Introduction to Global Business

Globalization is delineated as the socio-economic transformation and development process of eradicating trade, investment, cultural information technology, and political barriers across nations. The benefits of globalization include increased growth in the economy, political integration in various expanses, and interdependence among countries of the world. The key international institutions that facilitate globalization include the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). To begin with, the IMF plays a significant role in global financial stability by facilitating global trade that promotes job creation, poverty reduction and economic growth. It also encourages exchange rate stability and an open system for international payments. Secondly, the World Bank aids in trade liberalization, transference of information and knowledge to developing countries to underpin sustainable development. Lastly, the WTO established the General Agreement on Tariffs and Trade (GATT), which encompasses global trade in goods through the considerable decrease of tariffs and other trade barriers. The advancement of information technology has a positive impact on globalization by propagating the Global Use of IT and advancing the digital generation. Regardless of the positive impact of globalization, some of the arguments against it include job losses and income immobility and countries losing control over their economic policies and developments. With increase in diversity, there is associated erosion of communities.

This chapter focuses on the evolution of international business. In particular, international business can be outlined as all public and private commercial transactions that exist between countries of the world. Foreign direct investment encompasses the inflows of capital from overseas for the investment in local plant and equipment in the production of goods and services and purchasing local companies. There has been a progressive foreign direct investment globally with the world total increasing from $205 billion in 1990 to $1,823 billion in 2008. There are major advantages of international trade. First, there is a greater amount of goods and services to choose from. Second, the level of competition between domestic and international firms leads to decreased prices for goods and services. Lastly, there is increased quality of life and higher standards of living.

Taking this into consideration, there are three key theories of international trade. Mercantilism proposes that a country could only increase its wealth from external trade if it had a trade surplus. The specializations theory asserts that free trade motivates nations to specialize in the manufacture of goods and services they can produce through the most efficient level of production. Lastly, the Factor Endowments theory outlines that countries predominantly export goods and services that largely utilize their abundant factors of production. In the contemporary, there are both socio-economic and geo-political justifications for managed trade. These include protecting local infant industries, health and safety reasons, avoiding creation of export cartels and also outlining any questionable labor practices.

In summary, this chapter elucidates regional economic integration, how it evolved, and its advantages and disadvantages. Regional integration can be outlined as the execution of several economic and political strides by member states to augment their global competitiveness as well as special trade access. The phases of regional integration encompass free trade area, customs union, common market, and economic union. The most extremely advanced regional integration is the European Union (EU). Through the Maastricht Treaty, it was formed as a comprehensive economic union with free movement of labor amongst member states and the Euro was espoused as the common currency. The North American Free Trade Area (NAFTA) is another example, and it is a FTA between the United States, Canada and Mexico. Its purpose is to expand trade through eradication of all trade barriers. The other example is the Association of South East Asian Nations (ASEAN).

Regional integration does have its costs and benefits. Some of the advantages include increase in the level of international competitiveness within the region, improving economic growth, increasing peace and cooperation in the region, and freeing flow of capital, labor and technology. However, it does have its shortcomings such as the imposition of regulations that fail to consider national differences, eradication of jobs and increasing level of unemployment in protected industries and also diminishing the powers of the national government.

The fourth chapter encompasses the international flow of funds and exchange rates. To begin with, balance of payments of a country indicates the transactions between one nation and the rest of the world for a certain time period. The current account indicates the activities of both consumers and businesses within the economy with regard to the trade balance, income balance, and net transfers. On the other hand, the financial account encompasses a domestic nation's assets overseas, assets owned by foreign countries within the domestic nation and the net financial derivatives. There are three kinds of foreign exchange markets that include the fixed, managed floating and the independent floating exchange rate systems. The elements of the foreign exchange market includes the forex market, which is split into the spot market, futures market and forward market.

The international monetary system has evolved over the years. It started out with the gold standard where the monetary system had different currencies pegging their currencies to the market value of gold. This moved on to the Bretton Woods Agreement that included an international system having the U.S. dollar pegged at fixed rate to gold whereas the other currencies were fixed to the dollar. The International Monetary Fund was created to ascertain the stability of the global monetary and financial system.

The fifth chapter of the book encompasses the cultural setting of global business. One of the key elements of culture is language and this takes into account verbal communication and non-verbal communication. Values are also imperative as they are the basic beliefs that are prevalent within a society. Other elements include religion, attitude, education, manners and customs. Hofstede and Tropenaars propose different cultural dimensions. Hofstede proposes dimensions such as individualism vs. collectivism, time orientation, power distance and masculine vs. feminine. On the other hand, Trompenaars proposes universalism vs. particularism, specific vs. diffuse, neutral vs. emotional and achievement vs. ascription.

