4 steps to reduce cultural bias1. define problem/goal in terms of cultural traits/norms2. define problem in terms of foreign cultural traits/norms3. isolate the self-reference criterion influence in the problem, and examine it carefully to see how it complicates the problem 4. redefine the problem without the self-reference criterion influence, and solve for the optimum-goal situation

5 things firms should seek forseeking resources, seeking factor advantages, seeking knowledge, seeking security, and seeking markets

5 ways in which negotiators may come unpreparedinsufficient understanding of different ways of thinking, insufficient attention to the necessity to save face, insufficient knowledge and appreciation of the host country (history, culture, government, etc.), and insufficient recognition of the decision making process and role of personal relations and personalities and insufficient allocation of time for negotiations

1971 Group of Tengets rid of fixed exchange rate, then recognizes through Jamaica Agreement that floating exchange rates are necessary

abandoned product rangesthe outcome of a firm narrowing its range of products to obtain economies of scale, which provides opportunities for other firms to enter the markets for the abandoned products

absolute advantagethe ability to produce a good or service it more efficiently than it can be produced elsewhere

Administrative Shelterprotecting firms through laws and regulations

adoption tendencythe likelihood that the product or process will be accepted

applied tariffduty level actually charged at border crossing

arbitrationthe procedure for settling a dispute in which an objective third party hears both sides and makes a decision; a procedure for resolving conflict in the international business arena through the use of intermediaries such as representative of chambers of commerce, trade associations, or third-country institutions

autarkyself-sufficiency: a country that is not participating in international trade

backtranslationthe retranslation of text to the original language by a different person than the one who made the first translation

balance of payments (BOP)a statement of all transactions between one country and the rest of the world during a given period; a record of flows of goods, services, and investments across borders

bearer bonda bond officially owned by whoever is holding it

bound tariffduties agreed upon in international negotiations, often higher than those duties actually charged

brain draina migration of professional people from one country to another, usually for the purpose of improving their incomes or living conditions

Bretton Woods agreement1944-1971--44 governments of the Allied Powers gathered together in Bretton Woods in NH. says

that postwar system would be stable and sustainable only if it was bale to provide sufficient liquidity to countries during periods of crisis--fixed exchange rates (adjustable peg), establishment of IMF, and establishment of World Bank.

the Capital Accountmade up of transfers of financial assets and the acquisition and disposal of nonproduced/nonfinancial assets

capital flightthe rapid flow of private funds abroad because investors believe that the return on investment or the safety of capital is not sufficiently ensured in their own countries

change agenta person or institution who facilitates change in a firm or a country

Committee on Foreign Investments into the United States (CFIUS)federal committee, chaired by the US Treasury, with the responsibility to review major foreign investments to determine whether national security or related concerns are at stake

comparative advantagethe ability to produce a good or service more cheaply, relative to other goods and services, than is possible in other countries

competitive advantage of nationsfactor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry

Composition of Tradethe ratio of primary commodities to manufactured goods in a company's trade

Correspondent bankbanks located in different countries and unrelated by ownership that have a reciprocal

agreement to provide services to each other's customers

critical commodities listgovernmental information about the products that are either particularly sensitive to national security or controlled for other purposes

cultural convergencecreasing similarity among cultures accelerated by technological advances

cultural imperialismthe imposition of a foreign viewpoint, non-local perspective, or civilization on a people

cultural riskthe risk of business blunders, poor customer relations, and wasted negotiations that results when firms fail to understand and adapt to the differences between their own and host countries' culture

cultural universalssimilarities in the total way of life of any group of people

currency flowsthe movement of currency from nation to nation. which in turn determines exchange rates

current accountan account in BOP that records results of transactions involving goods trade, services trade, income, and current transfers

deemed exportsaddresses people rather than products where knowledge transfer could lead to a breach of export restrictions

division of laborthe premise of modern industrial production where each stage in the production of a good is performed by one individual separately, rather

than one individual being responsible for the entire production of the good

Doha RoundCurrently (2010) ongoing international trade and investment liberalization negotiations within the WTO initiated in 2001 in Doha Quatar

Domestic Borrower/Domestic CurrencyCategory 1: most likely in international bond market

