Democracy
In political systems that have democracies that people have the right to vote in free elections and decide on the rules that will govern them. Democratic countries allow individuals to have many basic freedoms:
own property
run businesses
freedom of press
freedom of speech
Totalitarian systems
Citizens have no elected representatives in government and have little or no say in how they are governed. This type of political system tends to have centralized power with single-party rule or a dictatorship. The military is often used to control the state.
In reality, there is no “pure” form of either a democracy or a totalitarian system - most political systems are considered mixed. That means they have characteristics of both systems and are somewhere in between this spectrum.
US, Germany, Canada towards democracy. Cuba, China towards totalitarian.
Command Economy
the state makes decisions
regulates prices and wages, production quotas, distribution of raw materials
controls/restricts the ownership of private property
needs of the entire society considered before the individual’s needs
ex. China, Cuba, South Korea
Market Economy
individuals and businesses make decisions of what and how to produce
Examples
ownership of private property i.e. individual can control property and own the means of production
individual free to make a profit, business encouraged to introduce new and better products
foreign investment encouraged and self-sufficiency not seen as an economic goal
ex. U.S.
Socialism: A political economy with most basic industries owned and operated by the government with the government controlled by the people as a whole
Communism: A political economy in which the government owns all of the productive resources of the economy and a single party controls the government
Facism: A political economy where individual companies and consumers make decisions in the market place and the government is controlled by a dictator or single party
Capitalism: A political economy where individual companies and consumers make decisions in the market place and the government is controlled by an elected government that works for the people
Political economies - risks for IB
Democracies often promote free-trade
People are aware of their rights and freedoms in democracies so they feel free to express themselves and think creatively. Thus, they are more likely to accept differences in thinking and are more accepting/understanding of other cultures. In this sense, they are less likely to implement barriers to prevent trade.
In the last 30 years, interdependence has caused countries to change their political, economic, and cultural practices
As an array of products/services become accessible, cultures are exposed to other countries’ beliefs/values. Therefore, countries begin to change their practices because of outside influences.
Consequences of terrorism on business
deter business ... decrease in FDI
deter workers from transferring
decrease tourism + international travel
higher insurance rates
transportation can be hurt, therefore, business may not get supplies
productivity may slow down - may lead to lay-offs
impact on stock markets and investing
Risk: A chance that people take especially under uncertain circumstances to achieve a particular result
International businesses always face some political risk - a change in the stability of the country. Companies need to analyze the risk in the political economy they are entering.
Types of Political Risk
Risk of general political instability
uncertain elections
frequent changes to government leadership
general uncertainty about the future of the government, terrorism, etc
Can all impact the profits of a business
Ownership risk
Expropriation: government threatens to take over the business operations - force the business to sell its operations or just simply take the business from the company. Usually happens in countries with protectionist ideology (protect own industries)
Repatriation of earnings: the government force businesses to give the government part of their profits
Operations risk
the risk of changes in government policies that can impact the daily running of a business ex. new taxes, government regulations and laws, import restrictions
Transfer risk
policies and risks that cause economic downturn or the currency to devalue, therefore, reducing the value of money that a business can take out of the country
Geographic risk
Geographic disasters: tornado, volcano, hurricane, flood, lightning, drought
Country’s geography create a risk for international business b/c:
natural disasters: economic viability, decrease interest in FDI, security/safety risk; lose employees, property, customers, have to rebuild
transportation can be hurt (increase transportation cost)
climate: impact product needs/wants
distance: greater risk that product will spoil
Recent natural disasters and the impact on business:
Tsunami in Indonesia
increase GDP
decrease tourism
decrease oil refineries (damaged; led to low supply of oil. Therefore, increase cost/price of oil)
5 questions I would ask to assess the political, economic, and geographic risk before exporting a product to an African country
Is the country political stable? For example, are there any wars of elections
Has there been any operations risks? i.e. government taking part of businesses’ profits - repatriation of earnings
