BBA, MIB 2010 1

Management of International Business

Supapak YodseraneeBBA, 2010

BBA, MIB 2010 2

WK1 Agenda

• Meet and greet, seating chart• Syllabus, course structure, tools• Travel exercise• Video clips• Cases and discussion• Info search exercise• Homework• Summary

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Travel Exercise• In a group of 4-5, plan your trip abroad.• What are the issues to consider?• Where’s your destination?• How did you decide?• Tell your class.

How does this exercise apply to MIB?

Background, Market, and Environment

StrategyManaging

your business

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Video Clips

• Google exit from China (to HK)• Why Google entered China?• Why Google exit from China? What’s the problem?• What’s the company motto mean? “Don’t be evil”• Parental control vs. biased media

• BP Oil Spill in the Gulf of Mexico• What will this incident affect? What will change?

• Important issues of doing international business.

• Globalization • What’s globalization?• What are the pros and cons of globalization?

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Outsourcing American Health Care

• Who, What, When, Where, Why, How ???• Pros and Cons• Discussion questions

– What trends have facilitate this process?– Is the globalization of health care good or bad for the patients?– Is it good for the American economy?– Who might benefit? Who might lose?– Should the US government restrict outsourcing of medical procedures

to developing nations?– What do we do in Thailand? Does Thailand involve in medical tourism

business?

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Thai Political Risk Case

• What factors affect foreign companies doing business in Thailand? What makes a country attractive to foreign companies?

• OPIC (Overseas Private Investment Corporation)

• MIGA(Multilateral Investment Guarantee Agency)

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Info Search Exercise• List Thai MNEs as much as you can.• List Foreign MNEs doing business in Thailand.• Categorize their business industries.• Where are their headquarters or their branches?• What are the size of their business?• Any other interesting information? Growth rate? • Make a summary.• What website would be a good start?

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Homework & Summary• Register yourself in

Facebook with your full name and current picture!

• Add ajob.ubu@gmail.com

• Info Search Exercise• Get the books• Read chapter 1-8

• What’s the difference in managing domestic vs. international business?

• What are the benefits of doing international business?

• Success factor?

Business

Culture

Politics

Economics

Law

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WK1.2 Agenda

• Student News, Hot topic: Political Risk• Lecture• Mind map• Homework

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International Business• When did we start

international trade?• What’s the

development?– International trade– International investment– Our time

• What’s the buzz word for our time?– Globalization

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Globalization

• Globalization:a shift toward a more integrated and interdependent world economy

• Globalization has two aspects-The globalization of market-The globalization of production

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The Globalization of Markets• Globalization of market• A merging of historically distinct and separated

national markets into one huge global market place

• Global market examples:

• Should the companies customize their products?– Think globally, act locally.

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The Globalization of Markets

What help create the globalization of markets?• Falling trade barriers• Convergence in taste and preference of the

consumers• Global basic products offering from the firms

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The Globalization of Production• The globalization of production refers to sourcing of goods

and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production like land, labor, and capital

• Why should we do this?• We can compete easier and more effectively with lower cost

or better quality.

Assemble in Thailand

Taiwanese Chip

Assemble in Mexico

Korean panel

Processor from the US

Chinese electronic components

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Globalization in a book

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The Emergence of Global Institutions

• Institutions are needed to– Help manage, regulate and police the global market place– Promote the establishment of multinational treaties to govern

the global business system• Institutions created over the half past centuries include:

– The General Agreement on Tariffs and Trade (GATT)– The World Trade Organization (WTO): control the world trading

system and promote lower barriers to trade– The International Monetary Fund (IMF): maintain order in

international monetary system– The World Bank: promote economic development– The United Nations (UN): maintain peace, security, cooperation

and human rights

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Drivers of Globalization

• Two major factors– The decline in barriers

to the free flow of goods, services, and capital that has occurred since the end of WWII

– Technological change

• Tariffs have dropped significantly since 1950 to around 4 % in 2005

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Drivers of Globalization

Globalization of Market: firm can view the world as a single market

Globalization of production: firm can choose the optimal location for production and activity

Declining Trade and Investment

Barriers Globalization of Market: Low cost in communication help create e-commerce,Low cost in transportation help create global market place i.e. rose from Ecuador, Sushi from JapanGlobal media help create world wide culture and preference

Globalization of production: Low cost in communication enables firms to manage globally disperse production systems.Low cost in transportation enables firms to choose separate locations for production

Role of Technological Change

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The Changing Demographics of the Global Economy

• A drastic change in demographics of the world economy in the last 30 years1. The changing world output and world trade

picture2. The changing FDI picture3. The changing in multinational enterprise4. The changing world order

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1.The Changing World Output and World Trade Picture

• The share of world output accounted for by developed countries is decreasing. It is the opposite in developing countries and is expecting to be more than 60% by 2020.

