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International Business

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1 International Business
Wendy Jeffus Harvard Summer School

2 Introduction Chapter 2: National Differences in Political Economy
Quiz #1: “Country Characteristics” Report Proposals Presentations (1 slide 2 minutes) Chapter 3: Differences in Culture Comments on Team Building Assignment #1: “Culture”

3 Telepresence version 1.0 Submitted by: Fernando Zolko del Valle

4 Chapter 2: National Differences in Political Economy
Wendy Jeffus Harvard Summer School 4

5 Political Economics Political Economics - Stresses that the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being.

6 Two Cows

7 Socialism You have two cows…
… And the government takes one and gives it to someone else.

8 Communism You have two cows…
… And the government takes BOTH and gives you milk.

9 Capitalism You have two cows… … And you sell one to buy a bull.
Anonymous first source, although several websites have versions of this including:

10 Political Systems “The System of Government in a Nation” Individualism
Democratic Collectivism Totalitarian Democracy and totalitarianism are at different ends of a scale with many shades of gray in between

11 Political Systems: 1st Dimension
Collectivism vs. Individualism Collectivism-needs of society are more important than needs of individual Promotes state intervention in economic activity Collectivism is expressed through socialism. Socialist ideology is split into 2 broad camps Communism (believe that socialism can only be achieved through a totalitarian government) Social democracy (state owned enterprises run for public good rather than private profit) Individualism-emphasizes individual freedom in politics, economic activities, and culture. Translates into an advocacy for democratic ideals and free market economies

12 Communism & Socialism Current Communist Countries:
      Over 60 years       years       years       years       years       years      Under 10 years Current Communist Countries: People's Republic of China, North Korea, Laos, Vietnam, and Cuba. Source: Map shows all countries who declared themselves to be socialist states under any definition, color-coded for the number of years that the country in question claimed to be socialist:. Note: World Map:

13 Individualism vs. Collectivism
Fostering independence and individual achievement Promoting self-expression, individual thinking, personal choice Associated with egalitarian relationships and flexibility in roles (e.g., upward mobility) Associated with private property, individual ownership Collectivism Fostering interdependence and group success Promoting adherence to norms, respect for authority/elders, group consensus Associated with stable, hierarchical roles (dependent on gender, family background, age) Associated with shared property, group ownership Examples: USA, GB, Australia, NZ & Canada Examples: China, Korea & Japan Source:

14 Political Systems: 2nd Dimension
Democratic vs. Totalitarian Democracy – citizens elect representatives and political freedoms are granted by constitution Totalitarian state – One person/party exercises absolute control over all spheres of human life (competing political parties are banned) Examples Communist totalitarianism (North Korea & Cuba) Theocratic totalitarianism (Iran & Saudi Arabia)

15 Democracy Index Source: Map displays the Democracy Index as published by the Economist in January, 2007. The palest blue countries get a score above 9.5 out of 10 (with Sweden being the most democratic country at 9.88), while the black countries score below 2 (with North Korea being the least democratic at 1.03).

16 Economic Systems Connection between political ideology and economic systems Countries where Individual Goals are prioritized Free Market Economic Systems are fostered Countries where Collective Goals are prioritized there is State Control of Markets

17 Economic Systems Market Economy – prices are free of control and private ownership is predominant Mixed Economy – elements of both Command Economy – prices are set by central planners, productive assets are owned by the state, and private ownership is forbidden There is no nation that has a pure market economy - Macroeconomics for Today by Irvin B. Tucker p. 491 Market Mixed Command

18 Legal Systems Common Law Civil Law Theocratic Law
Evolved in England over hundreds of years Based upon tradition, precedent, and custom Judges have the power to interpret the law so that it applies to the unique circumstances of an individual case Civil Law Based upon a very detailed set of laws organized into codes Courts interpret civil law with regard to codes More than 80 countries operate with a civil law system; these include Germany, France, Japan, and Russia Judges have less flexibility than those in a common law system Theocratic Law Based upon religious teachings Islamic law is the most widely practiced theocratic legal system in the modern world, although both Hindu and Jewish law are still practiced Based upon moral behavior Why is law important? Businesses must observe: home country laws, host country laws, international Laws and Treaties

19 Corruption Corruption will be discussed in more detail later in the course, for now it is important to note that its prevalence differs among nations. U.S. - Foreign Corrupt Practices Act The act was passed during the 1970s following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts This law makes it illegal to bribe a foreign government official in order to obtain or maintain business The act allows facilitating or expediting payments to secure the performance of a routine governmental action

