International Business and Trade - Ba MGT104 - General Reviewer

INTERNATIONAL, BUSINESS, AND TRADE (BA-MGT104)
CHAPTER I: INTRODUCTION TO INTERNATIONAL BUSINESS
WHAT IS INTERNATIONAL BUSINESS?

• International business includes any type of trade of goods, services, or capital between countries, i.e.,
across international borders.
• According to e-Finance Management, “International business is a cross-border transaction between
individuals, businesses, or government entitles.
• International business requires more than traditional domestic business skills.
• International business which is also known as globalization, has increased significantly over the past
fifty years.
• International business comes in many shapes and forms.
• Multinational companies are involved in international business.
• The international marketplace is much more competitive that the domestic market.
• Since the advent of the internet, international business opportunities have expanded dramatically.
• According to Sinha (2012), all commercial transactions private and governmental between two or more
countries.
Why study International Business?
According to Mintal (2012), “It comprises a large growing portion of the world’s total business; All
companies are affected by global events and competition.
WHAT FORMS DO INTERNATIONAL BUSINESS TAKE?

• Exporting – means producing/ procuring in the home market and selling in the foreign market.
Exporting is not an activity just for large multinational enterprises; small firms can also make money by
exporting has become easier though it remains a challenge for many firms.
• Licensing – a licensing is an agreement whereby a licensor grants the rights to intangible properly
{patients, intentions, formulas, processes, designs copyrights and trademarks} to another entity for a
specified period and in return the licensor receives a royalty/fee from the licensee.
• Franchising - Is a basically a specialized form of licensing in which the franchiser not only sells
intangible property to the franchisee agrees to abide by strict rules as to how it does business.
• Joint venture - joint venture entails establishing a firm that Is jointly owned by two or more
independent firms.
• Management contracts – firm in one country agrees to operate facilities or provide other management
services to a firm in another country for an agreed upon fees.
• Trunkey project – the contractor agrees to handle every detail, including the training of operating
personnel. At completing of the contract, the foreign client handles the ‘key’ of a plant that is ready for
full operations.
THE GLOBALIZATION DEBATE
In today’s global economy, everyone is accustomed to buying goods from other countries—
electronics from Taiwan, vegetables from Mexico, clothing from China, cars from Korea, and skirts from India.
Most modern shoppers take the “Made in [a foreign country]” stickers on their products for granted. Long-
distance commerce wasn’t always this common, although foreign trade—the movement of goods from one
geographic region to another—has been a key factor in human affairs since prehistoric times. Thousands of
years ago, merchants transported only the most precious items—silk, gold and other precious metals and
jewels, spices, porcelains, and medicines—via ancient, extended land and sea trade routes, including the
famed Silk Road through central Asia. Moving goods great distances was simply too hard and costly to waste
the effort on ordinary products, although people often carted grain and other foods over shorter distances from
farms to market towns. William J. Bernstein, A Splendid Exchange: How Trade Shaped the World (New York:
Atlantic Monthly Press, 2008).
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What is the globalization debate? Well, it’s not so much a debate as it is a stark difference of opinion on how
the internationalization of businesses is affecting countries’ cultural, consumer, and national identities—and
whether these changes are desirable. For instance, the ubiquity of such food purveyors as Coca-Cola and
McDonald’s in practically every country reflects the fact that some consumer tastes are converging, though at
the likely expense of local beverages and foods. Remember, globalization refers to the shift toward a more
interdependent and integrated global economy. This shift is fueled largely by (1) declining trade and investment
barriers and (2) new technologies, such as the Internet. The globalization debate surrounds whether and how
fast markets are actually merging together.
ETHICS AND INTERNATIONAL BUSINESS
The relationship between ethics and international business is a deep, natural one.
• Ethics - Ethics deals with morality about what is considered “right” and “wrong” behavior for people in
various situations.
• Business Ethics - are accepted principles of right or wrong that direct the behavior of a person, the
members of a profession, or the actions of an organization in the business environment.
• International Business - International business relates to any situation where the production or
distribution of goods or services crosses country borders. International business encompasses a full
range of cross-border exchanges of goods, services, or resources between two or more nations.
Ethical behavior ensures awareness and concern for the future and for the right way of action in each
particular situation. Secondly, ethical behavior establishes a healthy and pleasant cooperation climate for all
the parties involved in a deal, making them feel comfortable with each other. Thirdly, acting in accordance with
moral values is crucial for deserving clients’ attention and support and achieving a significant competitive
advantage in a particular market segment.
Ethical standards establish trust between parties doing business together, including both partners and
customers. Organizations earn this trust by demonstrating a pattern of ethical behavior over time, gaining a
reputation for fair dealing and respect for human rights and social responsibility.
Types of Code of Ethics
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• Compliance-Based Codes - For all businesses, laws regulate issues such as hiring and safety
standards. Compliance-based codes of ethics not only set guidelines for conduct but also determine
penalties for violations.
• Value-Based Codes - A value-based code of ethics addresses a company's core value system. It may
outline standards of responsible conduct as they relate to the larger public good and the environment.
Value-based ethical codes may require a greater degree of self-regulation than compliance-based
codes.
• Professional Code - A professional codes of ethics offers a set of guidelines teams or organizations
can use to make good decisions in the workplace. A professional code of ethics can help employees
work honestly and with integrity, which can help create a healthier work environment.
The goal of a code of ethics is to ensure that an organization’s employees abide by the law and always
conduct business in a forthright manner for the benefit of all stakeholders.
Importance of Ethics in International Business
• Though ethical behavior is not necessarily a legal requirement, companies and leaders who adhere to a
strong code of ethics will not only enjoy better relationships with local and international communities but
also serve as admirable examples.
• When entering a foreign market, establishing a code of ethics can build a positive international image
that results in better business practices and profits.
• To function effectively, a business organization needs a common system of moral and ethical beliefs to
drive and direct the day-to-day decisions made by individuals throughout the operation.
CHAPTER II: INTERNATIONAL TRADE AND FOREIGN DIRECT INVESTMENT

