1. 1 Fall 2007 NU FAST International Business Assalam-o-Alaikum to Fall 2007 Semester Your Teacher: Muhammad Zahid Siddique

2. 2 Lectures 1-5: Foundations of International Business Objectives, Focus and Outline Introduction to International Business Origins of Globalization Social Sciences and Politics Introduction to Globalization Debate

3. 3 Fall 2007 NU FAST International Business Objectives, Focus and Theme of this course The objective of this course is to introduce students with: –the process with which world is moving towards a particular vision of life –the way that vision of life is expanding the realm of capital accumulation, both for firms and countries –the way that accumulation of capital is affecting the technological and business environment within which firms have to survive Focus will be to impart necessary information so as to develop the required skills to make managerial decisions within this new business environment The major theme will be to reveal that IB is an out product of capitalist business forms –Be open to have an exposure to new ideas and world views

4. 4 Fall 2007 NU FAST International Business Course Outline Tentative Topics(Total Lectures 45) –Foundations of International Business –Role of Political and Cultural Factors in IB –International Trade Theory –Government Intervention in Trade –Economic Integration –Foreign Direct Investment –International Financial System –Determination of Exchange Rates –Strategy and Organization of International Business –Export-Import Strategies –Global Marketing and HRM

5. 5 Fall 2007 NU FAST International Business Assessment 80% attendance is compulsory [9 absences are allowed] Following marks distribution scheme will be applied –Two Mid-Terms= 30 Marks –Assignments + Quizzes = 20 Marks –Final Exam= 50 Marks 30-60 minutes text reading and following weakly lectures guarantees you good grades in this course –Concentrate on the theme of this course

6. 6 Fall 2007 NU FAST International Business Pre-requisites Conventionally, a good understanding of this course presumes knowledge of –Micro and Macroeconomics –Marketing and HRM The course is mainly based upon –economic theory, especially of trade and finance theory –and partly based upon marketing and HRM Given your week knowledge of economics, we will try to cover the relevant topics

7. 7 Fall 2007 NU FAST International Business Text readings and Related Any good book on International Business will work, such as: –Hill W. Charles, International Business, 5 th Ed. –Daniel, Radebaugh and Sullivan (2005), International Business, 10 th Ed, Prentice Hall, USA Xerox of selected study material may also be available at photo copy shop, if required Off class contact –Room # 17, NU-FAST (city campus) Wednesday 1:00–3:00 pm, Thursday 11:00 am–1:00 pm –439 09 41-5, Ext. 20 and zahid.siddique@nu.edu.pkzahid.siddique@nu.edu.pk any time during office hours –Avoid disturbing on mobile allowed only in case of high emergency

8. 8 Fall 2007 NU FAST International Business A Dream comes true Some four hundred years ago, intellectuals began to dream of a society characterized by: –Freedom –Equality –Progress The dream emerged out of a change in human thought where after intellectuals started to think what we should do on the earth now, rather than what we are supposed to do to reach heaven in the future –they convinced masses that salvation had to be achieved here on this earth right now via technological innovation and capital accumulation at an exponential rate A complete system of academicsknown as science (both physical and social)served to materialize the formation and sustenance of that dream

9. 9 Fall 2007 NU FAST International Business A Dream comes true Today, world is seemingly heading towards that picture of life which transcends –cross-border trade and investment barriers –interventionist state-regulations in businesses –distance and time –languages, cultural and religious differences The process of this transformation is called Globalization universalization of capitalist value-system (discussed below) IB is all about commercial transactions between two or more countries within this particular world order –those transactions are made either by private-sectormotivated by profit motiveor public sectormulti-objective

10. 10 Fall 2007 NU FAST International Business Why IB matters to managers? A hierarchical view: starting from the bottom & working up –The firm –The market/industry –The economy –Finance –International business Conventional economic theories of the above are –Profit maximizing behavior, types of competition, Game theory, IS-LM, Efficient Markets, Comparative advantage Different perspectives –Empirical data –Critiques of conventional theories –Alternative theories This aspect is beyond the scope of this course

11. 11 Fall 2007 NU FAST International Business Understanding theories about the economy matters because: –theories are aimed to explain how the real world works –frequently (too often!) theories affect how people behave in the economy Govt. follows economic advice and applies economic theory in policies (e.g. easy credit policy, privatization) Firms/unions think about economy in terms of economic models So you have to understand economic theories of world order in order to be a good executive Given that international transaction is becoming a growing proportion of world business over time, IB is also important for managers at firm level b/c: –firms engaged globally face different modes of business –physical and societal conditions are diversified across world Why IB matters to managers?

