July 21, 2008Second Discussion Section:

Culture & Ethics; International Trade

AgendaChapters 1, 2 in a Nutshell Review Chapters 3 and 4Discussion 1:

Selling Domino’s Pizza WorldwideReview Chapters 5 and 6Discussion 2:

Boeing v. Airbus

Chapters 1 and 2Chapter 1:

What is globalization?What is driving globalization?What are the trends in globalization?What are the debates about globalization?

Chapter 2:How are countries different: politically, economically,

legally?What are the factors leading to economic development?

How to measure economic development Protection of property rights + Innovation? What about the

legal and political systems of the country?

Chapter 3: Differences in CultureWhat is Culture?

Values and NormsCulture, Society, and the Nation-StateThe Determinants of Culture

Social StructureIndividuals and GroupsSocial Stratification

Religious and Ethical SystemsLanguageCulture and the Workplace

Hofstede study Power distance; individualism vs. collectivism;

uncertainty avoidance; masculinity vs. femininity

Chapter 3 Learning GoalsKnow what is meant by the culture of a

society.Identify the sources that lead to differences

in social culture.Identify the business and economic

implications of differences in culture.Understand how differences in social culture

influence values in the work place.Develop an appreciation for the economic

and business implications of cultural change.

Chapter 3 Exercise: Domino’s Pizza commercials from around the world U.S.

http://www.youtube.com/watch?v=8QuozSISqW4 http://www.youtube.com/watch?v=VIHj7f8mOLI http://www.youtube.com/watch?v=YoZhpsNztgY

Australia http://www.youtube.com/watch?v=iyHQHEWpf3A http://www.youtube.com/watch?v=f5J8TnWHxVI

Mexico/Latin America http://www.youtube.com/watch?v=x8tSR-itf9o http://www.youtube.com/watch?v=YTqtta8VMyo

Europe http://www.youtube.com/watch?v=MdTXbQ6t5os http://www.youtube.com/watch?v=GRpixqTRejs

Middle East Israel: http://www.youtube.com/watch?v=lOKPCxRKhdg

Asia Japan: http://www.youtube.com/watch?v=HOlsj46QOwU Korea: http://www.youtube.com/watch?v=hh52CqPVj6E

http://www.youtube.com/watch?v=_k7kcEqdaH4 India: http://www.youtube.com/watch?v=nhz9JjN942k

http://www.youtube.com/watch?v=pTQskWbBtW8&feature=related

Chapter 3: Critical ThinkingOutline why the culture of a country might

influence the costs of doing business in that country. Illustrate your answer with examples.

Chapter 3: Critical ThinkingChoose two countries that appear to be

culturally diverse. Compare the culture of those countries and then indicate how cultural differences influence (a) the costs of doing business in each country, (b) the likely future economic development of that country, and (c) business practices.

Domino’s Discussion Questions1. Domino’s has successfully grown its

international presence very quickly. Compare and contrast its strategy with that of another well-known international fast food operation, McDonald’s. What similarities do you see? Are they any significant differences between the two companies? What has led to the success of Domino’s?

Domino’s Discussion Questions2. While its pizza appears to be universally

accepted, Domino’s has had to make some adjustments to its marketing mix. Discuss the different components in the marketing mix and how the company has responded to local needs.

Chapter 4: Ethics in International Business Ethical issues in International Business

Employment Practices; Human Rights; Environmental Pollution; Corruption; Moral obligations 

Ethical Dilemmas What are they?

The Roots of Unethical Behavior How do they arise?

Philosophical Approaches to Ethics Straw Men

Friedman Doctrine; Cultural Relativism; Righteous Moralist; Naïve Immoralist

Utilitarian and Kantian Ethics Rights Theories Justice Theories

Ethical Decision Making Hiring and Promotion; Organization Culture and Leadership;

Decision-Making Processes; Ethics Officers; Moral Courage

Chapter 4 Learning GoalsBe familiar with the ethical issues faced by

international businesses. Recognize an international dilemma. Discuss the causes of unethical behavior by

managers. Be familiar with the different philosophical

approaches to ethics. Know what managers can do to incorporate

ethical considerations into their decision making.

Chapter 4 Critical ThinkingQUESTION 1: A visiting American executive

finds that a foreign subsidiary in a poor nation has hired a 12-year-old girl to work on a factory floor, in violation of the company’s prohibition on child labor. He tells the local manager to replace the child and tell her to go back to school. The local manager tells the American executive that the child is an orphan with no other means of support, and she will probably become a street child if she is denied work. What should the American executive do?