What is international Trade Theory?
International trade is a field in economics that applies microeconomic models to help understand the
international economy. The objective of an international trade course is to understand the effects of
international trade on individuals and businesses and the effects of changes in trade policies and other
economic conditions.
According to the website of uncademy, international trade is the transfer of capital, products, and
services across international borders or territories to satisfy a requirement for commodities or services.
Theories of International Trade
International trade theory, a branch of economics that studies the patterns of international commerce, their
origins, and their consequences for human well being. As a tool of evaluating the consequences of trade policy,
international trade theory and economics have evolved.
• Mercantilism was one of the earliest efforts to develop an economic theory. This theory stated that a
country’s wealth was determined by the amount of its gold and silver holdings. In it’s simplest sense,
mercantilists believed that a country should increase its holdings of gold and silver by promoting
exports and discouraging imports.
• Absolute advantage, which focused on the ability of a country to produce a good more efficiently than
another nation. Smith reasoned that trade between countries shouldn’t be regulated or restricted by
government policy or intervention. He stated that trade should flow naturally according to market forces.
In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than
Country B, then Country A had the advantage and could focus on specializing on producing that good.
Similarly, if Country B was better at producing another good, it could focus on specialization as well. By
specialization, countries would generate efficiencies, because their labor force would become more
skilled by doing the same tasks. Production would also become more efficient, because there would be
an incentive to create faster and better production methods to increase the specialization.
• Comparative advantage occurs when a country cannot produce a product more efficiently than the
other country; however, it can produce that product better and more efficiently than it does other goods.
The difference between these two theories is subtle. Comparative advantage focuses on the relative
productivity differences, whereas absolute advantage looks at the absolute productivity.
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• Heckscher-Ohlin Theory (Factor Proportions Theory) The theories of Smith and Ricardo didn’t help
countries determine which products would give a country an advantage. Both theories assumed that
free and open markets would lead countries and producers to determine which goods they could
produce more efficiently. In the early 1900s, two Swedish economists, Eli Heckscher and Bertil Ohlin,
focused their attention on how a country could gain comparative advantage by producing products that
utilized factors thatwere in abundance in the country. Their theory is based on a country’s production
factors— land, labor, and capital, which provide the funds for investment in plants and equipment. They
determined that the cost of any factor or resource was a function of supply and demand. Factors that
were in great supply relative to demand would be cheaper; factors in great demand relative to supply
would be more expensive. Their theory, also called the factor proportions theory, stated that countries
would produce and export goods that required resources or factors that were in great supply and,
therefore, cheaper production factors. In contrast, countries would import goods that required resources
that were in short supply, but higher demand.
Country similarity theory, Swedish economist Steffan Linder developed the country similarity theory
in 1961, as he tried to explain the concept of intraindustry trade. Linder’s theory proposed that
consumers in countries that are in the same or similar stage of development would have similar
preferences. In this firm-based theory, Linder suggested that companies first produce for domestic
consumption. When they explore exporting, the companies often find that markets that look similar to
their domestic one, in terms of customer preferences, offer the most potential for success. Linder’s
country similarity theory then states that most trade in manufactured goods will be between countries
with similar per capital incomes, and intraindustry trade will be common. This theory is often most
useful in understanding trade in goods where brand names and product reputations are important
factors in the buyers’ decision-making and purchasing processes.
Product life cycle theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory
in the 1960s. The theory, originating in the field of marketing, stated that a product life cycle has three
distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The theory
assumed that production of the new product will occur completely in the home country of its innovation.
In the 1960s this was a useful theory to explain the manufacturing success of the United States. US
manufacturing was the globally dominant producer in many industries after World War II.
4 stages of the product life cycle theory
There are four stages in the product life cycle theory:
• Introduction
After researching and developing a product, a business is ready to start the product life cycle.
The introduction phase is when a company successfully introduces its new product. During this
phase, the business conducts analysis to determine consumer demand and promotion of the
new product. It can typically expect sales to be low during the introduction stage because
potential customers are still learning about the product.
• Growth
During the growth stage, companies can expect the demand for the product to begin to increase.
As a result, they can generate more sales, increasing profits. During the growth stage, the
product rises in popularity and competitors may see a company as a significant competitor
within the market. Businesses may start to find similar products released into the market as
competitors try to siphon off some of their sales.
• Maturity
Once customers are familiar with a product and purchase it frequently, it enters the maturity
phase. During this stage, it's important for businesses to keep their product relevant as market
competition increases. They may spend money to keep the product as a market leader and
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prevent sales from decreasing. Saturation can be a challenge in the maturity stage, since
consumers now have several competitors to choose from as similar products enter the market.
• Decline
A product enters this stage when marketing or promotion can't keep the sales numbers from
declining. This stage can come about naturally as customers lose interest in an older product, or
it can result from competitors surpassing the product in either features or price. During the
decline stage, the business may continue to sell the product until production costs are higher
than generated profits.
Global Strategic Rivalry Theory
Global strategic rivalry theory emerged in the 1980s and was based on the work of economists
Paul Krugman and Kelvin Lancaster. Their theory focused on gaining a competitive advantage
against other global firms in their industry. Firms will encounter global competition in their
industries and in order to prosper, they must develop competitive advantages. The critical ways
that firms can obtain a sustainable competitive advantage are called the barriers to entry for that
industry. Global Strategic Rivalry Theory There is a critical ways that firms can obtain a
sustainable competitive advantage are called the barriers to entry for that industry. The barriers
to entry refer to the obstacles a new firm may face when trying to enter into an industry or new
market.
The barriers to entry that corporations may seek to optimize include:
• research and development,
• the ownership of intellectual property rights,
• economies of scale,
• unique business processes or methods as well as extensive experience in the industry,
• the control of resources or favorable access to raw materials.
Political and Legal factors that impact International Trade
Learning Objectives:
1. Learn the different political systems and identify the different legal systems.
2. Comprehend government-business trade relations and how political and legal factors
impact international business.
Political System
A political system is a set of institutions, procedures, and laws that govern the exercise
of power and authority within a society.
Types of Political Systems
1. Anarchism – opposes the idea of having a centralized government or authority.
Other forms.
a. Libertarian Anarchism
b. Anarchi-syndicalism
c. Anarcha-feminism
2. Totalitarianism
• The state holds total authority over the society
• Extreme form of authoritarian
Ex. Nazi Germany, Soviet Union, and China under the cultural revolution.
3. Pluralism – Combination of Anarchism and Totalitarianism.
Ex. Liberal Democracy
4. Authoritarian – Centralizes control on one/small group of leaders.
Ex. Saudi Arabia, Iran, & Central African Republic.
5. Democracy
• Most common form of government.
• a form of government in which power is held by the people, either directly or through elected
representatives.
Ex. United States & India.
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Several questions that companies ask regarding the POV of a country’s government to assess
possible risks:
1. How stable is the government?
2. Is it a democracy or dictatorship?
3. If a new party comes into power, will the rules of business change dramatically?
4. Is power concentrated in the hands of a few or is it clearly outlined in a constitution
or similar national legal document?
5. How involved is the government in the private sector?
6. Is there a well-established legal environment both to enforce policies and rules as
well as to challenge them?
7. How transparent is the government’s political, legal, and economic decision-making
process?
8. What is the country’s view on capitalism? Is their economic system a capitalism or a
planned economy?
Capitalism – factor of business consideration. Production are owned and controlled privately.
Planned Economy – Government directs and control the economy.
Legal System - a set of rules and principles that a society uses to govern the behavior of
its members and to settle disputes.
Three main kinds of legal systems:
1. Civil law
- “Code law” or “Romano-Germanic law”
- based on written laws and codes rather than on judicial decisions.
- Deals with personal matters rather than crime or religious matters.
- Used in France, Germany, Spain, Mexico, Europe, Latin America, and
Asia.
2. Common law
- “Case law”
- a legal system where laws are made by the judges in the court, based on
the previous decisions and cases..
- Mostly used in United States, Canada, UK, and Australia.
3. Religious law
- “Theocratic law”
- laws are based on religious texts and traditions, rather than on written
laws and statutes. Ex.
a. Islamic law – “Sharia” – Muslim countries
b. Jewish Halacha - Israel
c. Christian Canon System – Vatican City
Government- Business Trade Relations: The Impact of Political and Legal Factors on
International Trade
“Why do governments intervene in trade?” Four reasons:
1. Political
2. Economic
3. Social
4. Cultural
“How do governments intervene in trade?”
Key policies:
Tariffs – taxes imposed on imports.
a. Specific Tariffs – fixed charge.
b. Ad Valorem Tariffs – charge is calculated as a percentage of the value.
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Subsidies – form of government payment to a producer.

a. Tax breaks
b. Low-interest loans
c. Cash grants
d. Government-equity participation
Import Quotas and Voluntary Export Restraints (VER) – trade barriers that limit the amount of
foreign goods that can enter a country.
Currency Controls – measures put in place by a government to regulate the flow of money in
and out of a country.
a. Capital Controls
b. Exchange Controls
c. Interest Rate Controls
Local Content Requirements – a regulation that requires that some products must be
manufactured or assembled locally.
Antidumping Rules – to protect domestic industries from foreign companies that are
“dumping”
Export Financing – financial assistance provided to companies engaged in exporting goods or
services.
a. Export Credit Insurance
b. Pre-export Financing
c. Post-export Financing
d. Buyer Credit
Free-trade Zone – government designates zones with reduced tariffs, taxes, customs,
procedures, or restrictions to promote trade with other countries.
Administrative Policies – policies and procedures government implement to manage and
regulate international trade.
Example: Custom Clearance and Certification.
FOREIGN DIRECT INVESTMENT

The practice of investing in businesses in foreign countries.
When a person or organization controls 10% or more of a foreign business, that is considered
foreign direct investment. The International Monetary Fund defines it as a portion of an investor's stock
portfolio if they own less than 10%. vertical integration the process of vertical integration establishes
control over sources of production (e.g., supplies, technology, financing, labor, and other resources
Horizontal integration is intended to achieve market control through understanding or cooperation
agreements designed to allocate and maintain market share.
Types of Foreign Direct Investment

