FCPA -- a post-Watergate law largely dormant for decades -- now extends across five continents and penetrates entire industries, including energy and medical devices. Among the companies currently under Justice Department review are Sun Microsystems and Royal Dutch Shell.

At least 120 companies are under investigation, according to Mark Mendelsohn, a deputy chief in the Justice Department division overseeing the prosecutions, up from 100 at the end of last year.

The effort began in the wake of a series of business scandals earlier this decade, including the collapse of Enron, that stirred up a new corporate-reform movement. Today, companies across the U.S. are working to figure out if they are at risk. In some instances, companies have called the Justice Department to come clean, in hopes of obtaining leniency. "If we call them before they call us, it's not where they want to be," Mr. Mendelsohn said.

The law prohibits U.S. companies from paying, or offering to pay, foreign-government officials or employees of state-owned companies to gain a business advantage. It covers non-monetary gifts or offers in addition to cash payments, and is worded broadly enough that it's spawning an army of consultants, some of whom once prosecuted bribery cases for the Justice Department, who offer to interpret the gray areas.

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Which country is not among the most corrupt countries in the world?

a) Haiti

b) Indonesia

c) Malaysia

d) Nigeria

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Which country is not among the most corrupt countries in the world?

a) Haiti

b) Indonesia

c) Malaysia

d) Nigeria

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The Protection Of Intellectual Property Rights

Intellectual property refers to property that is the product of intellectual activity

Intellectual property can be protected using:Patents – exclusive rights for a defined period to the manufacture, use, or sale of that inventionCopyrights – the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fitTrademarks – design and names by which merchants or manufacturers designate and differentiate their products

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The Protection Of Intellectual Property Rights

Protection of intellectual property rights differs from country to country – when intellectual property protection is lax, piracy is common Many countries are members of the World Intellectual Property Organization and have signed international treaties to protect intellectual property including the Paris Convention for the Protection of Industrial PropertyTo avoid piracy, firms can stay away from countries where intellectual property laws are lax, file lawsuits, and lobby governments for international property rights agreements and enforcement

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Design and names by which merchants or manufacturers designate and differentiate their products are called

a) trademarksb) copyrightsc) patentsd) name brands

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Product Safety And Product Liability

Property safety laws set certain standards to which a product must adhereProduct liability involves holding a firm and its officers responsible when a product causes injury, death, or damage When product safety laws are stricter in a firm’s home country than in a foreign country, or when liability laws are more lax, the firm has to decide whether to adhere to home country or host country standards

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The Determinants Of Economic Development

Countries have different levels of economic developmentGross national income (GNI) per person is a common measure of economic development Purchasing power parity (PPP) involves adjusting GNI by purchasing power

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Differences In Economic Development

Table 2.1: Economic Data for Select Countries

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Broader Conceptions Of Development: Amartya Sen

Nobel Prize winning economist Amartya Sen argues that development should be seen as a process of expanding the real freedoms that people experience So, development requires the removal of major impediments to freedom like poverty, tyranny, and neglect of public facilitiesSen emphasizes basic health care and basic educationThe United Nations used Sen’s ideas to develop the Human Development Index (HDI) which is based on three measures: life expectancy at birth, educational attainment, and whether average incomes are sufficient to meet the basic needs of life in a country

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Political Economy And Economic Progress

What is the relationship between political economy and economic progress? Experts agree that:Innovation and entrepreneurship are the engines of long-run economic growthInnovation and entrepreneurship require a market economyInnovation and entrepreneurship require strong property rightsIt seems likely that democratic regimes are more conducive to long-term economic growth than a dictatorship, even one of the benevolent kindSubsequent economic growth leads to establishment of democratic regimes

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Geography, Education, And Economic Development

In addition to political and economic systems, geography and education are also important determinants of economic developmentCountries with favorable geography are more likely to engage in trade, and so, be more open to market-based economic systems, and the economic growth they promoteCountries that invest in education have higher growth rates because the workforce is more productive

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Which is not a primary determinant of a nation’s rate of economic development?

a) its political system

b) its economic system

c) its geography

d) its currency

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States In Transition

Since the late 1980s, two trends have emerged in the political economy: A wave of democratic revolutions swept the world in the late 1980s and early 1990sThere has been a move away from centrally planned and mixed economies and toward a more free market economic model

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The Spread Of Democracy

There are three main reasons for the spread of democracy:Many totalitarian regimes failed to deliver economic progress to the vast bulk of their populationsNew information and communication technologies, have broken down the ability of the state to control access to uncensored informationThe economic advances of the past quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms

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The Spread Of Democracy

Map 2.5: Political Freedom in 2006

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The New World Order And Global Terrorism

Many countries may be increasingly difficult places in which to do business, either because of their inherent violent conflict, or because they are part of a civilization that is in conflict with an enterprise’s home countryTerrorism represents one of the major threats to world peace and economic progress in the 21st century