12. 12 Fall 2007 NU FAST International Business Collect data on GDP, export-import, FDI (or any other variable) over last 15 years for any three countries (Pakistan is compulsory) and see the trends of IB Data sources: –IFS (International Financial Statistics) –DOT (Directions of Trade) Last Date of Submission : –August 16, 2007 (Coming Thursday) Assignment 1

13. 13 Fall 2007 NU FAST International Business Economic Picturization of Dream World Order Economics is said to be about efficient allocation of scarce resources among alterative uses Key word is scarcity. It is built on two propositions: –Infinite wants (because they are immaterial) –Finite resources (due to physical limits on producing new universe), so Scarcity = gap b/w infinite wants and finite resources Scarcity (S) = Wants (W) – Resources (R) –It is a relative concept Resources are limited with respect to wants –It does not mean rarity It is not about physical-quantity of resources –It is a subjective feeling Scarcity exists b/c we feel we want more

14. 14 Fall 2007 NU FAST International Business Scarcity implies choice among wants as all cant be satisfied –Choice means trade-off, i.e. either this or that poses the problem of allocating resource among its multiple uses Resource is anything that can satisfy a human want –Height, weight or beauty can also be resource Almost all resources have multiple uses Resources can be allocated in multiple ways –Lottery system: the lucky are the winners –First come first serve: slow and steady loses the race –Dictatorship: who is the boss –Quota: i am the special one Economic Picturization of Dream World Order

15. 15 Fall 2007 NU FAST International Business Economic Picturization of Dream World Order If it were merely the problem of allocation, then economics would be an insubstantial discipline –allocation can be done easily, as pointed out above Actual problem is not mere allocation, but efficient allocation –Efficiency is to produce maximum output/utility from given resourcesutilizing limited resources for the maximum satisfaction of wants –This unlimited end is materialized via capital accumulation an ever increasing but never ending expansion in the resources of a firm or a society Objective: Maximization of Capital accumulation Maximization of profit Maximization of utility interdependent

16. 16 Fall 2007 NU FAST International Business Economic Picturization of Dream World Order It is believed that competition brings about efficiency –It is the rivalry among individuals to control given resources So b/c it forces resources to more skillful of producing efficiency –Competition can take multiple directions and forms to identify the necessary skills consistent with the achievement of efficiency in a particular activity Competition and efficiency are so related b/c, it is believed, that competition is a natural response of people when faced with scarcity Scarcity Choice Competition Efficiency Allocation Problem Self-interested individuation

17. 17 Fall 2007 NU FAST International Business Economics is fundamentally concerned with the institution of competition –description of its legitimacy –outlining of its process and –desirability of its consequences Its role is to provide the foundations for allocating resources on the basis of free market mechanism The demand for free markets and trade alongside the abolition of state control is a straight forward implication of economic theory Economic Picturization of Dream World Order

18. 18 Fall 2007 NU FAST International Business Enlightenment: The Preamble of Globalization Social Sciences are a project of Enlightenment movement or Enlightened Moderation –Enlightenment emerged in 17th and 18th century Europe: It is revolt against God. Its goal is to free humanity from the subordination / obedience of God Its central construct is the invention of Humanity dedicated to autonomy It is a rejection of mankinddedicated to worship and obedience Human is the exact opposite of عبد (slave of God) –Enlightenment seeks to promote equal-freedom. It can be characterized by three important features:

19. 19 Fall 2007 NU FAST International Business Enlightenment: The Preamble of Globalization 1) Autonomy / Freedom: the desire to be self-sufficient ( الصمد ). Human is one who asserts freedomi.e. self-determination –It is to reject dependence on any external source and authority for guidance about objectives of life Showing reliance is immaturity –There is no authority to decide good and bad, except our own self and critical judgmentknowledge is constructed through human faculties of perception, reasoning, intuition and language –Good is what we want provided it can be universalized principle of universalizability –reason can tell us what objectives to achieve in life that objective is to expand self-determinationmore and more determination of self