Foreign direct investments are commonly categorized as horizontal, vertical, or conglomerate.
horizontal a company establishes the same type of business operation in a foreign country as it operates in its
home country vertical a business acquires a complementary business in another country. Foreign direct
investment and foreign portfolio investment are investments made into another nation with the aim of
partially or fully controlling a business in order to gain market share and produce income and profits that can
potentially be distributed to stockholders as dividends.
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CHAPTER III: INTERNATIONAL BUSINESS TRADE (CULTURE AND INTERNATIONAL BUSINESS)

What is Culture , anyhow Values, Customs, Language?
• The word "culture" derives from a French term, which in turn derives from the Latin "colere," which
means to tend to the earth and grow, or cultivation and nurture.
• Culture shared patterns of behaviors and interactions, cognitive constructs and understanding that are
learned by socialization.
• Culture is a set of values, beliefs, rules, and institutions held by a specific group of people.
• Cross-cultural understanding requires that we reorient our mind-set and, most importantly, our
expectations, to interpret the gestures, attitudes, and statements of the people we encounter.
Geographical Factors
Geography has a huge impact on the day-to-day life of every individual, no matter which culture they belong to
or where they live.
• Landforms – it can affect culture when it comes physical features like mountains or oceans.
• Climate - is one of the most prominent factors in forming culture. Which influences agricultural
practices, which affect the value of cooperation, optimal family and community size, gender norms, and
so on.
• Natural Resources – it may impact what type of culture develops in terms of cuisine and economy.
The Different Elements of Culture
• VALUES AND ATTITUDES
Values refers ideas, beliefs, and customs to which people are emotionally attached. While Attitudes refer
positive or negative evaluation, feelings, and tendencies that individuals harbor toward objects or concept.
• MANNERS AND CUSTOMS
Manners are rules that govern social behavior, promoting goodwill and cooperation. And Customs are actions,
behaviors, and standards that are shared an expected of a particular culture.
• LANGUAGE
It is one obvious way in which countries differ is language. Language by language we mean both the spoken
and the unspoken that means of communication.
• RELIGIONS
A system of shared belief and rituals that are concerned with the realm of the sacred.
What are the key Methods used to describe Culture?
The combination of cross-cultural analysis and business is a new and evolving field; it’snot a static
understanding but changes as the world changes. Within cross-cultural analysis, two names dominate our
understanding of culture—Geert Hofstede and Edward
Geert Hofstede
Focuses on five key dimensions that interpret behaviors, values, and attitudes:
• Power distance
• Individualism
• Masculinity vs Femininity
• Uncertainty avoidance (UA)
• Long-term orientation vs Short-term orientation
• Indulgence vs Restraint
POWER DISTANCE - refers to how openly a society or culture accepts or does not accept differences
between people, as in hierarchies in the workplace, in politics, and so on.
INDIVIDUALISM - It refers to people’s tendency to take care of themselves and their immediate circle of family
and friends, perhaps at the expense of the overall society.
MASCULINITY VS FEMININITY - This value dimension refers to how a culture ranks on traditionally perceived
“masculine” values: assertiveness, materialism, and less concern for others.
UNCERTAINTY AVOIDANCE (UA) - This refers to how much uncertainty a society or culture is willing to
accept. It can also be considered an indication of the risk propensity of people from a specific culture.
LONG-TERM ORIENTATION VS SHORT-TERM ORIENTATION - refers to whether a culture has a long-term
or short-term orientation. The long-term orientation values persistence, perseverance, thriftiness, and having a
sense of shame. The short-term orientation values tradition only to the extent of fulfilling social obligations or
providing gifts or favors.
INDULGENCE VS RESTRAINT - An indulgent society is one which values the satisfaction of human needs
and desires; a restrained society sees the value in curbing ones' desires and withholding pleasures to align
more with societal norms.
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Edward T. Hall
• Context: High-Context versus Low-Context Cultures - High and low context refers to how a message is
communicated. In high-context cultures, the physical context o f the message carries a great deal of
importance. In low-context cultures people tend to be explicit and direct in their communications.
• Space - Hall called this the study of proxemics, which focuses on space and distance between people as
they interact. Space refers to everything from how close people stand to one another to how people might
mark their territory or boundaries in the workplace and in other settings.
• Attitudes toward Time: Polychronic versus Monochronic Cultures - In polychronic cultures—polychronic
literally means “many times”—people can do several things at the same time. In monochronic cultures, or “one-
time” cultures, people tend to be done task at a time.
Understanding How Culture Impacts Local Business Practices

Even in today’s global world, there are wide cultural differences, and these differences influence how
people do business. Culture impacts many things in business, including.
• The pace of business.
• Business protocol—how to physically and verbally meet and interact;
• Decision making and negotiating.
• Managing employees and projects.
• Propensity for risk taking; and Marketing, sales, and distribution.
When you’re dealing with people from another culture, you may find that their business practices,
communication, and management styles are different from those to which you are accustomed.
When you work in an environment that involves others from various cultures, you need to be aware of
your own culture in terms of each of these areas. Let’s look at some significant areas:
• Age/Gender/Ethnicity and Religion
• Body language and communication style
• Personal appearance/dress
• Eating and drinking traditions/etiquette
• Entertaining and socializing/gift giving
• Holidays
• Language
• Business organization/management style and leadership
• Work expectations/time management
To conduct business with people from other cultures, you must put aside preconceived notions and
strive to learn about the culture of your counterpart.
Global Business Ethics
• The field of ethics is a branch of philosophy that seeks to address questions about morality that is,
about concepts such as good and bad, right and wrong, justice, and virtue.
• Business ethics is a form of applied ethics or professional ethics, that examines ethical principles and
moral or ethical problems that can arise in a business environment.
• Business ethics‟ is the application of ethical values, such as integrity, fairness, respect, and openness,
to business behavior (Institute of Business Ethics). It relates to all activities of a company, from how it
develops, produces, and delivers its products and services, to its interactions with its customers,
suppliers, employees and wider society. Embedding these values and being seen to do so has become
increasingly important to overall business success.
Philosophers today usually divide ethical theories into three general subject areas: metaethics, normative
ethics, and applied ethics.
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• Metaethics investigates where our ethical principles come from, and what they mean. Are they merely
social inventions? Do they involve more than expressions of our individual emotions? Metaethical
answers to these questions focus on the issues of universal truths, the will of God, the role of reason in
ethical judgments, and the meaning of ethical terms themselves.
• Normative ethics takes on a more practical task, which is to arrive at moral standards that regulate
right and wrong conduct. This may involve articulating the good habits that we should acquire, the
duties that we should follow, or the consequences of our behavior on others.
• Applied ethics involves examining specific controversial issues, such as animal rights.
Why are business ethics important for companies?

Business stakeholders have higher expectations of how an organization undertakes its activities. Failing
to live up to these expectations can impact upon a company’s reputation, which can take a long time to
develop or rebuild but can be damaged in a short space of time. It can influence current and prospective
customers and the companies‟ business prospects; employee morale; recruitment, particularly senior positions;
and in comment in the media relating to companies, the analyst community and in capital markets. Even where
a company has done nothing to justify an attack on its reputation, a negative perception will itself be seriously
damaging over time. Failure to be seen to implement acceptable ethical standards of conduct can also impact
upon the degree of regulation or legislation that might otherwise be introduced to constrain behavior.
Standards of conduct may need to be above that required by law to avoid reputational damage.
Impact of Ethics on Global Business.