Chapter 4 Critical ThinkingQUESTION 2: Under what conditions is it

ethically defensible to outsource production to the developing world where labor costs are lower when such actions also involve laying off long-term employees in the firm’s home country?

Chapter 4 Critical ThinkingQUESTION 3: Are facilitating payments

ethical?

Chapter 4 Critical ThinkingQUESTION 4: Drawing upon John Rawls’s

concept of the veil of ignorance, develop an ethical code that will (a) guide the decisions of a large oil multinational toward environmental protection, and (b) influence the policies of a clothing company to outsourcing of manufacturing process.

Chapter 5: International Trade Theory An Overview of Trade Theory

Mercantilism Absolute Advantage (Adams Smith) Comparative Advantage (David Ricardo)

The Gains from Trade/Qualifications and Assumptions Simple Extensions of the Ricardian Model

Heckscher-Ohlin Theory  The Leontief Paradox

The Product Life-Cycle Theory (Raymond Vernon) Evaluating the Product Life-Cycle Theory

New Trade Theory (1970’s economists) Increasing Product Variety and Reducing Costs Economies of Scale, First-Mover Advantages and the Pattern of Trade Implications of New Trade Theory 

National Competitive Advantage: Porter’s Diamond Factor Endowments Demand Conditions Related and Supporting Industries Firm Strategy, Structure, and Rivalry Evaluating Porter’s Theory

Chapter 5 Learning GoalsUnderstand why nations trade with each other.Be familiar with the different theories explaining trade

flows between nations.Understand why many economists believe that unrestricted

free trade between nations will raise the economic welfare of countries that participate in a free trade system.

Be familiar with the arguments of those who maintain that government can play a proactive role in promoting national competitive advantage in certain industries.

Understand the important implications that international trade theory holds for business practice.

Chapter 5: Critical ThinkingWhat are some potential costs of adopting a

free trade regime? Do you think governments should do anything to reduce these costs? What?

Chapter 5: Critical ThinkingThe world’s poorest countries are at a

competitive disadvantage in every sector of their economies. They have little to export. They have no capital; their land is of poor quality; they often have too many people given available work opportunities; and they are poorly educated. Free trade cannot possibly be in the interest of such nations! Discuss.

Chapter 5 Critical ThinkingUnions in developed nations often oppose

imports from low-wage countries and advocate trade barriers to protect jobs from what they often characterize as “unfair” import competition. Is such competition “unfair”? Do you think that this argument is in the best interests of (a) the unions, (b) the people they represent, and/or (c) the country as a whole?

Chapter 5 Critical Thinkinga) Who benefits from the outsourcing of skilled white

collar jobs to developing nations? Who are the losers?b) Will developing nations like the United States

suffer from the loss of high skilled and high paying jobs to other countries?

c) Is there a difference between the transference of high paying white collar jobs, such as computer programming and accounting, to developing nations, and low paying blue collar jobs? If so, what is the difference, and should government do anything to stop the flow of white collar jobs out of the country to countries like India?

Chapter 5 Critical ThinkingDrawing on the new trade theory and

Porter's theory of national competitive advantage, outline the case for government policies designed to build a national competitive advantage in biotechnology. What kind of policies would you recommend the government adopt? Are these policies at variance with the basic free trade philosophy?

Chapter 6: The Political Economy of International Trade Instruments of Trade Policy

Tariffs Subsidies Import Quotas and Voluntary Export Restraints Local Content Requirements/ Administrative Policies Antidumping Policies

The Case for Government Intervention Political Arguments for Intervention

Protecting jobs and industries; national security; retaliation; protecting consumers; furthering foreign policy objectives; protecting human rights

Economic Arguments for Intervention The infant industry argument; strategy trade policy

 The Revised Case for Free Trade (or, counter-arguments to the case for government intervention)

Retaliation and Trade War Domestic Politics

Development of the World Trading System From Smith to the Great Depression 1947–1979: GATT, Trade

Liberalization, and Economic Growth 1980–1993: Protectionist Trend The Uruguay Round and the World Trade Organization WTO: Experience to Date The Future of the WTO: Unresolved Issues and the Doha Round

Chapter 6 Learning GoalsDescribe the policy instruments used by

governments to influence international trade flows.

Understand why governments sometimes intervene in international trade.

Articulate the arguments against strategic trade policy.

