1 introduction administration 1. confirm group assignments 2. multiple choice questions: 3
TRANSCRIPT
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Introduction Administration
1. Confirm Group Assignments http://courses.fas.harvard.edu/sum/32268
2. Multiple Choice Questions: www.mhhe.com/hill3. Report Proposals due June 30th unique country, unique product,
clear “pitch” & expertise (i.e. each team member) Assignment #1: “Culture” Comments Chapter 4: Ethics in International Business Case Study: Nike: The Sweatshop Debate Chapters 5 & 6: International Trade Theory & The
Political Economy of International Trade WTO “Music in Bars” & “Broom Corn Brooms” (time
permitting)
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Interesting Comments Sweden is very accepting of refugees In Mexico relationships are very important. Trinidad & Tobago has a lot of oil and natural gas. Venezuela is a mix of many cultures. Jante Law in Norway (10 Rules) Summarized Don't think
you're anyone special or that you're better than us. France has been more accepting of other cultures. FDI in Pakistan is more complicated. Germany East vs. West
http://www.todaytranslations.com/international-business
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Cultural Lens As you do business internationally, think about
the cultural lens your customers, employees, suppliers, & politicians see your company through…
Image source: http://www.visionaryblogging.com/wp-content/uploads/magnifying-glass-eye.jpg
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“Nail House”
http://www.metro.co.uk/news/40673-home-becomes-an-island-in-building-rowhttp://environmentdebate.wordpress.com/2007/03/08/one-chinese-mans-battle-to-save-his-environment/
Update: torn down April 2007, they accepted an apartment in the Shapingba district of downtown Chongqing, similar in size to their old one
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Property Law (October 1, 2007)
"The new Property Law ... really encouraged us to fight for what we deserved," he told Asia Times Online. "It really encouraged us to fight for what we deserved. We felt more confident than before after the Property Law was passed in March. The new law says that private property has the same rights as public property. What they were trying to do was to tear down our apartments forcefully and it was against the law and wasn't for any public benefit. It was totally for commercial activity." – Zhang Lian Hao & Cai Zhu Xiang (Shenzhen Nail House Owners)
Yang, who now runs a metal trading company, showed law books he has been reading, including copies of China's constitution, and the new Property Law.
"I was 'forced' to read the Property Law," Yang told Asia Times Online. "I had no choice, I have to protect my property. It says clearly in the law that our property should be protected and we have the rights to decide what we want to do with it as long as it is according to the law. If this law had not been issued after the 13 years of discussion, then democracy and a just legal system were not going to become true in China. The Property Law is very helpful to ordinary people.“- Yang Bing Hui (Shenzhen Nail House Owner)
http://www.atimes.com/atimes/China_Business/IK02Cb01.html
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Avatar
http://news.xinhuanet.com/english/2010-01/13/content_12804107.htm
BEIJING, Jan. 13 (Xinhua) -- While most of the global audience are enjoying the dazzling 3-D experience of the Hollywood blockbuster "Avatar," some Chinese see it from a very different angle: a successful battle against forced eviction.
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Wendy Jeffus
Harvard Summer School
Chapter 4: Ethics in International Business
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What are “business ethics”? The accepted principles of right or wrong
governing the conduct of business people.
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Ethics in the Classroom
http://www.morris.umn.edu/academic/philosophy/Photos/ethics.jpg
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What would you do? Imagine that you are asked to pay a small amount of
money to get your company’s product into a foreign country…
What if the bribe expedites the delivery of a life saving machine?
– What if that machine is for your mother? Would you sell patent-infringed drugs to less
developed countries? Or allow a 12 year old to work in a factory? Would you buy pirated CDs? Or buy a fake Louie Vuitton product?
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The Bottom Line Ethics is not an easy subject to discuss, but it is
an IMPORTANT subject to discuss!
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The Big Picture… Ethical situations often revolve around the
following issues:– Employment Conditions (Human Rights)– Pollution– Corruption
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Employment A question that international managers face is: What
standards should they apply?– Hours worked per day– Pay levels
Another question: What distance should the firm’s ethical policy reach?
– Home market vs. – Foreign subsidiary vs. – Subcontractor vs.– Supplier vs.– Your customers?
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Human Rights UN Universal Declaration of Human Rights Established in May 2006.
– 47 countries– Replaced the Commission on Human Rights
Stresses the importance of ending the double-standards of the earlier organization.
Some (of the many) Articles:– Everyone, without any discrimination, has the right to equal pay for equal work– Everyone who works has the right to earn an existence worthy of human dignity,
and supplemented, if necessary, by other means of social protection– Everyone has the right to form and to join trade unions.
http://www.ohchr.org/english/bodies/hrcouncil/
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The Environment “The environment is a public good that no one owns...
but almost anyone can harm.”