At first, it may seem relatively easy to identify unethical behavior. The areas of business impacted by global
perceptions of ethical, moral, and socially responsible behavior include the following:
• Ethics and management
• Ethics and corruption
• Corporate social responsibility
Ethics and Management Practices

Ethics impacts various aspects of management and operations, including human resources, marketing,
research, and development, and even the corporate mission.
Ethics and Corruption
Corruption is “giving or obtaining advantage through means which are illegitimate, immoral, and/or
inconsistent with one’s duty or the rights of others.
Enforcement of Ethical Guidelines and Standards
The concept of culture impacting the perception of ethics is one that many businesspeople debate.
While culture does impact business ethics, international companies operate in multiple countries and need a
standard set of global operating guidelines. Professionals engage in unethical behavior primarily because of
their own personal ethical values, the corporate culture within a company, or from unrealistic performance
expectations.
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The Moral Dilemmas of Globalization
A big moral dilemma concerns labor standards, something that cropped up due to overseas sweatshop
outsourcing and concerns over poor overseas working conditions and child labor. Countries with poor
environmental regulations may also have such conditions exacerbated by MNCs. Additionally, MNCs may face
pressure to stop doing business with countries whose governments violate human rights. Another concern is a
lack of respect for cultural diversity, despite international laws requiring respect be given to a country’s culture
and customs. Finally, some countries allow bribery in foreign operations, creating another moral stress.
Global Business Codex

1. The Fiduciary Principle
❖ (Diligence, Loyalty).
2.The Property Principle
❖ (Protection, Theft).
3. The Reliability Principle
❖ (Contracts Premises, Commitments).
4. The Transparency Principle
❖ (Truthfulness, Deception, Disclosure, Candor, Objectivity).
5. The Dignity Principle
❖ (Respect for the Individual, Health and Safety, Privacy and Confidentiality, Use of Force, Association
& Expression, Learning & Development, Employment Security).
6. The Fairness Principle
❖ (Fair Dealing, Fair Treatment, Fair Competition, Fair Process).
7. The Citizenship Principle
❖ (Law & Regulation, Public Goods, Cooperation with Authorities, Political Noninvolement, Civic
Contribution.
8. The Responsiveness Principle
❖ (Addressing Concerns, Public Involvement).
The Seven Habits and Characteristics of Ethical Leaders

It’s important for an ethical leader to have a strong personal character, as a leader’s failure to earn their
employees’ respect will create the perception that they don’t care about company ethics or ethics requirements.
They must also act as role models for an organization’s value and act with transparency. It’s also important for
ethical leaders to be proactive to prevent ethical problems. Additionally, ethical leaders must exhibit a passion
for acting in the company’s best interest without bending the rules and considering all stakeholders’ interests.
Finally, they need to view their firm’s ethical culture holistically.
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The Duties of Every Ethical Leader

All ethical leaders must create a review process to identify ethical issues. They must also detect ethical
risk areas by analyzing the company’s weakness. Additionally, they must be able to answer stakeholder
concerns as soon as an ethical issue is revealed. Fourthly, they must avoid misconduct by ensuring all
employees are trained to follow ethics guidelines. Finally, ethical leaders must recover from a misconduct
disaster by addressing weaknesses in the company’s ethics program. There are several potential benefits to
deploying ethical leadership. These include building stronger company relationships with external stakeholders,
building higher employee satisfaction and employee commitment, and seeing higher firm valuation on the stock
market.
CHAPTER IV: WORLD ECONOMIES

Introduction:
Many may be wondering, based on the chapter's title, if it will cover the entire world. In a manner, the
response is also positive. When global managers investigate expansion strategies, they first examine the
global landscape. Knowing the various markets' stages of development enables managers to decide the
optimal entry and expansion strategies.
Globally savvy managers recognize that in order to be effective in a country, they must be familiar with
its recent political, economic, and social history. This enables them to analyze not only the current business
opportunity, but also the risk posed by political, economic, and societal changes that may have an influence on
their firm. Initially, Section 4.1, "Classifying World Economies," describes how corporations and economists
analyze world economies. The remaining sections explain what the developed and developing worlds are and
how they differ, as well as how to evaluate the expanding group of emerging-market countries, which began
with the BRIC countries, and has since grown to include twenty-eight nations. Effective global managers must
be able to determine which markets have the most potential for their products or services. Furthermore
addition, managers must monitor these expanding areas for the emergence of new local firms that capitalize
on favorable economic conditions to become global competitors.
Classification of Economies:
Experts debate on the exact criteria to employ, whether countries are actually developed, and how to
characterize a country's level of economic development. Political, economic, and social issues are all raised in
this discussion. A manager evaluates a nation by looking at its GDP, the purchasing power of its citizens, the
legal, regulatory, and commercial infrastructure, such as the energy, transportation, and communication
systems, as well as the level of sophistication of the business environment.
How do we classify economies?
Gross national income (GNI) per capita is the World Bank's primary operational and analytic
classification criterion for economies. Low-income, middle-income (subdivided into lower middle and upper
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middle), and high-income conomies are the three classifications of economies. Other analytical categories
based on geographical regions and external debt levels are also used.
On The Basis of Per Capita Income
For statistical purposes, the World Bank divides countries into four categories based on their GDP: low,
lower-middle, upper-middle, and high.
Let's all look more in-depth at some of these globally recognized statistics and classifications that are often
used to identify a country's development stage.
Gross Domestic Product
Gross domestic product (GDP) is the standard measure of the value added created through the production of
goods and services in a country during a certain period. The statistic, which is typically expressed in US
dollars, is an official assessment of the country's output of products and services. For instance, the official
GDP will not account for a nation's sizable black, or underground, market for trade, it will not be included in the
official GDP.
As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given
country’s economic health. It counts all of the output generated within the borders of a country. Moreover, GDP
is significant because it provides information about the size of an economy and its performance. The growth
rate of real GDP is frequently used as a measure of the economic climate. An increase in real GDP is taken as
an indication that the economy is thriving.
What is the GDP calculation formula?
Theoretically, there are three ways for economists and statisticians to compute the GDP of a country, and they
should all yield the same result:
1. Expenditures. This is the value of everything purchased within the country plus the country's net exports to
other countries.
2. Income. This is the total income of all individuals and companies in the country. Also known as
domestic revenue.
3. Production. This represents the total market value of all domestic production.
Purchasing Power Parity
PPP is an economic theory that compares different countries' currencies through a "basket of goods"
approach. The concept of purchasing power parity is based on the notion that over time, pricing for goods
and services should become comparable across countries.
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The World Bank computes PPP for each country in the world. It provides a map that shows the PPP ratio
compared to the United States.
How Does Purchase Power Parity Work?
1. Expenditures. This is the value of everything purchased within the country plus the country's net
exports to other countries.
2. Income. This is the total income of all individuals and companies in the country. Also known as
domestic revenue.
3. Production. This represents the total market value of all domestic production.
An economist will use the PPP to compare the economic output of different nations against one another. It
might be used to determine which country has the world's largest economy. Using PPP exchange rates in
addition to a country's gross domestic product (GDP) may help to provide a more detailed picture of a
country's economic health.
How Does Purchase Power Parity Work? An economist will use the PPP to compare the economic output of
different nations against one another. It might be used to determine which country has the world's largest
economy. Using PPP exchange rates in addition to a country's gross domestic product (GDP) may help to
provide a more detailed picture of a country's economic health.
Coffee costs. Every coffee has coffee, water, and milk; however, prices vary. The UAE imports all its coffee,
making it the priciest. Italy's coffee costs £0.78; the UAE's £4.47. Currency purchasing power affects coffee.
Since commodities are priced in US dollars, currency fluctuations affect coffee prices. The statistic mitigates
the issue of the huge discrepancy in inflation rates among countries and facilitates the comparison of the
relative outputs and living standards of various economies. The variables derived from purchasing power parity
reveal the actual condition, allowing for comparisons.
Human Development Index (HDI)
GDP and purchasing power are indicators of a country's level of economic growth based on a statistic that
focuses on income. In recent times, economists and industry experts have shifted their focus to measures that
evaluate whether people's needs are satisfied and if these requirements are addressed equitably across the
local population. One such indicator is the human development index (HDI), which assesses people's
contentment in three main areas: a long, healthy life as measured by life expectancy, fair opportunities to
excellent education, and a reasonable, sustainable standard of living as measured by income. HDI is
expressed as a value between 0 and 1. The higher a country's human development, the higher its HDI value.
Top 10 Countries with the Highest Human Development Index (HDI) – 2022
Countries HDI
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1. Switzerland .962
2. Norway .961
3. Iceland .959
4. Hong Kong .952
5. Australia .951
6. Denmark .948
7. Sweden .947
8. Ireland .945
9. Germany .942
10. Netherlands .941
The vast majority of developed nations have an HDI score of 0.8 or higher, placing them in the extremely top
tier of human development. These nations have stable governments, widespread access to low-cost education
and healthcare, high life expectancy and quality of life, and strong, growing economies.
In contrary, the world's least-developed countries (LDCs) typically fall into the "low human development"
group with HDI scores below 0.55. LDCs are characterized by unstable governments, widespread poverty,
inaccessibility to healthcare, and inadequate education. Furthermore, these nations have low incomes,
low life expectancies, and high rates of births. This demonstrates the primary purpose of the HDI, which is
to aid the United Nations in determining which countries (particularly the least-developed nations) are
most in require of support.
The Developed World