20. 20 Fall 2007 NU FAST International Business Enlightenment: The Preamble of Globalization –This end is treated as self-evidentneeds no argument for its justification one who does not accept this has no human rights 2. Equality: that all humans are equally justified in choosing their own conceptions of good as per their desires –No rational ground for evaluating conceptions of good –Their ranking is not possible, can only be concatenated such that there is no contradiction among them –All ways of life are equally valuable, so must be given equal weight in social organization –Hence, principle of tolerance is the order of societyto treat all ends of life equally valuable

21. 21 Fall 2007 NU FAST International Business Enlightenment: The Preamble of Globalization 3. Progress: This is the way to achieve equal-freedom –Progress is to deny that this world is دارالامتحان is to believe that objective of life is maximization of utilitythe most immoral impulse of all –Man and pig are equal in their capacity to derive utility from consumption (Bentham) –This ideal of life begat a new conception of knowledge. Progress is to equate knowledge with the dominance of human will over nature which is realized through scientific laws whereby human asserts his will over nature to satisfy his desires is expansion in the knowledge of science (submission of nature to human will) and not of revelation (submission of will to Gods Will)

22. 22 Fall 2007 NU FAST International Business Enlightenment: The Preamble of Globalization Practically, maximization of freedom means maximization of capital accumulationi.e. growth, the practical commitment of Enlightenment Accumulation of capital requires: –Marketization of relations and liberalization of trade from all sorts of barriers economic political religious and cultural –Technological innovations to realize the potential of globalization of markets and production telecommunication and internet technology transportation technology

23. 23 Fall 2007 NU FAST International Business Enlightenment Beliefs: Are you Enlightened? According to Emanuel Kant, the Enlightenment movements leading philosopher, you are enlightened only if you have the following beliefs: –You are self-determined, and not عبد –Every human has equal right to define good and evil as he likes to define it and to change that definition at his will –Reason is the sole source of knowledge Reason is to pursue your self-interest –Everyones self interest is realized through material progress and development maximization of wealthy, income, power & authority –One can have no knowledge of life after-death No room for it in social organization For better understanding, compare world views

24. 24 Fall 2007 NU FAST International Business Contrasting World Views Worldly (Capitalist) Man is godself-determined Focusthis world only ObjectiveFreedom Source of knowledgehuman faculties (sciences) Spirituality dominated by –Accumulation ( حرص ) and Competition ( حسد ) –Consumption ( شہوت ) and dominance ( غضب ) Motivational forceself interest Attitudegrowth and change- oriented (i.e. dynamic) Social rationalitycompetition in worldly riches ( تکاثر ) Religious (Islamic) Man is Abdaccountable for his actions Focusthat world mainly Objectiveobedience ( اطاعت ) Source of knowledge revelation ( وحی ) Spirituality dominated by –Patience ( صبر ) and thankfulness ( شکر ) –zuhd ( زھد ) and Qanat ( قناعت ) Motivational forceGods pleasure AttitudeOrthodox and traditional Social rationality companionship ( رفاقت ) and wel- being ( خیرخواھی )

25. 25 Fall 2007 NU FAST International Business Contrasting World Views: Example of Change Arabs before Islam Our history books portray them as barbarous and uncivilized b/c they used to: 1)Worship idols 2)Drink 3)Gamble and charge interest 4)Commit fornication and indulge in nudeness ( فحاشی ) 5)Wage wars for plundering 6)Bury their daughters alive –Anything else that you can add to this list? –No! now open eyes to see around Todays Civilized World We use for it words like first and developed world, despite that it is characterized by: 1)Mans divinity (millions gods) 2)Wine as industry 3)Institutionalization of economy around gambling and interest 4)Legalization of even…(no comments required) 5)Colonization and genocides for exploitation 6)Indiscriminate abortion –Then why change in evaluation? –b/c of the dominance of a different world view