The Tragedy of the Commons – 16th century England, “the Commons” were used as a pasture…
the poor allowed their livestock to feed on the grass to supplement their income, but over-grazing lead to the loss of the ability to sustain the livestock.
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Corruption Corruption (typically relates to bribes paid or
demanded). CPI – Corruption Perceptions Index.
– Transparency International estimates that $400B is spent on bribes for government contracts each year.*
Foreign Corrupt Practices Act (1977)– Outlawed paying bribes to get business… but does
not include “facilitating payments”
www.transparency.org, *Figure is worldwide, noted from Hill, Chapter 2, p. 51.
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Unrealistic Goals The book relates corruption and ethics to
unrealistic goals on the part of management.
I think that’s a weak excuse….
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My Advice… MANY jobs have “unrealistic goals”
In addition, some employees take enormous risks (it isn’t good for you OR for the company)!
Pass it up.– Only the CEO of the company should make decisions regarding
these “gray areas”
Start to apply for another job!
Think of Creative Solutions!– Example: Adoption in Ukraine
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Moral Obligations Moral obligation is related to power and social
responsibility. (Companies should favor decisions that have good economic and social consequences).
“Power is morally neutral. It is how power is used that matters.”
BP has a 33.15% working interest in Salah Gas – Algeria.
– Built two desalination plants to provide drinking water for the local community and distributed containers so they could take the water from the plant to their home.
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Moral Obligation Why I COMPLETELY DISAGREE with one
sentence in your book…
“There was no economic reason for BP to make this social investment, but the company believes it is morally obligated to use its power in constructive ways.”
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Moral Obligation IT MAKES ECONOMIC SENSE!
http://www.bp.com/sectiongenericarticle.do?categoryId=426&contentId=2000566
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Ethical Decisions Make Economic Sense! A relatively new (and exciting) concept is that
strategy, marketing & ethics can be communicated to shareholders in financial terms!
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Ethical Business is GOOD Business! Reduces legal expenses Increases employee pride and productivity Reduces costs associated with strikes and
boycotts Improves relationships
– With suppliers, governments, regulatory bodies, activist groups, etc.
Reduces “rework” costs Consumers want to buy products from ethical
companies!
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Ethical Dilemmas What is an ethical dilemma?
A situation in which none of the available alternatives seems ethically acceptable.
Example: Classic “Trolley Problem”– You’re in the control booth and see two trains coming towards
each other. Tragedy is unavoidable. 1) If you (do nothing) don’t switch: 5 of your workers die 2) If you (act) switch: 1 worker dies. Dilemma: Do you flip the switch or not?
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A Big Issue. Many of the ethical issues and dilemmas in
international business are due to the fact that political systems, law, economic development, and culture vary significantly from nation to nation.
“When in Rome” is not a good long term strategy!
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The Role of “the Law”… “The law” plays a big role in determining what is
acceptable…
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Some examples… Zheng Xiaoyu, 62 Court found that 8 Pharmaceutical companies had paid
Zheng over $832,000 between 1998 to 2005. China's former food and drug safety chief was given a
death sentence for taking bribes and approving unsafe medicines.
Hainan Kongliyuan Group– The company acquired 277 approvals of medicines from the
SFDA.
http://www.usatoday.com/news/world/2007-05-29-china_N.htmhttp://english.people.com.cn/200704/08/eng20070408_364736.htmlhttp://news.xinhuanet.com/english/2007-07/10/content_6353536.htm
He was executed on July 10, 2007 for corruption.
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Some examples… Ken Rice Court found him guilty of securities fraud in the Enron's
2001 collapse. Former CEO of Enron's broadband division was
sentenced to 27 months in prison on June 18, 2007. Rice becomes the ninth ex-Enron executive to receive a
jail term after pleading guilty to crimes
http://money.cnn.com/2007/06/18/news/newsmakers/enron.reut/index.htmhttp://www.msnbc.msn.com/id/19293341/http://money.cnn.com/2006/02/14/news/companies/enron/index.htmhttp://www.usatoday.com/money/industries/energy/2006-02-12-ken-rice-usat_x.htm
Rice pleaded guilty and agreed to cooperate with prosecutors in hope of securing a lighter prison sentence. Rice has pleaded guilty to a single count of securities fraud, agreeing to pay nearly $15 million, and faces up to 10 years in prison.Enron's 2001 bankruptcy was the largest in history at the time and was the first of a wave of business scandals that shook corporate America and led to the passage of tough new disclosure laws.Enron was once the nation's seventh-largest company.