20 Corruption Perceptions Index
Developed by Transparency International Ranks countries of the world according to the degree to which corruption is perceived to exist among public officials and politicians. 16 polls and surveys from 10 independent institutions are compiled to create the index. 2007 Denmark (least corrupt) Somalia (most corrupt)

21 Economic Development Different countries have dramatically different levels of economic development Source: World Distribution of Wealth and Population in the Year 2000

22 Human Development Index
HDI (measures quality of life in different nations) Based on life expectancy, educational attainment, and PPP based average incomes. Developed by the United Nations, See: Map Source:

23 Economies in Transition
Nature of Economic Transformation Deregulation Removal of legal restrictions to free markets (i.e. energy, transportation, banking, postal services) Privatization Transfer of state ownership of property into private hands (frequently the same industries listed above) Examples: See the Privatization Database ( Examples: Argentina (’89-’99), Australia (’80s), Japan (90s), New Zealand (’84-), Russia (90s), EU & UK (’97)

24 Property Rights Xingbake Xing, means “star” in Chinese, and bake, pronounced "bah kuh" sounds like bucks The name, logo, graphic elements and meaning are all subject to copyright infringement. The Shanghai Daily said the Starbucks ruling was the first of its kind under a 2001 Chinese law meant to protect well-known international trademarks.

25 Ongoing battle.

26 Rum & Coca Cola

27 Rum & Coca Cola "Rum and Coca-Cola,"
perhaps the best-known Calypso song of all time, became a big hit for the Andrews Sisters in the 1940s. Sparked a famous U.S. court case brought to establish the authorship of Trinidad musician Lionel Belasco, who had written the score for the song several decades earlier. (The original song was about a girl who became a prostitute in Trinidad.) The original author, Belasco, won recognition for his creation and also received compensation for the unauthorized use of his work. The U.S. protects intellectual property (i.e. inventions; literary and artistic works; and symbols, images, names, and designs used in commerce) because doing so “fosters economic growth, provides incentives for technological innovation, and attracts investment that will create new jobs and opportunities for all their citizens.”

28 Intellectual Property Rights (continued)
Additional Examples The "recipes" for making Pepsi or Coke constitute trade secrets closely held by the Coca-Cola and Pepsi companies. The California Institute of Technology profits from its patents for the NASA rovers by licensing their image to toymaker Lego. Barbie is one of toymaker Mattel's most successful trademarks

29 So far… Country differences in terms of political systems, economic systems, legal systems, corruption, and economic development have been considered. QUIZ #1: What characteristics would you hope for as you select a foreign country in which to invest?

30 Expect that… “Perfect opportunity will bring perfect competition”
- Anonymous Quote

31 Implications for Managers

32 Report Proposals Report Proposal Presentations
What country do you plan to enter? What product do you plan to offer? Remember this should be brief – imagine it is an “Elevator Speech” 1 slide – 2 minutes (timed) – 3 copies Suggestions Have backup projects and countries in mind. Be willing to change!

33 Chapter 3: Differences in Culture
Wendy Jeffus Harvard Summer School 33

34 Perceptions: “Americans”
Americans are stupid. And they are fat and bad dressers. (England) Americans are always in a hurry. Just watch the way they walk down the street. (India) Americans are distant. They are not really close to other people -- even other Americans. (Kenya) Once we were out in a rural area in the middle of nowhere and saw an American come to a stop sign. Though he could see in both directions for miles, and there was no traffic, he still stopped! (Turkey) In the United States, they think that life is only work. (Colombia) In the United States everything has to be talked about and analyzed. Even the littlest thing has to be 'Why, why why?‘ (Indonesia) The American is very explicit. He wants a 'yes' or 'no'. If someone tries to speak figuratively, the American is confused. (Ethopia) The first time my American professor told me 'I don't know, I will have to look it up', I was shocked. I asked myself 'Why is he teaching me?‘ (Iran) Source:

35 Culture of a Society Values and norms are influenced by political & economic philosophy, social structure, religion, language, and education Values – what a society believes to be good, right, and desirable Includes concepts like individual freedom, democracy, truth, justice, honesty, loyalty, social obligations, collective responsibility, the role of women, love, sex, & marriage Norms – social rules and guideline that proscribe appropriate behavior in particular situations Two Categories Folkways (i.e. dress code, social manners, attitude towards time) Mores (i.e. punishment for theft, alcohol, adultery, etc.)