Describe the developments of the world trading system and the current trade issues.

Explain the implications for managers of developments in the world trading system.

Chapter 6: Critical ThinkingDo you think that governments should

consider human rights when granting preferential trading rights to countries? What are the arguments for and against taking such a position?

Chapter 6: Critical ThinkingWhose interests should be the paramount

concern of government trade policy - the interests of producers (businesses and their employees) or those of consumers?

Chapter 6: Critical ThinkingGiven the arguments relating to the new

trade theory and strategic trade policy, what kind of trade policy should business be pressuring government to adopt?

Chapter 6: Critical ThinkingYou are an employee of an U.S. firm that produces

personal computers in Thailand and then exports them to the U.S. and other countries for sale. The personal computers were originally produced in Thailand to take advantage of relatively low labor costs and a skilled workforce. Other possible locations considered at that time were Malaysia and Hong Kong. The US government decides to impose punitive 100% ad valorem tariffs on imports of computers from Thailand to punish the country for administrative trade barriers that restrict U.S. exports to Thailand. How do you think your firm should respond? What does this tell you about the use of targeted trade barriers?

Boeing versus AirbusBoeing 787 Dreamliner

http://www.youtube.com/watch?v=mBuC9_jRVQ0

Airbus A380http://www.youtube.com/watch?

v=AK10MxtCAHc

Subsidy Dogfight: Boeing v. AirbusWhat are the facts?

Boeing’s development of Boeing 7E7 (now 787), which promises as much as 20% reduction in operating costs

Alliance with three Japanese companies1992 Agreement limits state aid that both

companies can receive from respective governmentsDoes 1992 Agreement extend to other parties in the

project? Japanese MET? State of Washington and Kansas

Airbus applies for launch aid for A350, direct competitor to 787

Dispute now before WTO as to the legality of the various subsidies

Boeing v. AirbusBoeing’s Claim

Airbus receives subsidies from UK, France, German and Spain Why is this bad? $13.5 billion government subsidies between 1970 and 1990 ($25.9

billion if commercial interest rates applied) Loans at below market interest rates and tax breaks Airbus is believed to have financed 80% of the cost of aircraft for a

term of 8 to 10 years at an annual interest rate of approximately 7% In contrast, US Export Import Bank required 20% down payments

from Boeing customers, financed only 40% of the cost of an aircraft directly, and guaranteed financing of the remaining 40% by private banks at an average interest rate to 8.5 for 10 years

Airbus received government $3.7 billion launch aid and $2.8 billion in indirect subsidies for the development of the A380 superjumbo and need not repay the aid if the aircraft is not a commercial success

Catalyst for latest dispute: launch aid for A350, direct competitor to B-787 ($700 million by UK, 30% launch aid from EU)

Boeing v. AirbusAirbus’ claims

Airbus success due not to subsidies but to good products and strategy Boeing benefited from US government aid for a long time Planes were built under government WWI, WWII. Boeing 707, for

example, was subsidized by the US government 1991 EC study contended that Boeing/McDonnell Douglas received

$18 to $22 billion in indirect aid between 1976 and 1990. US Dept of Defense gave as much as $6.34 billion from 1976 to 1990, and NASA gave $8 billion to commercial aircraft production. Moreover, tax exemptions gave an addition $1.7 billion to Boeing and $1.4 billion to MD

Boeing rejected these claims, saying no additional 5% for commercial work for every defense contract; only 3% of Boeing’s R&D from Department of Defense, and only 4% from NASA funding

Airbus contends: Boeing received some $12 billion from NASA to develop technology, much of it found its way to commercial jet aircraft

Airbus further contends: Boeing would receive as much as $3.2 billion in tax breaks from Washington, $1 billion in loans from the Japanese government

Boeing v. AirbusHow might the repayable launch aid for

Airbus change its decision making on launching a new aircraft? What are the potential consequences for (a) Boeing, (b) airlines, and (c) the profitability of both Boeing and Airbus?

Boeing v. AirbusWhen Airbus originally received government

aid back in the 1960s, it was a new enterprise. Today it is the global market share leader in the commercial aerospace business. How do gains in market share effect the legitimacy of claims for subsidies?

Boeing v. AirbusDo you think that R&D contracts from NASA

and the Pentagon benefit Boeing’s commercial aerospace business? How?

Boeing v. AirbusAt this point, what do you think is the most

equitable solution to the long running battle between the US and EU on subsidies for commercial aircraft development?