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150 Years in Prison 71 year old Bernard Madoff sentenced.
http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=aCaVUDaGGcAY
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CEOs & Politicians behind bars… Former WorldCom Inc. Chief Executive Officer Bernard
Ebbers, 67, is housed at the Federal Correctional Institution in Oakdale, Louisiana. John Rigas, 84, the ex-CEO of Adelphia Communications Corp., is imprisoned at the Federal Correctional Institution in Butner, North Carolina.
July 2001, Brian Herron (Minneapolis) admitted to accepting a $10,000 bribe, spent 1 year in prison. The former president of the New Orleans City Council is serving a 3-year federal prison sentence for taking $15,000 in bribes.
http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=aCaVUDaGGcAYhttp://en.wikipedia.org/wiki/Minneapolis_City_Councilhttp://www.chicagotribune.com/news/chi-corruption-louisiana_wittmar27,0,2957672.story
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The Cockroach Theory For every one you see, hundreds more are
hiding in the woodwork…
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Beyond “the Law” While the law functions as a way to determine
what is wrong…
The foundation for ethical behavior must be set within an organization.
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The Roots of Un/Ethical Behavior
Process based on cost, delivery, and product quality (should also considerhidden risks: environment, human rights, corruption)
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New Area of Ethics: NeuroEthics “Will airport security staff ask travelers if they are
terrorists while scanning their brains? If so, the science had better be awfully good.”*
– Steven Laken, CEO of No Lie MRI in Framingham, MA is working to commercialize the polygraph test.
* Source Wired Magazine, “Mind Readers” June 2008, pp. 120-128
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Managerial Implications What can an international business can do to make
sure ethical issues are considered? 1. Hire and promote people with a well-grounded
sense of personal ethics2. Build an organizational culture that places a high
value on ethical behavior3. Make sure that leaders within the business not only
articulate the rhetoric of ethical behavior, but also act in a manner that is consistent with that rhetoric
4. Implement decision-making processes that require people to consider the ethical dimension of business decisions
5. Develop moral courage.
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Moral Courage Enables managers to walk away from a decision that
is profitable, but unethical Gives an employee the strength to say no to a
superior who instructs her to pursue actions that are unethical
Gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company
– Does not come easy and employees have lost their jobs when acting on this courage
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Whistleblowers Dr. Jeffrey S. Wigand - became known as a
whistleblower when on the CBS news program 60 Minutes he exposed his company's practice of 'impact boosting': intentionally manipulating the effect of nicotine in cigarettes.
Dr. Frederic Whitehurst - uncovered and reported scientific misconduct which forced the FBI crime lab to agree to forty major reforms
Paul van Buitenen - drew the attention of a Member of the European Parliament to the irregularities, fraud and mismanagement within the Commission in 1998
Sources: www.whistleblower.org, www.wikipedia.org, http://www.jeffreywigand.com/index.php; http://www.paulvanbuitenen.nl/?pag=145&siteid=145
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Recent Whistleblowers Allen Davis, a former quality assurance manager at the
company's navigation systems division in Salt Lake City, alleged that Northrop failed to ensure that the electronic parts would function in the extreme temperatures required for military and space uses. Case settled June 24, 2010 for $12.5M.
June 26, 2010 Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs. The whistle-blowers are entitled to receive 15 to 25 percent of any settlement.
http://articles.latimes.com/2010/jun/24/business/la-fi-northrop-20100624http://www.tampabay.com/news/health/wellcare-health-plans-strikes-1375-million-settlement-challenged-by-new/1104947
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Code of Ethics Companies can strengthen the moral courage of
employees by committing themselves to not retaliate against employees who exercise moral courage, say no to superiors, or otherwise complain about unethical actions.
For example, consider the following extract from Unilever’s code of ethics:
– “Any breaches of the Code must be reported in accordance with the procedures specified by the Joint Secretaries. The Board of Unilever will not criticize management for any loss of business resulting from adherence to these principles and other mandatory policies and instructions. The Board of Unilever expects employees to bring to their attention, or to that of senior management, any breach or suspected breach of these principles. Provision has been made for employees to be able to report in confidence and no employee will suffer as a consequence of doing so.”
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Take a Break… Nike teams if you haven’t done so, load your
presentations on the desktop, grab a drink, meet your classmates…
see you in 10 min.