36 Culture, Society and Nation States
Society is a group of people who share a common culture it extends beyond national boundaries (i.e. “French Culture”) Nation states are political creations Many cultures can co-exist within a nation state. Example: Canada (“Anglo culture;” “French culture;” and “Native American culture”) Example: East Coast vs. West Coast, North vs. South…

37 Boston’s Many Cultures…
Example: Boston “Italian Culture” “Irish Culture” “African Culture” “Asian Culture” “Brazilian Culture” “Turkish Culture” North End: Black Rose: the-black-rose; West African Dance: See also: Chinatown: Rio Brazilian BBQ: brazilian_with_a_dash_of_elegance/; Film festival:

38 Determinants of Culture
Political Philosophy Collectivism vs. Individualism Democratic vs. Totalitarian Economic Philosophy Market Based vs. Planned Social Structure – Individual vs. Group & the class system Religion Language – Spoken & Unspoken Education Literacy rates Availability of Skilled Workers Chapter 2

39 Social Structure Two dimensions The Individual versus the Group
U.S. “Rugged Individualism” and the desire to be one’s “Own Boss” could spark entrepreneurship. Managers are more mobile and bring new business ideas (because don’t stay with the same company). Japan Cooperation and life time employment allows managers to gain extensive company and industry specific knowledge. Social Mobility Britain’s Class System India’s Caste System China’s Rural vs. Urban Culture

40 Religious and Ethical Systems
Economic Implications Christianity “Protestant Work Ethic” Islam Islamic Finance Charity Hinduism Sacred status of the Cow Promotion & the caste system Buddhism Stress the afterlife

41 World Religions Map 3.1

42 Language Spoken Unspoken Spoken Language
Language is closely associated with culture. Countries with more than one language often have more than one culture. Unspoken Body language The “OK” sign is vulgar in Greece & Turkey “Thumbs Up” is obscene in Greece “Crazy” vs. “Smart” Personal space Close vs. Aloof Spoken Language Chinese is the mother tongue of the largest number of people. The most widely spoken language is English.

43 Education: Adult Literacy Rates
Map 3.3

44 Culture and the Workplace
Study on the relationship between culture and the workplace at IBM. Geert Hofstede 40 countries 100,000 employees

45 Culture in The Workplace
Four dimensions of culture: Power distance - cultures are ranked high or low on this dimension based on the particular society’s ability to deal with inequalities Individualism vs. collectivism - this dimension focuses on the relationship between the individual and his/her fellows within a culture Uncertainty avoidance - this dimension measures the extent to which a culture socializes its members into accepting ambiguous situations and tolerating uncertainty Masculinity vs. femininity - this dimension looks at the relationship between gender and work roles Power Distance - U.S. Managers in India Individualism vs. Group – Hopkinton Park Example Uncertainty Avoidance – Student’s Comfort Level with Vague Assignments Masculinity vs. Femininity - Sweden -women in the workforce

46 Hofstede’s Values for 20 Countries

47 Cultural Change Culture is not a constant; it evolves over time
Since 1960s American values toward the role of women are changing. Japan is moving toward greater individualism in the workplace Examples of woman participation/ Chile, Germany, Finland

48 Heaven & Hell In an ideal world… In a not so ideal world…
The policemen would be English The car mechanics would be German The cooks would be French The innkeepers would be Swiss and the lovers would be Italian In a not so ideal world… The policemen would be German The car mechanics would be French The cooks would be English The innkeepers would be Italian and the lovers would be Swiss Source:

49 Managerial Implications
Determine the educational profile of the country Affects products offered, promotional materials, availability of skilled workers. Determine the religious profile of the country Affects products offered, key marketing messages, and the work environment. Are there any major cultural issues that will impact your company?

50 Some Comments on Team Building
Remember Culture, Stress, and Priorities all Play a Role in Your Success!

51 First Case Assignment Nike: The Sweatshop Debate
Group 1: The Case Against Nike Group 2: Nike’s Response Each group should present a 5-10min (timed) assessment of the case (answer case questions) All group members must participate. Due next class. Source:

52 Assignment #1 Handout: Assignment #1 Find a partner that is:
Not in your group Not from your “home” country

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