Domestic Borrower/Foreign CurrencyCategory 3: restrict the amount and types of financial transactions in foreign currency--usually in international financial centers such as London and Zurich, technically eurocurrency

domesticationgovernment demand for partial transfer of ownership and management responsibility from a foreign company to local entities, with or without compensation

eclectic paradigmrepresenting a collection of forces or drivers

economic infrastructurethe transportation, energy, and communication systems in a country

embargoa governmental action, usually prohibiting trade entirely, for a decidedly adversarial or political rather than economic purpose

ethnocentrismthe regarding of one's own culture as superior to those of others

euromarketsmoney and capital markets in which transactions are denominated in a currency other than that of the place of their transaction (not confined to europe)

exchange controlscontrols on the movement of capital in and out of a country, sometimes imposed when the country faces a shortage of foreign currency

expropriationgovernment takeover of a company with compensation, frequently a level lower than the investment value of the company's assets

factor intensitythe proportion of capital input to labor input used in good production of a good

factor proportions theorysystematic explanation of the source of comparative advantage

factors of productionall inputs into the production process, including capital, labor, land, and technology

the financial accountconsists of direct investment, portfolio investment, and other asset investment

financial accountan account in the BOP statement that records transactions involving borrowing, lending, and investing across the borders

financial incentivesmonetary offers intended to motivate; special funding designed to attract foreign direct investors that may take the form of land, buildings, loans, or loan guarantees

financial infrastructurefacilitating financial agencies in a country; for example, banks

fiscal incentivesincentives used to attract foreign direct investment that provide specific tax measures to attract the investor

fixed-exchange-ratethe government of a country officially declares that its currency is convertible into a fixed amount of some other currency

floating-exchange-ratethe government possesses no responsibility to declare that its currency is convertible into a fixed amount of some other currency; this diminishes the role of official reserves

foreign availabilitythe degree to which products similar to those of a firm can be obtained in markets outside the farm's home country; crucial to export determination

Foreign Borrower/Domestic CurrencyCategory 2: most likely in international bond market, limited by governmental restriction on who can borrow/lend to foreign companies

Foreign Borrower/Foreign CurrencyCategory 4: strictest form of the traditional eurocurrency financial transaction, a foreign firm borrowing foreign currency (may be restricted). This banking dominates offshore banking market

foreign corrupt practices acta 1977 law making it a crime for US executives of publicly traded firms to bribe a foreign official in order to obtain business

four components of strategic tradeprice, cost, repetition, and externalities

four dimensions of culture1. individualism (I vs. We)2. power distance (levels of equality in society) 3. uncertainty avoidance (need for formal rules/regulations)4. Masculinity (attitude toward achievement, roles of men/women)

General Agreement on Tariffs and Trade (GATT)

an international code of tariffs and trade rules signed by 23 nations in 1947; headquartered in Geneva, Switzerland; now part of the World Trade Organization with 148 members

high-context culturescultures in which behavioral and environmental nuances are important means of conveying information

imperative cultural knowledgean acquired ability to understand and appreciate the nuances of foreign cultural traits and patterns

Imperfections in factor mobilitythe low-cost resources or factors often located in less-developed countries or countries with restriction on the mobility of labor and capital

imperfections in managementthe ability of multinational firms to successfully exploit or at least manage imperfections still relies on their ability to gain an "advantage"

import substitutiona policy for economic growth adopted by many developing countries that involves the systematic encouragement of domestic production of goods formerly imported

input-output analysisa method for estimating market activities and potential that measures the factor inflows into production and the resultant outflow of products

intellectual property right (IPR)legal right resulting from individualistic, scientific, literary or artistic activity

internalizationoccurs when a firm establishes its own multinational operation, keeping information that is at the core of its competitiveness within the firm

international lawthe body of rules governing relationships between sovereign states; also certain treaties and agreements respected by a number of countries

International Monetary Fund (IMF)A specialized agency of the UN established in 1944. An international financial institution for dealing with balance of payment problems; the first international monetary authority with at least some degree of power over national authorities