Image source: http://www.graduatejunction.net/images/take_a_break.jpg
Please turn in your Cultural Quizafter the break
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Case Presentation Nike: The Sweatshop Debate
Present a 5-10min (timed) assessment of the case (answer case questions)
All group members must participate.
http://www.youtube.com/watch?v=pgl7vDZ-jF8
Source: http://www.globalexchange.org/campaigns/sweatshops/nike/
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Wendy Jeffus
Harvard Summer School
Chapter 5: International Trade Theory
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Overview of Trade Theory Free trade occurs when a government does not attempt to
influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country.
– Example the U.S. has several types of quotas from absolute to tariff-Rate quotes.*
Examples: Anchovies; Brooms; Ethyl alcohol; Milk and cream; Olives; Tuna; Upland cotton; etc.
The benefits of trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country.
*See US Customs and Border Protection website: http://www.cbp.gov/ImageCache/cgov/content/publications/quotas_2edoc/v1/quotas.doc
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Mercantilism Mid 16th century – First theory of trade
– Goal: balance-of-trade surplus (i.e. maximize exports minimize imports)
– Believed in a zero-sum game – A nation’s wealth depends on accumulated treasure
Gold and silver were the currency of trade
In 1776 Adam Smith attacked Mercantilism with his book Wealth of Nations.
Photo source: wikkipedia.org
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Theory of Absolute Advantage Proposed in 1776 by Adam Smith (Wealth of Nations):
– Suggests countries differ in abilities, therefore specialization leads to more for everyone
A country should produce only goods where it is most efficient, and trade for goods where it is not efficient
Trade between countries is, therefore, beneficial – Key assumption: there is an absolute balance among
nations
See example on next slide
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Example: Absolute AdvantageSri Lanka (100 units of Labor)Requires 10 units of labor per ton
of wheat & 4 units of labor per ton of tea
Max Output is 10-wheat or 25-tea**************************************At 50% Allocation:Sri Lanka: 5-wheat and 12.5-tea
With specialization:Sri Lanka: 25-tea
USA (100 units of Labor)Requires 5 units of labor per ton of
wheat & 20 units of labor per ton of tea
Max Output is 20-wheat or 5-tea****************************************At 50% Allocation:USA: 10-wheat and 2.5-tea
With specialization:USA: 20 wheat
Total World Output (before specialization): Total World Output (before specialization): 15-wheat15-wheat and and 15-tea15-tea
Total Output (after trade): Total Output (after trade): 20-wheat20-wheat and and 25-tea25-tea
Source: Dr. Chugh’s class notes
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Theory of Comparative Advantage 19th century – David Ricardo (Principles of Political Economy, 1817) Unrestricted free trade brings increased world production Free trade stimulates economic growth creating dynamic
gains for both countries– Efficiency of resource utilization leads to more productivity. Makes
better use of resources.– A country should import even if it is more efficient in producing a
product. Look to see how much more efficient. Only trade if comparatively more efficient.
Makes better use of resources Trade is a positive-sum game
See example on next slide
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Example: Comparative AdvantageSri Lanka (100 units of Labor)If 10 units of labor per ton of wheatAnd 10 units of labor per ton of tea Max is 10-wheat or 10-tea***************************************At 50% Allocation:Sri Lanka: 5-wheat and 5-tea
With specialization:Sri Lanka: 0-wheat and 10-tea
USA (100 units of Labor)If 4 units of labor per ton of wheatAnd 5 units of labor per ton of tea Max is 25-wheat or 20-tea****************************************At 50% Allocation:USA: 12.5-wheat and 10-tea
With specialization:USA: 18.75-wheat and 5-tea or 17.5-wheat and 6-tea
Total output (before trade): Total output (before trade): 17.5-wheat17.5-wheat and and 15-tea15-tea
Total output: Total output: 18.75-wheat18.75-wheat and and 15-tea 15-tea OROR 17.5-wheat 17.5-wheat andand 16-tea 16-tea
Source: Dr. Chugh’s class notes
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Extensions of the Ricardian Model Immobile resources:
– Resources do not always move easily from one economic activity to another. For example can we easily shift from producing tea to wheat?
Will a textile worker from South Carolina be happy (or able) to start writing software for Microsoft?
Diminishing returns:– Diminishing returns to specialization suggests that after some point, the
more units of a good the country produces, the greater the additional resources required to produce an additional item.
For example, some land is better suited for wheat, as specialization requires additional resource allocation, the return per resource unit might be lower.
In addition, not all goods use the same amount of resources (i.e. coca might use more land and less labor than another traded good, like rice).