Was there a natural disaster that recently occurred? For example, Hurricane Katrina or the tsunami in Indonesia. May have the to rebuild and lose employees/consumers
What type of climate does the country have? Warm climates demand different products/services than colder climates
What system of government is in charge? Some types may pose risks to individuals/businesses i.e. communist, socialist
Organization for Economic Cooperation and Development (OECD)
An international organization of 30 countries that accepts and promotes the principles of the representative democracy and free-market economy
Objectives:
support sustainable economic growth
increase employment
maintain financial stability
contribute to growth in world trade
30 of the most developed nations with high-income economies
restored trust in globalization by making it ‘cleaner’ through work on anti-corruption, corporate governance, and tax evasion
helped promote a cleaner environment has also made globalization ‘cleaner’
made a ‘fairer’ and more active world economy
Canada was one of the 20 founding members of OECD
Canada currently ranks 7th in terms of its contributions
Canada has its 3 levels of government and 30 separate federal government departments involved in the OECD
European Union (EU)
Purpose
An economic and political union of 27 member states
Focused on regional integration in Europe in order to enhance regional co-operation
27 members (all countries in Europe) i.e. UK, Italy, Greece, Spain, France
Influence on global business activity
Ensure that Europe will have enough energy supply in the near future
Improved working conditions for workers in member states
Placing more emphasis on product safety and individual health in their decisions
Canada’s Involvement and Impact on Canada
Canada is one of EU’s closest and oldest trading partners
Canada and the EU co-operate on global challenges i.e. the environment, climate change, meet up every 2 years to exchange views on specific issues
World Trade Organization (WTO)
Purpose
To ensure that trade flows as smoothly, predictably and freely as possible
An international organization with the objective of supervising and liberalizing international capital trade - deals with global rules of trade between nations
A forum for governments to negotiate trade agreements + settle trade disputes
153 member states ex. Argentina, Canada, Brazil, China, UK, US
Influence on global business activity
The principles by which the WTO runs by promotes a global trading system without discrimination, that is freer, more competitive, predicable, and more beneficial for less developed countries. These principles have impacted global trading activities.
Canada’s involvement and impact on Canada
WTO provides a forum that enables Canada to improve our international relations and establish potential trading partners
WTO is linked to 1/5 Canadian jobs - reason why Canada supports and is dependent on the WTO
International Monetary Fund (IMF)
Purpose: ensures the global monetary system is stable. Monitors currency, trade, and economic policies of its 184 member nations and makes recommendations for improvement
Assist member gov’ts realize benefits of globalization and economic development by:
Be a forum for policy dialogue
Loans to countries in financial need with conditions
Help developing countries to reduce poverty
Each member country is represented by a governor on the IMF’s board of governors, which makes the organization’s major decisions; in most cases, several countries share one governor.
Role of the IMF: crisis-prevention
In 2008, the IMF was called back into action after years of declining relevance when financial crises hit struggling countries. Brokered rescue packages for Pakistan, Iceland, Hungary and Ukraine. Now, out of the period in which it was a bystander. Since 2008, the I.M.F. has made more than $55 billion in loans.
Canada’s involvement and impact on Canada
Canada has 62 942 votes, shares a Irish governor with other countries. His name is Stephen O’ Sullivan. The IMF and Ottawa formally signed a deal on July 8, 2009 in which Canada would make US10 billion available for emergency purposes.
ISO [International Organization for Standardization]
Same standard - equal quality
Globalization has increased the need for standardization of products/services and processes b/c:
when the world is connected, countries must ensure their citizens are protected from other countries’ products/services which are more accessible, thus, making it harder to control. Thereby, increasing the need to place limitations
International Organization for Standardization
a non-governmental organization that sets voluntary standards for products, services, processes in over 140 countries
the world’s largest developer and publisher of international standards
many companies around the world now require their suppliers to be ISO certified
companies often advertise outside their facilities that they are ISO certified
Rationale for the ISO
When products and services meet our expectations, we tend to take this for granted and be unaware of the role of standards. However, when standards are absent, we soon notice. We start to care when products turn out to be of poor quality, do not fit, are incompatible with equipment that we already have, are unreliable, or dangerous
when products, systems, machinery, and devices work well and safely, it is often because they meet standards.