International Trade Organization (ITO)a forward-looking agreement on the approach to international trade and investment embodied in the 1948 Havana Charter; due to disagreements among sponsoring nations, its provisions were never ratified

intra-industry tradethe simultaneous export and import of the same good by a country. It is of interest due to the traditional theory that a country will either export or import a good, but not do both at the same time

knowledge transferthe movement, communication, implementation of insights and information across international borders between individuals, organizations, or corporate units

language's distinct roles in international businessaids in information gathering and evaluation, provides access to local society, it encourages company communications with both corporate and channel members, and it works passed simple mechanics to interpret contexts of business operations

Launch of Euro effects1. countries within Euro had quick transactions2. currency risks and costs related to exchange

rate uncertainty were reduced3. all consumers and businesses (inside and out) enjoy price transparency and increased price-based competition

Leontief Paradoxthe general belief that the US, as a capital-abundant country, should be exporting capital-intensive products whereas its exports are labor intensive

local contentregulations to gain control over foreign investment by ensuring that a large share of the product is locally produced or a larger share of the profit is retained in the country

low-context culturescultures in which most information is conveyed explicitly rather than through behavioral and environmental nuances

making culture work for business successembrace local culture, build relationships, employ locals in order to gain cultural knowledge, help employees understand you, adapting products and processes to local markets, coordinate by region

marketing infrastructurefacilitating marketing agencies in a country; for example, market research firms, channel members

mixed aid creditscredits at rates composed partially of commercial interest rates and partially of highly subsidized developmental aid interest rates

Most-Favored Nation (MFN)a term describing a GATT clause that calls for member countries to grand other member countries the same most favorable treatment they accord any country concerning imports and exports. In the U.S. now called Normal Trade Relations (NTR)

National sovereigntythe supreme right of nations to determine national policies; freedom from external control

Negative impacts on foreign direct investment on host countriesindustrial dominance, technological dependence, disturbance of economic plans, cultural change, interference by home government of multinational corporation

nonfinancial incentivesnonmonetary offers intended to motivate; special offers designed to attract foreign direct investors that may take the form of guaranteed government purchases, special protection from competition, or improved infrastructure facilities

nontariff barriersbarriers to trade, other than tariffs. I.e. buy-domestic campaigns, preferential treatment for domestic bidders, and restrictions on market entry of foreign products such as involved inspection procedures

official reserves accountan account in the BOP statement that shows the change in the amount of funds immediately available to a country for making international payments and the borrowing and lending that has taken place between the monetary authorities either directly or through the IMF

operating riskthe danger of interference by governments or other groups in one's corporate operating abroad

ownership riskthe risk inherent in maintaining ownership of property abroad. The exposure of foreign owned assets to governmental intervention

Patent Cooperation Treaty (PCT)

an agreement that outlines procedures for filing one international patent application rather than individual national applications

political riskrisk of loss by an international corporation of assets, earning power or managerial control as a result of political actions by the host country

Positive impacts on foreign direct investment on host countriescapital formation, technology and management skills transfer, regional and sectoral development, internal competition and entrepreneurship, favorable effect on balance of payments, and increased employment

price controlsregulation of the prices of goods and services

product cycle theorya theory that views products as passing through four stages: introduction, growth, maturity, decline; during which the location of production moves from industrialized to lower-cost developing nations

production possibilities frontiera theoretical method of representing the total productive capabilities of a nation used in the formulation of classical and modern trade theory

propensity to change model1. cultural lifestyle of individuals in terms of how deeply held their traditional beliefs/attitudes are, 2. change agents (such as multinational corporations and their practices) and strategic opinion leaders; 3. communication about the innovation from commercial sources,

protectionist legislationa trade policy that restricts trade between (to or from) one country and another

punitive tariffa tax on an imported good or service intended to punish a trading partner (usually unsuccessful in initial goal--tariff limits imports of American produced goods or sub-goods)

quality of lifethe standard of living combined with environmental factors, it determines the level of well-being of individuals

retaliationthe trade or investment policy response to one nation's or group of nations' trade actions or restrictions, undertaken by another nation or group of nations in order to demonstrate displeasure or to seek retribution and change for this action

sanctiona governmental action, usually consisting of specific coercive trade measure, that distorts the free flow of trade for an adversarial or political purpose rather than an economic one

scale economiesthe increasing efficiency gains from greater size or scale, often described as lower cost per unit of output

self-reference criterionthe unconscious reference to one's own cultural values

Smoot-Hawley Act1930 Act that raised import duties to the highest rates ever imposed by the United States; designed to promote domestic production, it resulted in the downfall of the world trading system

social infrastructurehousing, health, educational and other social systems in a coungry

social stratification

the division of a particular population into class

Sovereign Wealth Fundinvestment vehicle containing only government financial assets, which are invested globally

standard of livingthe level of material affluence of a group or nation, measured as a composite of quantities and qualities of goods