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Heckscher-Olin Theory 20th century Comparative advantage arises from differences in
national “factors endowments”– i.e. land, labor, & capital
Note: Factor endowments can be impacted by government policy – (i.e. minimum wage)
Export abundant resources and import scarce resources Export goods that intensively use factor endowments
which are locally abundant Patterns of trade are determined by differences in factor
endowments - not productivity Remember, focus on relative advantage, not absolute
advantageInterested students might want to view Dr. Mankiw’s Blog:http://gregmankiw.blogspot.com/2007/04/ricardo-vs-heckscher-ohlin.html
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Trade Ruler Game http://nobelprize.org/educational_games/
economics/trade/index.html
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Product Life-Cycle Theory 1966 – Raymond Vernon Attempt to explain trade patterns. Stage 1: Introduction
– New products are introduced to meet local (i.e., national) needs, and new products are first exported to countries with similar needs, preferences, and incomes.
Stage 2: Growth – A copy product is produced elsewhere and introduced in the home country to
capture growth in market. This moves production to other countries, usually on the basis of cost of production.
Stage 3: Maturity – The industry contracts and concentrates -- the lowest cost producer wins in this
stage. Stage 4: Decline
– Poorer countries constitute the only markets for the product. Therefore many declining products are produced in less developed countries.
Examples: Medical Equipment, Sony’s Electronic Book
Photo: http://www.primedic-ltd.com/home.html
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New Trade Theory 1970’s – Attempted to solve the difference
between predictions and real-world trade flows.– Economies of scale (the price per unit declines)
Microsoft spread the fixed cost of developing software (~$1B for a new version of Windows) over 100 M users.
– First mover advantages (sometimes only a handful of companies are required to meet world demand so the first-movers win)
Microsoft, Airbus/Boeing Implications of New Trade Theory:
– Role of the government Strategic trade policy (i.e. government subsidies, infant
industry arguments)
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National Competitive Advantage 1990 – Michael Porter, HBS: The theory attempts to analyze the
reasons for a nation’s success in a particular industry Factor Endowments
– Basic Factors – Natural resources, climate, location, demographics– Advanced Factors – Communication infrastructure, skilled labor, research
facilities, technological know-how Demand Conditions
– Domestic demand Relating & Supporting Industries
– Absence/Presence of suppliers & related industries (Clusters) Firm Strategy, Structure, & Rivalry
– Domestic rivalry & government policies on creating, organizing, and managing companies
Porter recognizes two additional variables: Chance and Government
Source: http://www.hno.harvard.edu/gazette/2000/12.07/01-michaelporter.html
In Germany & Japan engineers in top management positions drive quality & innovationWhat do finance exec’s drivein the U.S.?
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Capitalism You have two cows…
… And you sell one to buy a bull.
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The Mockery of Capitalism You have two cows…
… And you go public telling shareholders you have three cows, using letters of credit….
… You then execute a debt / equity swap with associated general offer so that you get all four cows back, with a tax deduction for keeping five cows…
…The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows' milk back to the listed company.
…Your annual report says that the company owns eight cows, with an option on one more.
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The Mockery of Capitalism
…And meanwhile your original two cows have died, because you couldn’t afford to feed them.
Anonymous first source, although several websites have versions of this including:http://sharpgary.org/Cows.html
58Source Google images search term: “jail”
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Factor Conditions
Related and Supporting Industries
Firm Strategy, Structure, and Rivalry
Demand Conditions
Factor Conditions
Related and Supporting Industries
Firm Strategy, Structure, and Rivalry
Demand Conditions
National Competitive Advantage
Japan•Consumer Electronics
Germany’s large pool of engineers
U.S. Biotech
India’s Movie Industry
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Porter’s Diamond
http://www.teagasc.ie/research/reports/foodprocessing/4984/eopr-4984.htm
Example: Irish Food Processing Industry
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Implications for Business
Location implications:– Disperse production activities to countries where they can be performed most efficiently
First-mover implications:– Invest substantial financial resources in building a first-mover, or early-mover advantage
Policy implications: – Promoting free trade is in the best interests of the home country, not always in the best
interests of the firm, even though many firms promote open markets
Porter’s theory should predict the pattern of international trade that we observe in the real world. Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable
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Final Project Find out from www.cia.gov what the major
exports and trading partners are for your country.
Determine what your nation’s competitive advantages may include.
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Wendy Jeffus
Harvard Summer School
Chapter 6: The Political Economy of International Trade
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Barriers to Trade Both tariff and non-tariff trade barriers can limit
trade. A tariff is a lax levied on imports (or exports).
– Specific tariffs are levied as fixed charge for each unit imported. Example $3 per barrel of oil.
– Ad valorem tariffs are levied as a proportion of the value of the imported good. Example 8% on steel.