There are various cultural dimensions of doing business in different regions of the world. For instance, in Japan, a slight bow and hand shake are fitting. It is imperative not to look directly into the eyes of the hosts, and business there has a group orientation and not individualistic. In Korea, there has to be a personal relation prior to discussion of business aspects with foreigners. Elders are given respect for their wisdom and knowledge. In China, Guanxi is adhered to and this is a philosophy delineating friendships among superiors and their subordinates.

Chapter six takes into account the legal, economic and political setting of global business. To begin with, there are four different global political systems. These include democracy, Athenian democracy, representative democracy and totalitarian government. Economic-wise, there are three major national economic philosophies including capitalism, socialism and communism. Political risks encompass the political issues in a certain nation that can have a significant adverse impact on how business is undertaken in such a country. Micro-political risks include the political risks that solely influence a certain industry or group of companies in a certain nation whereas macro-political risks include the political risks that fundamentally influence all businesses in a certain nation. Political risks in tandem with global terrorism has given rise to the Terrorism Risk Insurance Act that covers business against risk of terrorism.

Another aspect of global business is corruption. This is a circumstance where businesses are capable of unlawfully changing pertinent public or private decision making through bribery, extortion and blackmail. Public corruption encompasses making such unlawful payments to government whereas private corruption incorporates business corruption that encompasses individuals and private businesses. The legal setting takes into account the civil, common and theocratic law legal systems. Some of the types of laws include tax, contract, criminal, product safety, antitrust and dispute settlement laws.

Chapter seven delves into corruption and ethics in global business. For starters, ethics can be delineated as the branch of philosophy that takes into account the values related to human behavior, with respect to whether actions are right or wrong, whether there were good or bad intents and the consequences of such actions. Integrity, on the other hand, means abiding by moral and ethical principles. There are four steps in making an ethical decision. First, all facts and situations are defined. Second, all individuals impacted by the circumstance are ascertained together with their rights and obligations. Third, alternative decisions and consequences are identified, and lastly, the right thing to do is determined and then implemented. Ethical business dealings necessitate mutual trust, fair transactions and honest communication. Corporate social responsibility (CSR) takes into account an organization's obligations to the society, incorporating the wellbeing of people and places impacted by its activities. Ethics can be taught through five key aspects and these include personal integrity, business responsibility within the society, ethical decision-making, ethical leadership and corporate governance. One of the regulations that ensures ethical behavior in business is the Foreign Corrupt Practices Act (FCPA). In addition, owing to financial and accounting scandals such as the Enron scandal, the Sarbanes-Oxley Act was established to ensure that public company officials certify that the financial statements reported correctly present its financial position.

Chapter eight focuses on the business entry strategies in global business. When opting to go international, a business has to consider the risk profile, which is the potential financial loss. The entry strategies in global business include exportation/importation, licensing, franchising, strategic alliances, joint ventures, foreign acquisitions, and wholly-owned foreign subsidiaries. Multinational Enterprises (MNEs) are businesses whose center of operations is in one nation, but own and control substantial business entities in other nations. Their main objective is to maximize shareholder wealth. Some of the reasons for expanding overseas include increase in profit margins, use of prevailing competitive advantages to seize new business prospects globally and minimizing costs through outsourcing or cheaper raw materials. The key strategies for going abroad include revenue maximizing strategies, cost minimizing strategies and risk minimizing strategies. Advantages of foreign direct investment include generating substantial financial inflows, creating new jobs, access to cheaper labor and new technologies, and increased competition. However, the disadvantages include exploitation of labor force in host nation, lack of CSR, environmental pollution and also political interference.

The ninth chapter discusses the control of global business. Mission statements play a vital role in general corporate strategy formulation. A mission statement can be outlined as a written statement as to why an entity exists and what it plans to achieve. It offers overall guiding principles in the entity's strategy formulation and process of decision making. It is beneficial in monitoring the performance of the entity against its stated mission and objectives. On one hand, the Shareholder Model of Strategy Formulation is that the fundamental strategic drive of a business is to maximize financial earnings for its shareholders. On the other hand, the Stakeholder Model of Strategy Formulation outlines that companies exist to profit not only their shareholders, but also all parties, for example, personnel and consumers that have a significant stake in their operations. Strategy implementation for any organization includes strategic plans, which are long-term plans that can go for five years and more. Tactical plans phase out between one to three years and are formulated for executing strategic objectives. Lastly, operational plans are short-term plans that take place within a year to support annual objectives.