Individuals frequently are quick to identify developing economies and emerging markets as those with the most
promising growth potential. In fact, this is frequently the situation. Nevertheless, you should not disregard the
developed economies; depending on the product or service, they can also offer development potential. The
key is to comprehend established economies and assess their suitability for a company's strategy.
What is a developed world?
Developed world have advanced technological infrastructure and have diverse industrial and service sectors.
Their citizens typically enjoy access to quality health care and higher education. The developed world
encompasses Norway, the United Kingdom, Canada, the United States, Western Europe, Japan, South Korea,
Australia, and New Zealand. Even though these economies are moving from a manufacturing focus to a
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service focus, they still have a strong manufacturing base. However, just because an economy is developed
doesn’t automatically make it one of the biggest.
Largest Developed Countries
Following is a selection of the most developed countries, each of which is profiled in terms of its corporate
culture, economic climate, and economic structure.
The United States
• Geographically, the United States is the fourth-largest country in the world—after Russia, China, and Canada.
It sits in the middle of North America, bordered to the north by Canada and to the south by Mexico. With a
history steeped in democratic and capitalist institutions, values and entrepreneurship, the United States has
been the driver of the global economy since World War II.
European Union
• Today, the European Union (EU) represents the monetary union of twenty- seven European countries. One of
the primary purposes of the EU was to create a single market for businesses and workers accompanied by a
single currency, the euro. Internally, the EU has made strides toward abolishing trade barriers, adopting a
common currency, and striving toward convergence of living standards. The EU wants to improve Europe's
trade position and its political and economic power around the world.
Japan
• Located off the east coast of Asia, the Japanese archipelago consists of four large islands—Honshu,
Hokkaido, Kyushu, and Shikoku—and about four thousand small islands, which when combined are equal to
the size of California. The American occupation of Japan following World War II laid the foundation for today’s
modern economic and political society. The occupation was intended to demilitarize Japan, to fully democratize
the government, and reform Japanese society and the economy.
Germany
• Germany has the fifth-largest economy in the world, after the United States, China, Japan, and India. With a
heavily export-oriented economy, the country is a leading exporter of machinery, vehicles, chemicals, and
household equipment and benefits from a highly skilled - Along with being wealthy, people who live in this
economy should also have a higher quality of life, which can be measured by a variety of things including
literacy rates, life expectancy, infant mortality rates, and access to healthcare, among other things.
Advantages and Disadvantages
Advantages
These are several different advantages:
• These economies are generally easier to do business in, which leads to higher job creation.
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• It gives its people more freedom to say what they want, which helps the country and its people grow in a
positive way.
• These economies have well-trained workers because they put a lot of economic money into education and
training.
• It helps other underdeveloped countries improve their economies and bring their people out of poverty.
• As developed economies have a long track record in governance and management, they copy and adapt
build models to build their models for faster development.
Disadvantages
These are several different disadvantages:
• Due to the free market, these economies build a lot of economic excesses that lead to crises. One good
example is the 2008-2009 subprime financial crisis, wherein the entire world suffered because of inappropriate
ways of doing the business of a few institutions.
• These economies are more powerful and sometimes exert undue pressure on developing nations.
• Income inequality is widely prevalent in developed economies, leading to poor living standards and distrust of
people in the lower strata of society.
Characteristics of Developed Countries
1. High Income
In terms of per capita income, they have a high income. Each organization has a different concept of a high
income. A per capita income of $12,376 or more is considered high income by the World Bank.
2. High Human Development Rank
Along with being wealthy, people who live in this economy should also have a higher quality of life, which can
be measured by a variety of things including literacy rates, life expectancy, infant mortality rates, and access to
healthcare, among other things.
3. Service Sector Domination
As the economy achieves developed status, the service sector becomes a bigger part. The manufacturing is
left to other developing countries while developed economies focus on innovation and developing futuristic
value-added products.
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4. Technological advances
Due to their highly skilled workforce and culture of taking risks, they are significantly more technologically
sophisticated than other countries. Additionally, embrace innovation to encourage involvement in the
development of turning technologies across a wide range of industries.
5. High Level of Infrastructure Development
They make significant investments in infrastructure expansion, which boosts economic growth even further.
There are better roads, rail, air, water, and civil infrastructure than in less developed or underdeveloped
countries.
Strong legacies have been left by developed countries. These nations' thrivingeconomies considerably
contribute to the maintenance of global peace. These economies also present rising countries with significant
possibilities to grow their markets for the goods and services that they offer. Despite certain shortcomings,
industrialized economies have a positive impact on the world as a whole. The world community benefits
immensely from the financial stability and technological ability of all these economies.
Developing World
The countries which are going through the initial levels of industrial development along with low per capita
income are known as Developing Countries. A developing country is one with a relatively low level of economic
output. These countries come under the category of third-world countries. They are also known as lower
developed countries. Developing nations rely on developed nations for assistance in building national industry.
The country has a low Human Development Index (HDI), indicating that it has a low Gross Domestic Product, a
high illiteracy rate, poor educational, transportation, communication, and medical facilities, an unsustainable
government debt, unequal income distribution, a high death rate and birth rate, malnutrition for both mother
and infant resulting in a high infant mortality rate, a high level of unemployment, and a high level of poverty.
Difference between Developed Country and Developing Country
Developed Countries refers to the sovereign state whose economy is highly developed and whose
technological infrastructure is extensive in comparison to other nations. On the other hand, the nations with low
industrialization and a low human development index are referred to as developing countries.
Characteristics of Developing Countries
1. High level of unemployment
The economy is not able to generate enough jobs for people seeking work.
2. Use of traditional and inefficient methods of production