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2. The changing FDI picture

• Need to update this chart. http://www.unctad.org/Templates/Page.asp?intItemID=1923&lang=1

The share of FDI accounted for by developing countries have risen from 2% in 1980 to 12% in 2005

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3. The Changing Nature of Multinational Enterprise

• A multinational enterprise (MNE) is any business that has productive activities in two or more countries.

• Since 1960, there has been a rise in non US MNE and a growth of mini multinationals

• http://money.cnn.com/magazines/fortune/global500/2009/full_list/

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4. The Change in World Order

• Many communist nations in Europe and Asia has committed to democratic politics and free market economies and so create new. opportunities for international business

• China and Latin America are also moving toward greater free market reforms.

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Debate: Is globalization a good thing?

Critics

• Job losses in developed countries.• Environmental degradation. • Cultural imperialism and national

government economic power shift toward the supranational organizations such as UN and WTO.

• Wider gap between the rich and the poor nations

Supporter

• The benefits outweigh the cost.•

• The power of these organizations is limited to what nations-state agree and the ability to execute their policies.

• Poor countries should reduce barriers to trade and receive debt forgiveness.

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Anti globalization, protest at WTO meetings.

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National Differences in Political Economy

• Politic or economic first?• Think of India and China.• What countries are still communist?• Can communist countries have economic

success?

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Political System

• The political economy of a nation refers to how the political, economic, and legal system of a country are interdependent.

• They interact and influence on each other and they affect the level of economy.

• Political System refers to the system of government in a nation

• Assess in two dimensions– Degree of collectivism vs.

individualism– Degree of democratic vs.

totalitarian• What would be the country in

each quadrant?

Political Economy

Political

EconomicLegal system

Individualism

DemocraticTotalitarian

Collectivism

Political System

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Collectivism and Individualism• Collectivism: collective goals

over individual goals• Socialists advocate state ownership

of the basic means of production, distribution, and exchange.

• State-owned enterprise are managed to benefit society as a whole rather than individual capitalists

• In the early 20th century, socialism split into:– Communism: achieved through violent

revolution and totalitarian dictatorship (collapsed in the 90s)

– Social democrat: achieved through democratic means. The UK, France, and Germany adopted free market economies and privatized their inefficient state owned enterprise.

• Individualism: an individual should have freedom in his economic and political pursuits

• Individualism means democratic political system and free market economies

• Individualism is built on two principles:– Emphasis on the importance of

guaranteeing individual freedom and self expression

– The welfare of society is best served by letting people pursue their own economic self interest

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Democracy and totalitarianism• Democracy: a government is by

the people (directly or elected representative)

• Democracy=> individualism• Communism=>collectivism,

totalitarianism• Pure democracy: citizens should

be directly involved in decision making

• Most democracy countries are representative democracy where citizens are periodically elect individuals to represent them.

• Totalitarianism: government has absolute control over all aspect of human life and prohibit opposing political parties.

• There are four major forms of totalitarianism

• Communist: communist party monopolizes power: China, Vietnam, Lao, N Korea, Cuba

• Theocratic: religious party monopolizes the power: Iran, Saudi Arabia

• Tribal :a particular tribe monopolizes the power, Tanzania, Uganda, Kenya, Zimbabwe

• Right Wing: permits individual on economic freedom but restricts on political freedom: Pakistan, Myanmar

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Economic System• There are three types of economic systems:

– Market economy: • Business: privately owned • Production: supply and demand,

price system• Government: encourage free and

fair competition.– Command economy:

• Business: state owned• Production: government plan

goods and services as well as price

– Mixed economy: • Business: certain sectors are

private ownership and free market.

• Government own their firms that are important to national security

• Example of state owned enterprise?

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Legal System• Legal system refers to the rule that regulate behavior as well as the

processes by which the laws are enforced.

• Types of legal systems– Common law: based on tradition, precedent, and custom– Civil law: based on detailed set of laws organized into codes– Theocratic law: based on religious teachings– Customary law: based on the wisdom of daily experience or important

traditions.

• Depending on the legal system, contracts are approached in different ways. For example, contract tends to be shorter and less specific under civil law because many issues already covered in the civil code.

• United Nations Convention on Contracts for the International Sale of Goods (CIGS)

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Legal Issues in International BusinessOperational concerns• ease of entry and exit• hiring and firing employees• contract enforcement• What country has the most favorable

operating environment?

Strategic concerns• product safety and liability • marketplace behavior i.e. China no comparison

ads• product origin and local content• legal jurisdiction• Arbitration• Home or host country?

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Ranking from World Bank 2010

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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 resource.

• Property rights can be violated in two ways– Private action: theft, piracy, blackmail, and the like by

private individuals or groups.– Public action: public officials such as politicians and

government extort income, resources, or the property itself from property holders through legal mechanism such as excessive taxation, expensive license, and taking assets into state ownership without compensation to the owner

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Property Rights and Corruption

• High corruption reduce FDI, the level of international trade, and the economic growth rate in the country.