Three main elements to measuring international economic activityidentify what is and is not an international economic transaction, understand how the flow of goods, services, assets, and money creates debits and credits to the overall BOP, and understand the bookkeeping procedures for BOP accounting (double-entry)

trade promotion authoritythe right of the US president to negotiate trade treaties and agreements with the US Congress' authority to accept, or reject, but not amend

transfer riskthe danger of having one's ability to transfer profits or products in and out of a country inhibited by governmental rules and regulations

voluntary restraint agreementstrade-restraint agreements resulting in self-imposed restrictions not covered by WTO rules; used to manage or distort trade flows. For example. Japanese restraints on the export of cars into the US, often the direct result of trade measure threats

Webb-Pomerene Acta 1918 statute that excludes from antitrust prosecution US firms cooperating to develop foreign markets

World BankAn international financial institution created in 1944 to facilitate trade

World Trade Organization (WTO)the institution that supplanted GATT in 1995 to administer international trade and investment accords

Government policies are designed...to regulate, stimulate, direct and protect national activitiesthe exercise of these policies is the result of national sovereigntyNational sovereigntythe supreme right of nations to determine national policiesfreedom from external controlStandard of Livingthe level of material affluence of a group or nation, measured as composite of quantities and qualities of goodsQuality of Lifethe standard of living combined with environmental factors, it determines the level of well-being of individuals2 factors that can influence trade and investment indirectlystandard of livingquality of life2 factors that can influence trade and investment directlytech transferexclusion of foreign industriesForeign policythe area of policy concerned with relationships with other countiresITOinternational trade organizationforward looking agreement on the approach to IT&I embodied in 1948.disagreement on sponsoring nations meant it was never implementedGATTGeneral Agreement on Tariffs and Tradean international code of tariffs and trade rules signed by 23 nations in 1947. HQ in Switzerlandnow apart of WTO - 148 membersMost Favored Nations (MFN)a term describing a GATT clause that calls for member countries the same most favorable treatment they accord any country concerning imports and exports.equal rather than special treatmentWTOworld trade organizationthe institution that supplanted GATT in 1995 to administer international trade and investment accords

Doha Roundcurrently ongoing IT&I liberalization negotiation within WTO initiated in 2001 in Doha.Aim to liberalize impoverished and developing nationsChanges in the Global Policy Environment (3)1) a reduction of domestic policy influence2) A weakening of traditional international institutions3) Sharpening of the conflict between industrialized and developing nations.These 3 changes have had a major effect on policy responses in the IT&I fieldLimits of Domestic Policy Influences Domestic policy measures are often vetoed or counteracted by the activities of global market forcescurrency flowsthe movement of currency from nations to nation which in turn determines exchange ratesPunitive Tariffa tax on an imported good or service intended to punish a trading partner What did Gatt focus on?Reducing TariffsWhat does WTC focus on?nontariff barriersshouldn't focus on social issuesfuture of overall multilateral trading systemsInternational Monetary FundIMF1944, UN, an international financial institution for dealing with balance of payment problems;the first international monetary authority with at least some degree of power over national authoritiesoften its lending policies are too austere and inflexibleWorld Bankan international financial institution created in 1944 to facilitate trade Conflict between developed and developing countries in 1960's and 70 it was hoped that the gap would be closed. tech flow and loans issued. only caused more issues.environmental awareness is another example of separationTariffstaxes imposed on imported goods and services instituted by gov'ts as means to raise revenue and as barriers to tradeBound Tariffduties agreed upon in international negotiations  often higher than those duties actually changed. Applied Tariffduty level actually charged at border crossingQuotasrestrictions on the number of foreign products that can be imported