ISO is the organization responsible for the many thousands of the standards which benefit the world
ISO has developed several thousand standards in the following areas:
quality, environmental friendliness
safety, reliability
efficiency and interchangeability
Stakeholders; why it is important to for them to have international ISO standards for products/services and processes; benefits from standardization
Consumers
product safety and quality; protection from potentially harmful products
interchangeability; use product in various countries i.e. products you buy in one country, you can get anywhere else in the world and trust its quality + safety
cheaper products; production processes the same (becoming more efficient can reduce costs)
Business
increase business: gain trust b/c can advertise outside their facilities that they are ISO certified
trust business relationships, ensure quality of supplies + suppliers
ISO assists companies to become more efficient - production more efficient, therefore, cut costs]
Government
help regulate quality of products of companies
help them recognize and address violations of companies
a means of determining safety + quality [ensure the population is safe]
make laws: help them see emerging issues with products/companies so they can address it
Trade officials
gaining trust, therefore, negotiations easier
an advantage (a benefit for your country)
The planet
international standard: universal regulations ensure the environment will be protected at a certain level
ISO standards can help developing countries by:
improve reputation
increase exporting b/c they are clear on the expectations of developed markets [avoid re-calls and the loss of money]
provide technological know-how to assist in production processes; teaches the best way to do things
make developing countries more internationally competitive
So many business have become ISO certified even though ISO standardization is voluntary b/c:
they see how the benefits outweigh the drawbacks
efficiency + production costs
safety, reliability, quality
Trade missions
Government organized visits with Canadian businesses to promote Canada as a good place to do business to increase access to new markets
OUTGOING TM: Visits by selected Canadian firms to a target foreign market
INCOMING TM: Visits to Canada by foreign buyers and investors to increase info. about Canada as a potential source of supply+place to invest/arrange a joint venture
Useful because:
mission organizers: familiar with the target market, can help put a company interested in exporting in contact with officials of the target countries
help participants gather useful info. and insights from other delegates
handle logistical details, so participants can focus on their business
Trade mission 1
Organized by: Mr. Robert Dery [Canadian Energy Mission], on June 8-13, 2008
Countries involved: Uruguay, Argentina, Chile
Products/services: energy (electricity + natural gas) and other related fields (electric power/thermal/renewable power generation - wind, solar energy)
Purpose: to seize opportunities for partnerships + technology transfer agreements; trade and investment opportunities for Canadian companies [due to the critical energy situation in Chile, investment needed in the energy sector]
Trade mission 2
Organized by: Foreign Affairs and International Trade Canada, Sept 7-11, 2008
Country involved: South Africa
Products/services: Electricity, generation, distribution, transmission; new + cleaner technologies incl. modern nuclear generation, biomass, wave, solar, wind power
Purpose: seize opportunities in infrastructure development + networking; Canadian companies meeting key business and government decision-makers from the electricity industry in the regional market + importers and potential partners + gov’t
Millennium Project: Global challenges facing humanity - Information technology
The Internet: most powerful force for globalization, democratization, economic growth, and education in history; 1.4 billion people (21% of the world) connected to the Net, 3.3 billion cell phones active
to close the economic divides: efforts made to lower cost, improve educational and business usage; make “universal” broadband possible (for lowest income groups, remote villages)
link groups of people for projects, to the government [e-gov’t systems], and for management through info. technology
cyber crimes causing business loss; need to counter future forms of info. warfare that can make us not trust any form of info. on cyberspace; need a global intellectual arms race to counter online markets for illegal software/drugs, international cyber attacks, and porn
regions must be considered: low penetration, but largest percent of world’s Internet users, 39%. Chinese: second most common language on the net; 20 million blogs, 1.3 mil web sites, 600 mil mobile phones. African internet users increased by 31%
How multinationals can reduce global poverty
1/6 of the world’s population lives in “deep poverty”
funds to help better lives lost to national governments that didn’t want or couldn’t reduce poverty
goal to reduce poverty requires creation of profitable businesses - to provide jobs, income, motivation for education + ind. development that raise standards of living
multinational corporations important: drives wealth creation - can bring capabilities and resources to countries where they are absent
UN wants to create a World Development Corporation formed and managed by MNC, nongovernmental organizations, and the UN
profitable projects - teams of multinationals + local partners collaborate; concept is a way to do well with minimum risk and maximum efficiency for MNs, way to improve political stability
benefits for businesses: access to local partners, opportunities in developing nations could benefit future activities, attract young managers
Ethics
moral code of conduct of what is right or wrong
guides our behaviour and decision-making
based on values
*what is legal is not necessarily ethical i.e. child labour in China is legal, but is it ethical? ...Difference between law and ethics
Anyone who does business in or travels to a foreign country is expected to behave according to the laws of that country. Ethical behaviour is determined by the norms of the host country’s value system of what is right and wrong.
What if a company is considering doing business with a foreign country that has different values, laws, and ethics?
Should it do business with that foreign partner?