They are using low-quality materials during the manufacturing process, so it lead to more waste and create
products that do not meet standards or specifications, and should be scrapped.
3. Inadequate infrastructure
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Infrastructure services are often inadequate to meet demand, resulting in congestion or service rationing.
4. Low standard of living
Segment of the population may not have much wealth or access to basic services and amenities.
5. low level of productivity
The main causes are low education standards within the countries, the low level of health among workers, lack
of investment in physical capital and lack of access to technology.
6. high rates of population growth and dependency burdens Developing countries tend to have crude birth
rates that are on average more than double rates in developed countries.
Challenges of Developing Countries
There are multiple and often intertwining challenges within the developing world. In the following, we will
address the major challenges linked to developing countries.
1. Trade - is the exchange (importing and exporting) of goods and services between countries.
2. Industrialization - is a historical process of social and economic change whereby a country's economy
starts to focus primarily on the manufacturing of goods.
3. Urbanization - refers to the increasing shift in the number of people living in urban areas and a decrease in
those living in rural areas.
4. Environmental impacts of development - the direct effect of socio-economic activities and natural events on
the components of the environment.
5. War and Conflict - refers to a disagreement between two parties where at least one considers the other a
threat, leading to acts of violence and fighting.
Emerging Market
The term emerging markets describes countries that are undergoing rapid growth and industrialization.
• Is the economy of a developing nation that is becoming more engaged with global markets as it grows.
• Dates back to 1981
• Was coined by a world bank employee Antoine Van Agtmael.
• Who Proposed a new global investment fund for the stock markets in the developing countries and named it
as “Third-World Equity Fund”.
• Thus, Van Agtmael came up with a term that sounded more positive and invigorating: emerging markets.
suggested progress, uplift and dynamism where in later on, the term emerging market became the universal
term in the financial world to describe investment in the developing countries.
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Third World is an outdated and derogatory phrase that has been used historically to describe a class of
economically developing nations.
How Do developing Countries become Emerging Markets?
1. Seek to implement transparency in its government as well as in its political and economic institution to help
inspire business confidence in its country.
2. Develop the local commercial infrastructure and reduce trade barrier to attract foreign businesses, and
3. Educate the population equally and create a healthy domestic workforce that’s both skilled and relatively
cheap.
Characteristics of Emerging Markets
1. Size of local population
2. Opportunity for growth with changes in the local commercial infrastructure
3. Regulatory and trade policies
4. Improvement in efficiencies
5. Overall investment in the education and well-being of the local population.
Key Emerging Market – BRICS Countries
BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Goldman Sachs economist Jim O'Neill
coined the term BRIC (without South Africa) in 2001, claiming that by 2050 the four BRIC economies would
come to dominate the global economy. South Africa was added to the list in 2010.
1. Asia - Spotlight on China
• third-largest country in the world after Russia and Canada.
• Located below Russia on the western seaboard of the Pacific Ocean, China is about as large as the continent
of Europe and slightly larger than the United States.
Reason why China’s economy considered to be an emerging market:
• China remains a predominantly agricultural society. Major crops include rice, barley, millet, tobacco, sweet
potatoes, wheat, soybeans, cotton, tea,
raw silk, rapeseed, corn, peanuts, watermelon, and sesame seed.
• leading industries include textiles, machinery, cement, chemicals, communications, and transportation
equipment, building materials, and electronic machinery and equipment.
• China’s economy has grown an average of 9 percent.
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• it’s estimated that some 300 million Chinese have entered the middle-class cohort, it means they are fueling a
huge increase in consumer spending and that is because of the success of China’s increased the GDP.
2. Spotlight on India
• called the Republic of India and is also known as Hindustan or Bharat
• seventh-largest country in the world Reason India’s economy considered to be an emerging market.
• The country is rich in natural resources, such as rubber, timber, chromium, coal, iron, manganese, copper ore,
petroleum, bauxite, titanium, mica salt, limestone, and gypsum.
• The country is one of the world’s leading producers of iron ore, and coal accounts for nearly 40 percent of all
mined minerals.
• In addition, India has deposits of precious stones, including diamonds, emeralds, gold, and silver.
• The growth of Indian industry, which accounts for about 28.2 percent of its GDP and 14 percent of
employment, has resulted in widespread improvements and diversity in the country’s manufacturing base.
• The power, electronics, food processing, software, transportation equipment, and telecommunications
industries are developing rapidly.
• The financial sector, including banking and insurance, is well developed, although efforts to modernize it are
underway.
3. Europe – Spotlight on Russia
• largest country in the world
• Major exporter of different necessities. Reason why Russia’s economy considered to be an emerging market.
• In 2009 Russia was the world’s largest exporter of natural gas, the second largest exporter of oil, and the
third largest exporter of steel and primary aluminum—and other less competitive heavy industries that remain
dependent on the Russian domestic market.
• The country produces 30 percent of the world’s nonferrous, rare, and noble metals; 17 percent of the world’s
crude oil; 30 percent of natural gas; and it holds 40 percent of the world’s known natural gas deposits. Today,
agriculture accounts for 4.7 percent of the economy, industry represents 34.8 percent, and services total 60.5
percent (based on a 2009 estimate)
• Russia has a highly industrialized and agrarian economy. From being net grain importer, it became a net
grain exporter.
4. Africa – Spotlight on South Africa
• twenty-seventh largest in the world
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• makes up the southern portion of the continent of Africa, from the Atlantic Ocean in the west to the Indian
Ocean in the east. Reason why South Africa’s economy considered to be an emerging market.
• South Africa gradually developed an agricultural sector, based on fruit, wine, and livestock production, along
the coast of the Cape of Good Hope.
• South Africa has emerged as a free-market economy with an active private sector.
• As an emerging-market country, South Africa relies heavily on industrial imports and capital. Specialty
minerals and metals, machinery, transport equipment, and chemicals are important import sectors.
5. Latin America – Spotlight on Brazil
• fifth-largest country in the world. Reason why Brazil’s economy considered to be an emerging market.
• Brazil is best known as a leading world producer of coffee and sugar.
• Brazil is home to several global firms.
• The Brazilian food processors, Sadia and Perdigao, exemplify the international entrepreneurship of modern
Brazil.
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CHAPTER V: International Economic Operation