Non-Tariff Barriers consists of a variety of measures such as testing, certification or simply bureaucratic hurdles that have the effect of restricting imports Voluntary Restraint Agreements designed to help domestic industries re-organize restructure and recapture production prominence.. Not covered by WTO rules and are often threatsex) Japan restraints on the export of cars to the USAntidumpinglaws that many countries use to impose tariffs on foreign imports. They are designed to help domestic industries that are injured by competition from abroad due to imports being sold at competitively low prices Effects of Import Restriction most of the time controls exact a huge price from domestic consumers results either in 2nd best products or higher cost for restricted suppliesdownstream change in composition of imports may resultlagging efficiency of tech. advancementsgov'ts may retaliate

Administrative Shelterprotecting firms through laws and regulations

Corps posed with barriers mayshift activities and create foreign direct investment Restrictions of Exports used by some countries to help provide local consumer with access to agricultural products and commodities at lower pricescan cause serious opposition from farmers and owners of commoditiesExport Promotiondesigned to help domestic firms enter and maintain their position in international marketsgov'ts either offer export services programs or market development programsdirect of indirect subsidization of export activitiesreducing gov'ts red tap for exportersmixed aid creditsService programstypically consist of seminars for potential exporters, export counseling, and how to export handbooks Market Development programsprovide sales leads to local firms and offer participation in foreign trade shows, preparation of market analysis and export newspaper. Mixed Aid Creditscredits at rates composed partially of commercial interest rates and partially of highly subsidized developmental aid interest rates Potential exports need ______ or _____ to engage in exporting. 

reduction in riskor an increase in rewardsImport Promotionmeasures are implemented primarily by nations that have accumulated and maintained large balance-of-trade surpluses. They hope to ally other nations fears of continued imbalances and to gradually redirect trade flows CFIUScommittee on foreign investments in the USa federal committee, chaired by the US treasury, with the responsibility to review major foreign investments to determine whether national security or related concerns are at stakeHost-Country perspective on FDI(positive)capital formationtech and management skills transferregional and sectorial developmentinternational competition and entrepreneurshipfavorable effect on balance of paymentsincreased employmentHost-Country perspective on FDI(negative)industrial dominancetech dependencedisturbance of economic planscultural changeinterference by home gov't of multinational corpsHome- Country Perspectiveshare most of the host-country impactsmany countries see it as a means to stimulate economic growtha major issue center on employmentknowledge advantage (gaining)Restrictions on Investmentmany nations also restrict exports of capital, because capital flight is a major problemCapital Flightthe rapid flow of private funds abroad because investors believe that the return on investments or the safety of capital is not sufficiently ensured in their own countries.holders of capital want to invest aboard depriving their domestic economy of much-needed investment fundsInvestment Promotion (to attract FDI)these policies can be the result of the needs of poorer countries to attract additional foreign capital to fuel economic growth without taking out more loans that call for fixed schedules of repaymentindustrial nations participate since gov't are under pressure to provide for jobs.Fiscal Incentives 

incentives used to attract FDI that provides specific tax measures to attract the investor Financial Incentivesmonetary offers intended to motivate; special funding designed to attract FDIors that may take the form of land or buildings, loans, or loan guaranteesNon-financial Incentivesnon-monetary offers intended to motivate; special offers designed to attract foreign direct investors that may take the form of guaranteed government purchases, special protection from competition, or improved infrastructure facilities 2 approaches of management of the policy relationship1) attempt to gain support from local market entities if discriminating actions by the gov't take place2) make operations of the affiliate impossible without the contribution of the parentManagement of the Policy Relationships Host-Countriestry to enhance their role by instituting control policies and performance requirementsgov'ts attempt to prevent the integration of activities among affiliates and control by the parentResult of Host-Country interference of Management of the Policy Relationshipsthey exclude or limit foreign participation in certain sectors of the economy and require local participation in the ownership and management of the entities established IPRintellectual property rightslegal rights resulting from industrial, scientific, literary or artistic activity. Can have an important influence on foreign investment decisionsex) Pharmaceutical companies and chinaProtectionist Legislationa trade policy that restricts trade between (to or from) one country and another Trade Promotion Authoritythe rights of the US president to negotiate trade treaties and agreements with the US congress' authority to accept or reject, but not amendBilateral Negotiationsnegotiations carried out between two nations focusing only on their interest Multilateral Negotiations Trade negotiations among more than two parties; the intricate relationship among trading countries