Non-tariff barriers to trade include: quotas, licensing requirements, documentation requirements, administrative fees, requirements on packaging, etc.
http://en.wikipedia.org/wiki/Non-tariff_barriers_to_trade
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Since the 2008 Crisis Ecuador has raised duties on 600 products Russia has increased import tariffs on used cars India has placed import tariffs on steel imports In addition, according to the World Bank 2/3
rds of the protectionist measures have been in the form of nontariff barriers (designed to get around WTO rules)
– Indonesia specified certain goods (clothes, shoes, and toys) can only be imported through 5 ports.
– Argentina imposed a license requirement on car parts, textiles and televisions.
– China has stopped food and drink products from Europe (citing safety standards)
– India has banned imports of toys from China for safety reasons. Developed nations have increased subsidies (the U.S., Britain,
Canada, Fran, Germany, Italy and Sweden gave over $45B in subsidies to car companies)
From International Business 8th Ed. Introduction to Chapter 6http://difference-between.com/business/duty-and-tariff/
66Source: Anti-WTO website (http://www.thirdworldtraveler.com/WTO_MAI/WTO.html)
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Historical Perspective After WWII countries of the industrialized world, convinced that the
horrors of war were due in part to the isolationist economies of the 1930s, launched a series of institutions designed to prevent such policies from ever again holding sway over the world’s economies.
– The General Agreement on Tariffs and Trade (GATT) was at the center of this institutional framework.
GATT was a broad and overarching organization with the explicit mandate to reduce tariff barriers and thus expand global flows of trade.
– The World Trade Organization (WTO) was created by the Uruguay Round negotiations (1986-94).
Responsibilities: Arbitrating trade disputes & monitoring trade policies of member countries.
If offenders fail to comply with the arbitration panel’s recommendations, they may face penalty fees or trade sanctions.
– Sister organizations were the International Monetary Fund (IMF) and the World Bank. (Chapter 10)
IMF – sought to provide a stable structure for international monetary cooperation.
World Bank – charged with providing funds for war-ravaged economies to rebuild themselves.
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WTO (Main Features) The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade between nations.
Functions– Administers WTO trade agreements– Forum for trade negotiations (Handles trade disputes)– Monitors national trade policies– Provides technical assistance and training for developing
countries– Cooperates with other international organizations
Recent News:Russia’s possibly entry into the WTOhttp://www.npr.org/templates/story/story.php?storyId=128160125The WTO has ruled on subsidiaries to Airbushttp://www.google.com/hostednews/ap/article/ALeqM5goQ43HwAawkJhX892UjzQUeWZPogD9GKF4EG0
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Arguments For and Against WTOPros The system helps promote peace Disputes are handled
constructively– Rules make life easier for
everyone Freer trade provides more choice
of products and qualities– Trade raises incomes and
stimulates economic growth Governments are shielded from
lobbying– The system encourages good
government
Cons Companies are free to move
companies where environmental regulations are lax.
– Production is shifted to countries where worker’s rights are routinely violated.
The system is anti-democratic, by taking power away from elected governments.
What’s so great about having “more”?
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Seattle Riots: Nov. 29 1999
Susan Oseth was one of 240 members of the Sea Turtles taking part in a march from First Methodist Church to the vicinity of the Convention Center.
Source: Seattle Post “WTO Photo Gallery” http://seattlepi.nwsource.com/wtogalleries/
Seattle Police officers on horseback move back protestors outside the Convention Center.
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Seattle Riots: Nov. 30 1999
A delegate is attacked by protesters as they try to prevent the man's access to the organization's inaugural session.
Source: Seattle Post “WTO Photo Gallery” http://seattlepi.nwsource.com/wtogalleries/
A Seattle police officer aims a rubber-pellet weapon at a group of anti-WTO demonstrators.
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Seattle Riots: Dec. 7 1999
Demonstrators pack Pike Street downtown. (11/30)
Source: Seattle Post “WTO Photo Gallery” http://seattlepi.nwsource.com/wtogalleries/
Protesters waving an upside-down American flag position themselves in front of a police line
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Doha Round The Doha round began with a ministerial-level meeting in
Doha, Qatar in 2001, with subsequent ministerials in Cancún, Mexico (2003), and Hong Kong, China (2005).
– The 2003 Cancún talks — intended to forge concrete agreement on the Doha round objectives — collapsed after four days during which the members could not agree on farm subsidies and access to markets.
South Korean Farmers and Fisheries President Lee Kyung Hai committed suicide on the first day of the conference in protest of the price distorting agricultural subsidies of the EU and US.