• The Foreign Corrupt Practices Act: illegal for US firms to bribe foreign government officials.

• Corruption Perception Index 2009• 10=clean• 0=totally corrupt• What’s the map telling you?• What do you think of the index?

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The protections of intellectual property rights• Intellectual property refers to property that is the product of intellectual activity—

software, music, chemical formula etc.• It can be protected using:

Patent: exclusive rights for a defined period to the manufacture, use or sale of that invention

Copy rights: exclusive rights of authors, composers, play rights or artists and publishers to publish their works as they see fit

Trademarks ™: design and names by which merchants and manufacturers designate and differentiate their products

• We can copy everything except your mother!

• How do firms avoid piracy?• Stay way, file lawsuit, and lobby the government• World Intellectual Property Organization, Paris Convention for the Protection

of Industrial Property

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The Determinants of Economic Development

• Countries have different levels of economic development. Common measure of economic development:– Gross national income(GNI) – Purchasing power parity(PPP) adjusting GNI by

purchasing power– Human Development Index(HDI): measure the

development by capabilities and opportunities that people enjoy not by the material output• life expectancy at birth, educational attainment, and

whether average income is sufficient to meet basic needs of life in a country Quality of life

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Economic Data Chart

• Need to update the data.

++-+-+++--

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Political Economy and Economic Progress• What’s the relationship

between the two?– Innovation and

entrepreneurship are the engine of growth i.e. Dell, Microsoft, Cisco

– Innovation and entrepreneurship require a market economy—free to make money out of his idea

– Innovation and entrepreneurship require strong property rights

– Democratic regimes help long term economic growth

– Economic progress begets democracy i.e. Korean, Taiwan

– Geography and education also influence economic growth

Political Economy

Political(Democracy)

Economic(Innovation and

entrepreneurship)(market economy)

Legal system(Strong property rights)

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The Spread of Democracy

• Since 1980s two trends have emerged:– Democratic revolutions– Centrally planned=>free market economic model

• Three main reasons account for the spread of democracy:– Many totalitarian regimes failed to deliver economic progress

to the vast bulk of their populations i.e. the collapse of communism in Eastern Europe

– New information and communication technologies have reduced the state’s ability to control access to uncensored information i.e. satellite TV, internet

– The economic advances of the past quarter century have led to the emergence of increasing prosperous middle and working class who have pushed for democratic reforms

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The New World Order and Global Terrorism

• Many countries are more difficult to do business because of the inherent violent conflict, or they are a part of a civilization that is in conflict with an enterprise’s home country

• Terrorism represents one of the major threats to world peace and economic progress in the 21st century

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Economic Transformation• A shift toward a market-based system involve

a number of steps:

Deregulation:-remove legal restriction for free market-establish private enterprises and the manner in which the private enterprises operate i.e. remove price control, support FDI

Privatization: transfers the state owned enterprises to private investors

Creation of legal system for

property rights

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Implications for managers• Political economy raise important issues

(operational, strategic, human rights, environment, etc.) for doing international business.

• Political economy clearly influence the attractiveness of that country for investment.

Political Economy

Political

EconomicLegal system

Benefit•Economic Size•Economic Growth•Purchasing Power

Cost

•Political cost: bribe, lobby•Economic cost: infrastructure, supporting business

•Legal cost: high standard, safety, environment, IPRs

Risk

•Political risk: Social Unrest/Anti-Business Trends

•Economic risk: mismanagement

• Legal risk: not protect Property Rights

Overall Attractiveness

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Mind Map

• Make your own mind map as a summary for our lecture.

• Submit it to me.

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Homework

• Add additional important data to your info search exercise.

• Make a summary and present to the class on Friday June 4, 2010.

• Bring your notebook.

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WK1.3 Agenda• Hot topic: Student News, What happened in Japan?

What about here? New PM?• Mind map: – The good, the bad, and the ugly mind

• Data search result– Use various search engine and well known organizations

website– Spot unreliable websites by: Sitemap, dead link, strange

definition, check with friends, hacker, censor• Student needs…• India vs. China

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India vs. China• BBC video clips, Fed Article• What is the focus of each country?• Why China and India walk different path?• What kind of business that you will prefer India

over China?• Apply the concept you’ve learned to compare China

and India for the overall attractiveness of the country.

• What other information would be helpful for your reasoning? Where can you get it?

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Websites• World Bank: www.worldbank.org• WTO: www.wto.org• Asia Business Connection: www.asiabiz.com• CIA fact book: www.cia.gov• Bank of Thailand: www.bot.or.th• Ministry of commerce: www.moc.go.th

– Department of foreign trade: www.dft.moc.go.th• Board of investment: www.boi.go.th• Thai stock exchange: www.set.or.th• Thai customs department: www.customs.go.th• Thai revenue department: www.rd.go.th• The office of industrial economics: www.oie.go.th/select_isic.asp