26. 26 Fall 2007 NU FAST International Business Social Sciences: Embodiment of Enlightenment Social sciences emerged from this different world view –They study the behaviour of HUMANS work out laws governing behavior of individuals and social institutions of a society that live to lead and enforce capitalist world view Such a society is called capitalista way of life in which: –people are committed to the ideal of maximization of freedom –society is characterized by exchange-based relations –state is dedicated to the formation of policies so as to ensure maximum freedom (accumulation of capital) for its citizens –religious-rationality and meaning of life are trivialized

27. 27 Fall 2007 NU FAST International Business Social Sciences: Embodiment of Enlightenment An important feature of Enlightenment is the rejection of the question of death –Enlightenment disciplines; i.e. social sciences including economics, never mention death or the afterlife as realities –In social sciences Problem and meaning of death for life is trivial Question of where people go after death is excluded from the question of formation of society –Problem of death is rejected because there is no source of knowing its reality except revelation People forget about or seek to push back all limits However, one constraint that cannot be pushed back infinitely is life itself, so the policy of over-looking of death is employed

28. 28 Fall 2007 NU FAST International Business Social Sciences: Embodiment of Enlightenment Social sciences are like arms and feet of Enlightenment ideals –equivalent to what فقہ is to Islamic epistemology Their primary role is: –to provide a theoretical foundation for legitimizing liberal capitalist social order –to provide policy tools in order to organize, govern and regulate such an order of life on the basis of universal self-interest as the very fabric of society –to present it as a rational social orderwhich it is not… Discussion –What is the role of Business Administration Sciences in this society?

29. 29 Fall 2007 NU FAST International Business Quick Quiz List out some of the ethical values embodied in a typical individual living in capitalist societies? –Self-interestsense of exchange based relationships –Greed (accumulation) and envy (competition for worldly riches) –Devotion for worldly lifedesire for longer and longer life ( طول امل ) –Multiplication of wantsutility hunting attitude ( لذت پرستی ) –Wastage of time in useless activities –Unimportance of Ibadah –Non-sense speaking ( کلام لغو ) This is the standard ethical system of Enlightened societies

30. 30 Fall 2007 NU FAST International Business Political Economy of IB A logical relationship between individual, society and state and the general function of economics within this relation can be shown as World Order Economics Seeks to Promote Individual Maximizes Utility Society that is a sum total of exchange relationships A democratic government which should provide only an economic framework for accumulation of capital Leads to a model of This justifies Theoretical Paradigm of Economics

31. 31 Fall 2007 NU FAST International Business Political Economy of IB Today we see politicians and bureaucrats handing over the world to social scientists, mainly to economists, to make it a better place to live ina world with ever increasing possibilities of capital accumulation –This subjugation of countries fate in their hands is not because they have won some public election, rather –it is due to the belief that economic theory is sound and considers a big picture in understanding how the objective of capital accumulation can be carried out most effectively It is the belief that they know how capitalist society work, and how it can be made to work even better. e.g.: –Minimum wage law controversy –WTO policy –Privatization debate

32. 32 Fall 2007 NU FAST International Business Political Economy of IB Actual Societies Social Sciences Desired picture of society Transformation justify Policies Social sciences cannot be studied in isolation from politics –both are linked with each other like mind-body relation the body (politics) obeys the commands passed on by mind (social sciences)

33. 33 Fall 2007 NU FAST International Business Pick up any aspect/practice/norm of our society that has gone or is going through transformation due to the dominance of capitalist practices or business forms –Last date of submission August 23, 2007 (Next Thursday) Assignment 2

34. 34 Fall 2007 NU FAST International Business Globalization has both its proponents as well as critics Major plea for globalization takes economic form –results in lower prices of goods and services –stimulates economic growth –raises incomes of consumers –creates new job avenues Critics take a multi-dimensional approach –job loss in industries attacked by foreign competition –downward pressure on wages of unskilled labour –environmental degradation –cultural imperialism of global media and multinationals –political hegemony of America Globalization: pros and cons

35. 35 Fall 2007 NU FAST International Business An unintended result of globalization is glocalizationi.e. think globally but act locally Interaction among cultures revealed the importance of differences –Globalization: looking at similarities –Glocalization: looking at differences Multiculturalism is presented as the solution to the problem of glocalization –We should differences –b/c we cant rationally prove any conception of good as true –all should be treated equally valuable From Globalization to Glocalization