Recent News:– 28 June 2010: Final comments of this week’s G8 meeting dropped
a promise to finish the so-called Doha round of global trade talks this year, and for the first time backed bilateral trade and regional pacts
http://www.ft.com/cms/s/0/ac210050-8251-11df-9467-00144feabdc0.html
http://www.wto.org/english/tratop_e/dda_e/dda_e.htm
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Hong Kong Protests: Dec. 13, 2005
– As many as 2000 protesters demonstrated outside the Hong Kong Convention and Exhibition Centre, the location of the talks. Clashes with the police left at least 116 people injured, including 56 officers, although there were no critical injuries according to the authorities.
Photo source: www.all4all.org
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Recent G-20 Protestors Saturday, June 26th
http://www.ctv.ca/CTVNews/Canada/20100628/g20-notebook-ian-munroe-100628/
*The G20 was established in 1999, in the wake of the 1997 Asian Financial Crisis, to bring together major advanced and emerging economies to stabilize the global financial market. See: www.g20.org
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Examples of Disputes Agricultural products Alcoholic beverages Anti-dumping measures Apples Automobiles Bananas Beef Broom and corn brooms Ceramic floor tiles Cereals Cigarettes Coffee Computers Copyright
Gambling and betting Hormones, meat Minimum import prices Movie tax Music in bars Orange juice Patents Peaches Pet food Shrimp Sugar Tax treatment for exports Tax treatment on imports Water, bottled
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TimelineTimeline
60 days Consultations, mediation, etc45 days Panel set up and panellists appointed6 months Final panel report to parties3 weeks Final panel report to WTO members60 days Dispute Settlement Body adopts report (if no appeal)Total = 1 year (without appeal)60-90 days Appeals report30 days Dispute Settlement Body adopts appeals reportTotal = 1y 3m (with appeal)
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27 July 1999, the EC made a request to the Director-in-
Charge to determine the
composition of the Panel
15 June 2000 the report was
circulated
Example: Music in BarsExample: Music in Bars ComplainantComplainant: European Communities : European Communities RespondentRespondent: United States : United States Third PartiesThird Parties: Australia, Brazil, Canada, Japan, : Australia, Brazil, Canada, Japan,
SwitzerlandSwitzerland The problemThe problem: the US Copyright Act permits, under : the US Copyright Act permits, under
certain conditions, the playing of radio and television certain conditions, the playing of radio and television music in public places (bars, shops, restaurants, etc.) music in public places (bars, shops, restaurants, etc.) without the payment of a royalty fee. without the payment of a royalty fee.
26 January 1999, the
EC requested consultations with the
US
15 April 1999, the
EC requested
the establishm
ent of a panel
28 April 1999, the DSB deferred the
establishment of a panel
26 May 1999. Brazil,
Australia, Canada,
Japan and Switzerland
reserved their third-
party rights
a second request to establish a panel was made by the EC
6 August 1999, the Panel was
composed
DSB adopted the Panel Report at its meeting on 27 July
2000
17 months
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9 November 2001, the arbitrator
determined that the level of EC benefits which
were being impaired
amounted to Euro 1,219,900 per
year
24 August 2000 the U.S. informed the DSB that it
would implement the recommendati
ons over 15 months
15 January 2001 the Arbitrator determined that the reasonable
period of time for the US to implement the recommendations and rulings of the DSB in this case is 12
months from the date of the adoption of the panel report
23 October 2000, the EC requested that the reasonable period of
time for implementation be determined by means of binding
arbitration
24 July 2001, the DSB
agreed to the US proposal to extend the reasonable period of
time until 31 December
2001
23 July 2001, the US and the EC
notified the DSB of their agreement to pursue arbitration
in order to determine the level
of impairment of benefits to the EC as a result of the
Act
19 months
21 months24 months
30 months34 months
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26 February 2002, the parties
requested the arbitrator to suspend the arbitration proceeding
25 February 2002, the US submitted a status report
regarding implementation of the DSB recommendat
ions and rulings
18 January 2002, the parties
indicated, that they were engaged in
constructive negotiations and were hopeful of
finding a mutually satisfactory
solution 17 April 2002, the US
presented a status report indicating that it was
engaged in discussions with the EC to find a positive and mutually acceptable solution
to the dispute. The EC expressed its concern about
the US’ slow progress in implementation and
requested the US to provide more information in its next
status report
18 December 2001, the US indicated that it was engaged in productive discussions with the EC
with a view to resolving the
dispute before the end of the expiry of the reasonable
period of time
17 January 2002, the
US objected to the level of suspension
of obligations proposed by the EC
and requested the DSB to refer the matter to
arbitration
7 January 2002, on the grounds that that the US had failed to bring
its measures into conformity within the reasonable period of
time, the EC requested authorization to
suspend concessions
24 June 2002, the US presented a status
report on its progress in implementing the
DSB’s recommendations Australia also expressed its concern
about the delay and requested that any compensatory arrangement between the parties must be applied on a non-discriminatory basis
41 months
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11 November 2002, the US presented its status report
1 October 2002, the US presented its status report
24 June 2002 Australia
reiterated its concern about the delay by the US in implementing the recommendations
29 July 2002, the US reiterated its previous
statement - the EC acknowledged the
efforts being made by the US Administration, but expressed concern about the significant
delay.