Chapter ten of the book encompasses the organization of global businesses. Stateless Corporation is a new stage in the progression of the multinational corporation, which includes sourcing of work wherever it is most effective and the corporation surpasses nationality completely. In the first phase, global corporations produce goods in one nation and export them to other nations. In the second phase, global corporations institute foreign subsidiaries to cope with exports from their home nations. The third phase encompasses global companies setting up operations in other nations. In the fourth phase, Stateless corporations pinpoint their essential corporate functions and top executives in various nations to attain competitive advantage through access to talent, capital, low expenses, or closeness to their most significant consumers.

Organizational structure is the formal system of assignment and power relationships that control how individuals bring together their actions and utilize resources to accomplish organizational goals. It permits for activities based upon a division of labor by setting up functions and tasks into various departments, standards or specialty. It enables harmonization and assimilation of activities through ranked management, official rules and procedures, teaching and socialization. In addition, it institutes the organization's borders and standardizes its interactions with its setting and with other organizations. Examples of organizational structures include matrix structure, divisional structure, hybrid structure and functional structure.

Chapter eleven discusses global human resource management. Cultural issues and differences can be seen through Hofstede's Dimensions of National Culture. Power Distance outlines the magnitude of fairness of authority dissemination in a particular society and its workplaces, and employee anticipations associated with the same. Uncertainty Avoidance is the culture's desire for certainty, or the lack of certainty in the workplace and somewhere else. Third, Individualism vs. Collectivism outlines the magnitude to which individuals consider themselves as members of a group or collective, instead of separate individuals. Masculinity vs. Femininity encompasses the values that are customarily linked with one gender or the other. Long-Term vs. Short-Term Orientation outlines the degree to which members of a certain community place value on longstanding and future planning in contrast to more temporary standpoints.

Outsourcing is the practice of a firm delegating a particular production function to a third party. On the other hand, offshoring is the transference of an organizational function to another nation, irrespective of whether this function is outsourced or remains within the same company. Other important elements in HR are training and development. Training includes providing personnel with the competencies specific to the job to be undertaken and includes the preparation of personnel for new future tasks for higher ranked positions. Another important element encompasses performance appraisal and compensation. Performance appraisal issues include whether assessment should be done on an individual or group basis, whether feedback is provided and what metric is to be measured.

Chapter twelve discusses global marketing. To begin with, international markets include consumer, industrial and government markets. In such markets, there is marketing research, which is information gathered at one particular time whereas marketing intelligence system is information gathered regularly over a period of time. The gathered information can either be primary or secondary information. In entering global markets, there are four phases in developing products. These include concept testing, business analysis, market testing and commercialization. It is imperative for a business to note that the adaptation of such new products can be influenced by various factors including compatibility, complexity, communicability, cost and trialability. In managing such products, it is important to consider the product life cycle. The first phase is introduction where the product is initiated in the market to consumers. The second phase is the growth phase and any changes to consumer preferences are made while sales and profits increase. The maturity phase is the third stage and here the product is at its peak. This is where the product generates the highest sales and profits. Lastly, there is the decline stage where the product is past its prime and is being overshadowed by new products, leading to declining sales.

The promotion mix encompasses how the product can be conveyed to the consumers. This includes advertising media, magazines, sales promotions and publicity. The distribution mix encompasses the dissemination of the product through various channels to reach the end-consumer. This includes both direct and indirect strategies. Pricing is also pertinent to global marketing. Pricing objectives include performance, prevention, and maintenance objectives. In particular, all these objectives are geared towards the survival and sustainability of the firm.

Chapter thirteen discusses global operations and supply-chain management. Global operations management encompasses three different systems including the product system, manufacturing system and service system. Operations management is delineated as the management of direct resources that are involved in the production system of an organization. Therefore, taking this into consideration, domestic operations management is when all systems of production have resources emanating and remaining in one nation. On the other hand, global operations management is when resources emanate from or are situated in more than one nation. Activities in operations management include procurement, logistics, research and development and production. Supply-Chain Management is the management of all activities in the supply chain, so as to minimalize the total cost of the supply chain, and to make the best use of the value of the product to the end user. Proper supply chain management leads to standardization and centralization, proliferates culpability for product quality and process controls, decreases product cycle times and diminishes total product costs.