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The Spread Of Market-Based Systems

Command and mixed-economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systemsAs a result, more countries have shifted toward the market-based model

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The Spread Of Market-Based Systems

Map 2.6: Distribution of Economic Freedom in 2007

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The Nature Of Economic Transformation

The shift toward a market-based system involves:Deregulation – removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate Privatization - transfers the ownership of state property into the hands of private investorsThe creation of a legal system to safeguard property rights

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Implications Of Changing Economy

Markets that were formerly off-limits to Western business are now openChina with its 1.2 billion people and India with its population of almost 1 billion are especially importantHowever, just as the potential gains are large, so are the risksDemocracy may not thrive in some countries

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Implications Of Changing Political Economy

Figure 2.3: The World’s Largest National Economies, 2005-2025 (GDP $ billions)

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Implications For Managers

There are two broad implications for managers:the political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international businessthe political, economic, and legal environment of a country clearly influences the attractiveness of that country as a market and/or investment site

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Benefits

The long-run benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers By identifying and investing early in a potential future economic stars, firms may be able to gain first mover advantages (advantages that accrue to early entrants into a market) and establish loyalty and experience in a country

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Costs

The costs of doing business in a country are influenced by political, economic, and legal factors:Political costs include the cost of paying bribes or lobbying for favorable or fair treatment Economic costs relate primarily to the sophistication of the economic system, including the infrastructure and supporting businessesIt can be more costly to do business in countries with dramatically different product, workplace, and pollution standards, or where there is poor legal protection for property rights

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Risks

The risks of doing business are determined by a number of political, economic, and legal factors:Political risk is the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise Economic risk is the likelihood that economic mismanagement will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise Legal risk is the likelihood that a trading partner will opportunistically break a contract or expropriate property rights

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Overall Attractiveness

The overall attractiveness of a country as a potential market and/or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that countryOther things being equal, the benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private sector debt

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Trade Upturn Hints at a Recovery By SUDEEP REDDY, JOHN W. MILLER and ALEX FRANGOS WSJ OCTOBER 12, 2009

World trade, which plunged more sharply during the financial crisis than at any time since the Great Depression, is beginning to pick up, another sign that the global economy is healing.

Although the volume of trade remains well

below pre-crisis levels, imports and exports

appear to have touched bottom in the second

quarter. Trade volumes had fallen even further

than global growth. So signs of an upward turn

in trade could spur production and encourage

hiring in exporting economies that are still

plagued by high unemployment.

The turnaround is tentative, though, and comes

amid continuing concerns about rising

protectionism and weak global demand.

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Trade Upturn Hints at a Recovery

The report came amid other optimistic signs, both for trade and for global growth. The Organization for Economic Cooperation and Development said Friday that an increase in its index of leading indicators suggests major economies are beginning to recover. In Asia, China, Korea and Taiwan are reporting renewed growth in exports. Korea, for instance, said the value of its exports in September was up 11.1% from August. In the U.S., a declining dollar is giving exporters a boost. "The weak dollar has made it a whole lot easier," says Randy Baerg, president of Warren & Baerg Manufacturing Inc. of Dinuba, Calif., which sells machines to grind biomass material into everything from horse feed to fuel.

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Yen's Rise Dents Toyota Results Auto Maker Warns of Currency Impact, Vows Quick Action on Safety

Defect By YOSHIO TAKAHASHI 04 Oct 2009 WSJ

TOKYO -- Toyota Motor Corp.'s president on Friday warned that the rising yen will make it harder for the company to return to profitability, illustrating the effect of the strengthening Japanese currency on the nation's key exporters.

President Akio Toyoda, speaking

Friday at the Japan National Press

Club, also said the company is

investigating the cause of its largest

-ever safety recall in the U.S.,

though he declined to say what

effect it would have on the auto

maker's business.

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Yen's Rise Dents Toyota Results Intervention Returns to Currency Agenda

Slow recovery from the credit crunch means that strong currencies are a problem for some economies. As a result, currency manipulation is being needed for the first time since most major countries subscribed to free floating currencies in 2004.

"We understand that we are facing a tough situation" because of the yen's gains, he said. He added, "As we [already] have excessive production capacity, it will be hard to return to profitability...just by increasing sales volume."

Mr. Toyoda said that the company would take all conceivable measures to help soften the impact of the strong yen, though he didn't elaborate.

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Car Makers Hit Nikkei

Shares of Japanese automakers were hit hard Friday by weak September sales in the US and a strong yen, dragging the benchmark index down to its lowest level since July, 2009.

Toyota fell 3.7%, Honda Motor shed 3.4 % and Isuzu Motors was down 5.5%.

Documents

2-1. 2-2 BADM 633 - Wks 5-8 International Business Culture Terry Ryan