23 June 2003, the US and the EC informed the DSB of a mutually satisfactory temporary
arrangement
28 November 2002 the US presented its status report
27 January 2003 the US presented its status report
The EC expressed disappointment with the lack of implementation by the US and urged the US to take rapid and concrete action to settle this dispute
53 months- about 4 ½ years later!
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Broom Corn Brooms
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A PROCLAMATION TO FACILITATE POSITIVE ADJUSTMENT TO
COMPETITION FROM IMPORTS OF BROOM CORN BROOMS- - - - - - -
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA, WILLIAM JEFFERSON CLINTON
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The Trade Act (19 U.S.C. 2253) Pursuant to ….the Trade Act (19 U.S.C. 2253), and after taking into
account the considerations specified in section(s)…, I have determined to implement ….[a] duty [i.e., a tariff] on imported brooms, except whisk brooms, made wholly or in part of broom corn...
Such increase in, or imposition of, duty on such goods shall be
effective for a three-year period, and shall apply to imports from all countries, except Canada and Israel and developing countries that account for less than three percent of the relevant imports over a recent representative period.
[The U.S. broom corn industry must make] efforts …. to make a positive adjustment to import competition… (during this protected period.)
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…At the same time…"Trade has divided Americans for too long,"
President Clinton declared in his January 19, 1999 State of the Union address.
"We must find the common ground on which business, workers, environmentalists, farmers, and government can stand together. We must tear down barriers, open markets, and expand trade."
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The Broom Corn Broom Industry The corn broom industry employed 382 people
in 1995; down from about 600 five years earlier.
However, some observers though this was due more to the American consumer’s switch in preferences to plastic brooms.
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The Trade Act (19 U.S.C. 2253)…The President’s proclamation states:
– [The] “Imports of such brooms produced in Mexico, considered individually, accounted for a substantial share of total imports of broom corn brooms and contributed importantly to the serious injury caused by imports…”,
– but he also noted that “…such brooms produced in Canada did not so account or contribute." …
Note… Broom corn brooms from Mexico were typically valued at less than a
dollar and had entered free of tariffs so long as Mexico shipped not more than 121,478 dozen—or 1,457,736 brooms.
– Valued at $0.96, the duty free imports could amount to about $1.4 million.
– Over time, Mexican imports had grown to about $7 million.
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NAFTA… The cause of the American corn broom makers is helped by
language in NAFTA specifying that tariffs can be restored if American broom makers suffer. This was engineered by Democratic Rep. Glenn Poshard of Illinois, home of Arcola, the self-styled "Broomcorn Capital of the World."
– (Incidentally, no broom corn had been grown in Illinois or elsewhere in the U.S. for 20 years. It was virtually all imported from Mexico.)
In Alabama, broom corn making is also taken seriously, it is considered a traditional folk art and part of the region’s cultural heritage.
The Mexican corn broom industry is centered mostly in a poor region of the state of Nuevo Leon not far from the U.S. border.
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Retaliation… Early in December 1996, Mexico retaliated by boosting
"tariffs on eight U.S. products, including notebooks, wine coolers, brandy and Tennessee whiskey."
The WSJ claims retaliation doesn't make sense: why should Mexican children pay more for notebooks or grownups more for a cocktail.
*The “trapper keeper” a popular notebook is exported to Mexico froma company based in Virginia. (http://en.wikipedia.org/wiki/MeadWestvaco)
*California produces brandy & wine coolers for exporthttp://www.tastings.com/spirits/brandy.htmlhttp://en.wikipedia.org/wiki/E_%26_J_Gallo_Winery
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In January 1997, Mexico requested establishment of a dispute settlement panel under NAFTA Chapter 20.
The arbitral panel ruled in their favor, finding there was no merit to the Clinton administration claim.
Soon thereafter, President Clinton decided that the US "broom corn broom industry [had] not made adequate efforts to make a positive adjustment to import competition." Subsequently, the increased duties were dropped.
Though ultimately scrapped, the President had in fact imposed duties on Mexican corn brooms between December 2, 1996 and December 3, 1998.
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Broom Corn Brooms