General Agreement on Tariffs and Trade
A set of trade regulations known as the General Agreement on Tariffs and Trade (GATT) was initially
established in 1947 by 23 nations. There were 125 member countries when the WTO took its position. GATT
has been credited for greatly expanding global trade, especially through the elimination of tariffs.The primary
underlying premise of GATT was that commerce should be free and equitable. In other words, there should be
neither discrimination nor special treatment; governments should open their markets to all members equally.
The most-favored-nation clause was one of the main GATT stipulations (MFN). It mandated that if two or more
nations reached an agreement on a benefit— typically a tariff reduction—that benefit be immediately extended
to the other members of the group. The GATT member nations gradually began to focus on other nontariff
trade restrictions. They comprised industry standards, subsidies, levies and customs, taxes, and licensing.
They also covered government procurement and bidding. The GATT members decided to reduce or get rid of
certain trade restrictions. The only export subsidies that were agreed upon were for agricultural goods. By
easing licensing requirements and creating uniform product standards for imports and locally produced goods,
nations decided to let a larger variety of imported items to access their domestic markets. For the same
imported and domestically manufactured commodities, duties have to be the outcome of uniform and
consistent methods. The first achievements in these areas prompted some nations to become more inventive
with the creation of trade obstacles, the signing of bilateral agreements, and the provision of more inventive
subsidies for certain industries. Enforcement was a problem for GATT's member nations. There wasn't much
more a country could do to express its unhappiness of another country's conduct and trade restrictions but
complain and retaliate. Trade gradually got more complicated, which prompted the Uruguay Round, which
started in 1986 and ended in 1994. Prior to a round, each series of trade conversations started in one nation.
These trade meetings were referred to as rounds in reference to the series of meetings among global peers
held at a "roundtable". Then, the round of negotiations was given that nation's name. Sometimes it takes many
years to finish a round's subject talks. The World Trade Organization and the dissolution of GATT were two
outcomes of the eight-year-long Uruguay Round (WTO). The WTO really considers the current Doha
Development Round, which started in 2001, to be a part of it.
Most-favored-nation
MFN is a crucial clause that has applications in many areas of business. MFN is a requirement that
businesses place on their trade partners for access, price, and other terms. Customers who are corporations or
the government expect it of the business from whom they buy goods or services. It is something that venture
capitalists (VC) demand of the businesses in which they invest. For instance, a venture capitalist (VC) may
request this clause to ensure that it has secured the greatest possible price for the stock in the event that
another financier is able to get a lower purchase price for the equity. The rationale behind the MFN notion is
that the nation, business, or other entity having MFN status shouldn't be at a disadvantage when compared to
others who play comparable roles as trade partners. investor or buyer. The signing party granted MFN status
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ultimately benefits from any successful negotiations and earns the lower price point or better term. Other
corporate legal agreements or sales contracts may also utilize this phrase.
World Trade Organization (WTO)
The Uruguay Round of the GATT led to the creation of the World Trade Organization (WTO). The WTO
was formally established on January 1, 1995, after years of conceptual development. All of the GATT's
standing agreements were included into the WTO when it took over from GATT. Unlike GATT, which was a
collection of agreements, the WTO was intended to be a real organization with the responsibility of advancing
free and fair trade. The WTO is the sole worldwide international body that deals with international trade
regulations, as stated on its website. The WTO accords, which were negotiated, signed, and ratified by the
majority of the world's trading states, form its foundation. The objective is to facilitate
commercial operations for exporters, importers, and manufacturers ofproducts and services. Trade has
increased dramatically as a result of the worldwide emphasis on cooperation and multilateral trade agreements.
"World commerce has grown exceptionally over the past 50 years. Merchandise exports climbed on average
by 6 percent yearly. In 2000, total trade was 22 times more than it was in 1950. A robust and successful trade
system, facilitated by GATT and the WTO, has contributed to hitherto unheard-of growth. The main objective of
the WTO is to act as a platform for negotiations among its members on issues pertaining to trade. The WTO
engages in talks on issues connected to globalization and its effects on people and the environment, as well as
trade-specific concerns, and is more than just a series of trade agreements, as it was under GATT. Although it
does offer a venue for discussing how global commerce affects other facets of the globe, it does not
necessarily produce official agreements in all of these areas. The Doha Round, which has its headquarters in
Geneva, Switzerland, started in 2001. The WTO is the biggest international trade organization, with 153
members. Observer status is granted to thirty countries, several of whom are applying for membership. Due to
the large number of members, the MFN principle has been modified into a new standard for normal trade
relations (NTR). Proponents contend that there is no such thing as a "preferred nation" status and that all
countries engage in commerce with one another on a regular basis. The dispute resolution clause is the main
difference between GATT and the WTO. The WTO will hear from both nations and arbitrate a resolution if a
country believes that another country's trade practices are unfair or discriminatory. The World Trade
Organization has also made an attempt to emphasize services rather than just products. The General
Agreement on Trade in Services (GATS), which came out of the Uruguay Round, aims to lower trade
restrictions for services. GATS mandates that member states treat international service businesses the same
as local ones in order to uphold the GATT commitment to nondiscrimination. For instance, if a nation mandates
that banks hold 10% of deposits as reserves, then both local and international banks should adhere to this
requirement. Defining and regulating services has proven to be more difficult, and member countries are still
talking about it. The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights is comparable
to GATS (TRIPS). Virtually anything that a person or entity makes with their minds is considered to be
intellectual property. It contains, to mention a few, words, phrases, sayings, music, art, literature, graphics, and
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innovations. The author of the work has the legal right to profit financially from it, according to the fundamental
tenet of intellectual property rights (IPR) law. Protecting the expenditures associated with research and
development (R&D), also known as creation costs, is especially crucial. The intellectual property that
businesses produce might also be theirs. The protection that nations agree to provide for intellectual property
developed in another country is the main topic of this section. Companies have grown more vigilant in recent
years about safeguarding their intellectual property and going after violators. IPR is now formally included in
the WTO agreements and ongoing discussion, whether it's the counterfeit designer handbag from China that
ends up on the streets of New York, the author protecting her ideas in the written words of a book (commonly
understood as content), or the multinational software company battling piracy of its technical know-how.
Current challenges and opportunities
Two significant industries where the WTO encounters difficulties are agriculture and textiles. Subsidies
from exporting countries, taxes and limitations from importing countries, and nontariff trade obstacles all have
an influence on agricultural trade. Agriculture trade barriers continue to be a problem for the WTO, whether it
be because of Japan's restrictions on the import of beef or the United States' low-cost loans andsubsidies to its
farmers. Transnational corporations and trade associations that aid private-sector businesses want their
governments to advocate for them at the WTO. After meeting [US Agriculture Secretary Tom] Vilsack in Tokyo
in 2010, Japan's agriculture minister, Hirotaka Akamatsu, told reporters that there was now a gap between his
country and the US. The safety of our food is our first priority according to Japanese scientific standards. The
OIE standards are distinct from the scientific ones used in Japan. According to the National Cattlemen's Beef
Association, [a trade organization promoting the interests of American beef farmers], the limitations cost the
U.S. cattle sector roughly $1 billion in annual sales. Prior to its import embargo following the discovery of the
first case of the brain-wasting disease known as bovine spongiform encephalopathy (commonly known as mad
cow disease) in the United States, Japan was the biggest foreign consumer of American beef.After meeting
[US Agriculture Secretary Tom] Vilsack in Tokyo in 2010, Japan's agriculture minister, Hirotaka Akamatsu, told
reporters that there was now a gap between his country and the US. The safety of our food is our first priority
according to Japanese scientific standards. The OIE standards are distinct from the scientific ones used in
Japan. According to the National Cattlemen's Beef Association, [a trade organization promoting the interests of
American beef farmers], the limitations cost the U.S. cattle sector roughly $1 billion in annual sales. Prior to its
import embargo following the discovery of the first case of the brain-wasting disease known as bovine
spongiform encephalopathy (commonly known as mad cow disease) in the United States, Japan was the
biggest foreign consumer of
American beef. In 2005, the restriction was loosened to permit meat from calves that were 20 months old or
younger, which scientists claim had a lower likelihood of having received the deadly disease. According to the
U.S., Japan was the third-largest consumer of American beef in 2009, with commerce reaching $470 million,
up from $383 million in 2008. Federation of Meat Exports. In comparison, $1.39 billion was earned in 2003. In
2009, Mexico and Canada were the top two exporters of US beef. Although it's not always simple, the WTO's
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job is to promote agreements in contentious bilateral and international trade disputes. Business watchers point
out that while mad cow disease may appear to be the cause of Japan's resistance to US beef, the country has
always valued Japanese goods, which it frequently asserts are superior. In the 1980s, Japan hindered the
import of rice from other nations, which led to a similar trade dispute. Japanese people often believed that their
native rice was simpler for them to digest. On December 14, 1993, the Japanese government agreed to a
limited openness of the rice market under the GATT plan following lengthy negotiations in the Uruguay Round.
Another area on which the WTO has concentrated its efforts is antidumping. Dumping happens when a
business exports goods to a foreign market for less than the cost of production or less than the local prices in
that market. Antidumping claims, which are made against a firm rather than a nation, might be more difficult to
resolve. As an illustration, India has previously accused Japan and Thailand of dumping acetone, a substance
used in explosives and narcotics, on the Indian market. India has brought up the matter with the WTO in an
effort to defend homegrown producers. India has brought up the matter with the WTO in an effort to defend
homegrown producers. According to a recent WTO report, India ranked second among the G-20 (or Group of
Twenty) countries only to Argentina in the number of antidumping investigations that were opened in 2009.
Future Outlooks
The Doha Round may not be over, but the WTO and any associated institutions still have a bright future.
The WTO is essential to promoting and safeguarding free and fair trade because businesses and nations now
face a wider range of trade concerns than ever before. Several experts anticipate that the WTO will need to
highlight how the Internet has affected commerce. The WTO typically gives businesses and nations the finest
alternatives for disputing, debating, and resolving unfair trade and economic
practices.
Key Takeaways:
● A set of trade regulations known as the General Agreement on Tariffs and Trade (GATT) was initially
established in 1947 by 23 nations. It was in effectuntil 1995, when the WTO took its place.
● The only international agency that deals with international trade regulations isthe World Trade Organization
(WTO). The core of the WTO is composed of the agreements that its 153 members have negotiated, signed,
and passed intheir national legislatures. Its objective is to facilitate commercial transactions for those who
produce, export, and import products and services. The Doha Round is the name of the WTO's current round.
Regional Economic Integration
Regional economic integration has enabled countries to focus on issues that are
relevant to their stage of development as well as encourage trade between neighbors. There are four main
types of regional economic integration:
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1. Free trade area. This is the most basic form of economic cooperation. Member countries remove all barriers
to trade between themselves but are free to independently determine trade policies with nonmember nations.
An example is the North American Free Trade Agreement (NAFTA).
2. Customs Union. This type provides for economic cooperation as in a free-trade zone. Barriers to trade are
removed between member countries. The primary difference from the free trade area is that members agree to
treat trade with nonmember countries in a similar manner.
3. Common Market. This type allows for the creation of economically integrated markets between member
countries. Trade barriers are removed, as are any restrictions on the movement of labor and capital between
member countries. Like customs unions, there is a common trade policy for trade with nonmember nations.
The primary advantage to workers is that they no longer need a visa or work permit to work in another member
country of a common market. An example is the Common Market for Eastern and Southern Africa (COMESA).
4. Economic union. This type is created when countries enter into an economic agreement to remove barriers
to trade and adopt common economic policies. An example is the European Union (EU).
Union (EU). Pros and cons for creating regional agreements:

Pros:
1. Trade creation. These agreements create more opportunities for countries to trade with one another
by removing the barriers to trade and investment.
2. Employment opportunities. These agreements create more opportunities for countries to trade with
one another by removing the barriers to trade and investment
3. Consensus and cooperation. Member nations may find it easier to agree with smaller numbers of
countries. Regional understanding and similarities may also facilitate closer political cooperation.
Cons:
1. Trade diversion. The flip side to trade creation is trade diversion. Member countries may trade
more with each other than with nonmember nations. This may mean increased trade with a less
efficient or more expensive producer because it is in a member country.
2. Employment shifts and reductions. Countries may move production to cheaper labor markets in
member countries. Similarly, workers may move to gain access to better jobs and wages. Sudden shifts
in employment can tax the resources of member countries.
3. Loss of national sovereignty. With each new round of discussions and agreements within a
regional bloc, nations may find that they have to give up more of their political and economic rights.
27
Major Areas of Regional Economic Integration and Cooperation
• North America: NAFTA

• South America: MERCOSUR
• CARICOM and Andean Community
• CAFTA-DR
• European Union
• CEFTA
• Asia: ASEAN
• Asia: APEC
• Middle East and Africa: GCC
• Middle East and Africa: AEC
How Do These Trade Agreements and Ef orts Impact Business?
• The challenges for businesses include finding themselves outside of a new trading bloc or having the
“rules” for their industry change due to new trade agreements.
• Over the past few decades, there has been an increase in bilateral andmultilateral trade agreements.
It’s often called a “spaghetti bowl” of global bilateral and multilateral trade agreements because the
agreements are not linear strands lining up neatly; instead, they are a messy mix of crisscrossing
strands, like a bowl of spaghetti, that link countries and trading blocs in self benefiting trading alliances
Why Does Peace Impact Business?
The opening case study demonstrated how political, economic, and military instability in Europe led to
two world wars and eventually the development of the EU. It’s clear that conflict between countries significantly
reduces international trade and seriously damages national and global economic welfare. It’s worth noting that
there is a wide range of businesses that benefit from war—for example, companies in industries that
manufacture arms, plastics, clothing (uniforms), and a wide range of supplies and logistics. Companies such
as BAE Systems, Lockheed Martin, Finmeccanica, Thales Group, General Dynamics, KBR (Halliburton), Rolls-
Royce, Boeing, and Honeywell are just some of the world’s largest companies in this sector, and all receive
benefits that are woven into economic and trade policy from their respective governments directly as well as
through general preferences in trade policies and agreements.
Most Global businesses find that operating in stable environments

Leads to the best business operations for a range of reasons:
• Staffing - It’s easier to recruit skilled labor if the in-country conditions are stable and relatively risk-free.
• Operations - In unstable environments, companies fear loss or damage to property and investment.
• Regulations - Unclear and constantly changing business rules make it hard for firms to plan for the
long term.
28
• Currency convertibility and free-flowing capital - Often countries experiencing conflict often impose
capital controls (i.e., restrictions on money going in and out of their countries) as well as find that their
currency may be devalued or illiquid.
THE UNITED NATIONS
The United Nations (UN) was formed in 1945 at the end of World War II to replace the League of
Nations, which had been formed in 1919. Its original goals remain the same today: to maintain international
peace and security; to develop friendly relations between nations; and to foster international cooperation in
solving economic, social, humanitarian, and cultural issues. There is an underlying premise of human rights
and equality. Almost all of the world’s countries are members—currently 192 nations—with only a few smaller
territories and Taiwan, out of deference to China, given observer status and not membership. The UN is funded
by member countries’ assessments and contributions. The work of the UN reaches every corner of the globe.
Throughout the world, the UN and its agencies assist refugees, set up programs to clear landmines, help
expand food production, and lead the fight against AIDS. They also help protect the environment, fight
diseases, reduce poverty, and strive for better living standards and human rights. Although the UN is often best
known for peacekeeping, peace building, conflict prevention, and humanitarian assistance, the organization
also works on a broad range of fundamental social, economic, environment, and health issues. In the Ethics in
Action sidebar on Angola, you learned how the UN led the way to resolving the problem of conflict diamonds
and partnered with the global diamond industry to develop a long-term solution to a thorny ethical trading
problem and promote peace and stability in former conflict countries like Angola.
UN consists of six (6) main bodies:
1. General Assembly - This is the deliberative body of the UN and consists of all of the member
countries that meet in regular sessions throughout the year. All of the members have an equal vote in
the General Assembly.
2. Security Council - This body is responsible for addressing issues related to peace and security. It
has fifteen members, five of which are permanent country representations—the United States, the
United Kingdom, Russia, China, and France. The remaining ten are elected by the General Assembly
every two years. As you may expect, there’s a great deal of political wrangling by countries to be on the
Security Council, which is deemed to have significant power. All decisions by the Security Council are
supposed to be binding on the rest of the member nations of the UN.
3. Economic and Social Council (ECOSOC) - This body is responsible for issues related to
economics, human rights, and social matters. A number of smaller commissions and specialized
agencies carry out this council’s work. The ECOSOC works closely with the World Bank and the
International Monetary Fund.
4. Secretariat - The Secretariat oversees the operations of the UN and is technically headed by the
Secretary-General.
29
5. International Court of Justice - Located in The Hague, this body hears disputes between nations.
The court consists of fifteen judges who are elected by the General Assembly and the Security Council.
The court reviews cases concerning war crimes, genocide, ethnic cleansing, and illegal interference by
one country in the affairs of another, among others.
6. UN Trusteeship Council - While an official part of the UN Charter charged with overseeing all
trustee territories under UN custody, this body is currently inactive.
The Ten Principles of the UN Global Compact:
Human Rights
Principle 1: Businesses should support and respect the protection of internationally
proclaimed human rights; and
Principle 2: Make sure that they are not complicit in human rights abuses. Labour
Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;
Principle 4: The elimination of all forms of forced and compulsory labour;
Principle 5: The effective abolition of child labour; and
Principle 6: The elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: Undertake initiatives to promote greater environmental responsibility; and
Principle 9: Encourage the development and diffusion of environmentally friendly
technologies. Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including
extortion and bribery.
UN as a Business Partner
The UN has a very clear diplomatic role on the global stage. It’s also important to
remember that it works closely with the private sector, which actually carries out the vast
amount of services and projects around the world. Global businesses sell to the UN just
as they do to their own governments and public-sector organizations. Each arm of the
UN has a procurement office. The UN Procurement Division does business with vendors
from all over the world and is actively working to increase its sources of supply from
developing countries and countries with economies in transition.
30

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INTERNATIONAL, BUSINESS, AND TRADE (BA-MGT104)

CHAPTER I: INTRODUCTION TO INTERNATIONAL BUSINESS

WHAT IS INTERNATIONAL BUSINESS?

WHAT FORMS DO INTERNATIONAL BUSINESS TAKE?

Types of Code of Ethics

CHAPTER II: INTERNATIONAL TRADE AND FOREIGN DIRECT INVESTMENT

Subsidies – form of government payment to a producer.

FOREIGN DIRECT INVESTMENT

Types of Foreign Direct Investment

CHAPTER III: INTERNATIONAL BUSINESS TRADE (CULTURE AND INTERNATIONAL BUSINESS)

Understanding How Culture Impacts Local Business Practices

Global Business Ethics

Why are business ethics important for companies?

Impact of Ethics on Global Business.

Ethics and Management Practices

Ethics and Corruption

Enforcement of Ethical Guidelines and Standards

The Moral Dilemmas of Globalization

Global Business Codex

The Seven Habits and Characteristics of Ethical Leaders

The Duties of Every Ethical Leader

CHAPTER IV: WORLD ECONOMIES

How Does Purchase Power Parity Work?

Human Development Index (HDI)

4. Hong Kong .952

10. Netherlands .941

The Developed World

What is a developed world?

Largest Developed Countries

The United States

Advantages and Disadvantages

These are several different advantages:

These are several different disadvantages:

Characteristics of Developed Countries

2. High Human Development Rank

3. Service Sector Domination

5. High Level of Infrastructure Development

Difference between Developed Country and Developing Country

Characteristics of Developing Countries

1. High level of unemployment

2. Use of traditional and inefficient methods of production

4. Low standard of living

5. low level of productivity

Challenges of Developing Countries

• Dates back to 1981

• Was coined by a world bank employee Antoine Van Agtmael.

How Do developing Countries become Emerging Markets?

Characteristics of Emerging Markets

1. Size of local population

2. Opportunity for growth with changes in the local commercial infrastructure

3. Regulatory and trade policies

5. Overall investment in the education and well-being of the local population.

Key Emerging Market – BRICS Countries

1. Asia - Spotlight on China

• third-largest country in the world after Russia and Canada.

Reason why China’s economy considered to be an emerging market:

raw silk, rapeseed, corn, peanuts, watermelon, and sesame seed.