Situations
child labour, smoking in the work place, break time, working conditions - air ventilation, working hours, bribery
Two extreme positions exist in regard to decisions about ethical behaviour: ethical imperialism and cultural relativism. Solutions to ethical issues are often found between these two extremes:
Cultural relativism
no culture’s ethics is superior
the values and practices of the local setting determine what is right and wrong
when in Rome, do as the Romans do
Ethical imperialism
certain absolute truths apply everywhere
certain behaviours are either right or wrong, no matter what country you are in
take the view that in case of disagreement, their own values are right, and the other country’s values are wrong [we’re right, you are right]
imperialism: in a military sense, go to another country and impose their laws + rules
As the process of globalization continues to move forward, there are many common values shared throughout the world. Some of these are:
working conditions; worker’s rights... basic human rights - treating employees with respect
women’s rights
environment i.e. environmental degradation
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Business society accountable, take initiative
Businesses need to take action to benefit not just the company, but also society
Businesses must consider its impact on society when it takes action/make decisions
Not just about being ethical, but what the business is doing to benefit society
Businesses normally have a code of ethics [social responsibility]
Businesses are responsible to STAKEHOLDERS when they do international business
Local community
dangerous chemicals, noise pollution
fund good causes i.e. charities
educate local population [other measures - well-being of the local community]
Investors + business partners
consider if your business is honest and fair
support, assist them
responsible or careless
Suppliers
- develop relationship
honest, open: reputation
Employees
fair amount of break time
healthy environment
fair wages
The Society for Applied Anthropology
Advises government and non-gov’t agencies on instituting change in different cultures
adopted a code of ethics to protect foreign cultures
the code considers if a project/planned change will benefit the target population
balances to consider: trade-off between economic gains and ending a way of life that gives great satisfaction
will human dimensions suffers in favour of economic prosperity
result: international companies criticized as being socially irresponsible if it ignores the human needs of each place it operates in
companies often lack complete information to guide them before taking action abroad; not all countries have explicitly declared their concept of human rights. Without such declaration, uncertain of what human rights are.
some UNDR provisions lack universal acceptance incl. individual ownership of property, nuclear family fundamental unit of society
MNC approaches to Corporate Social Responsibility (CSR)
1. Proactive
- take leadership role/initiative (acts) to benefit society
2. Accomodating
- minimum ethical requirement; be ethical, but not proactive
3. Defensive
- minimum legal requirement; will follow the law so do not get sued/fined
4. Obstructionist
- block/go against ethics/values; try to change law/find "loop holes" which are ways to get around laws
Code of ethics
Written document that outlines a company's ethical standards of what management and employees must follow
Canadians
holiday season: time for consumers to exercise their power by shopping ethically
support the basic rights of workers; our money rewards people who operate and invest in these factories with sales and profit.
opt for products made in factories where workers are paid fairly and treated properly send a message: "If you want our business, clean up our act"
"Codes of conduct" of companies like Mattel, Disney, Toys 'R' Us, Wal-Mart not seen/heard of in that environment/sweatshops
toy industry under pressure to clean up its act and stop its support for sweatshop labour practices
Ethical/Corporate Social Responsibility issues in IB
Dumping: the practice of selling goods in a foreign country at a price lower than in the country in which they were manufactured
Corrupt practices
bribery “special payments”
making those payments to suppliers/governments to win a contract or gain priority in shipping [common in some countries and a cost of doing business]
if companies do not make provisions for those payments, they may not even be in the running for certain contracts
seizure of bank accounts [russia]
takeovers of company offices at gunpoint [*]
dumping
companies receive financial subsidies from their own governments
developing countries think anti-dumping legislation is a form of protectionism introduced to help Canadian producers during a global economic slump
influence talks on the liberalization of trade
Affirmative action: efforts to implement equal opportunity in employment and in pay
[certain percentages of groups of people in the workplace]
Equality issues
minimum-wage laws
role of disadvantaged groups in society
equity/fairness for 3 groups; women, minority groups, persons with disabilities
differing gender roles, education, legislation on equality issues [participation in levels of businesses, way they should be treated]
Canadian companies face ethical dilemmas in their host countries when trying to act appropriately in issues of employee equality and affirmative action without alienating local markets
cultural barriers: skilled women cannot rise to positions in business/politics
glass ceiling effect: barrier to those who want to further their career, cannot because of prejudice, discrimination, and tradition
Environmental issues
carbon emission - global warning
deforestation
energy conservation
land pollution - waste disposal
illegal fishing
Employee issues MNC face
working hours
wages/pay
working conditions/environment
labour unions
child labour
Worldwide trends of globalization
the world is smaller politically
reduce trade barriers i.e. tariffs, quotas
technological changes
leaps in communication i.e. internet, email
exchange ideas quickly and inexpensively
increasing pace of transportation, products lighter, lower cost
Globalization’s impact on my education and future career
we need to keep on studying
be ready to have different jobs in my life
as an individual in a flat world, need to not only keep up but be ahead of the times if I want to advance my standard of living
Points of view
Canadian MNC
wins; saves money by gaining profits from lowered costs
good supply of skilled workers
Canadian college/university student
not a competitive advantage; my education and flexibility cannot compare with young people in some other countries
jobs sent overseas so lack of jobs and loss of jobs
need to have multiple jobs in lifetime
Worker in India
opportunities for jobs
use education (skills) in work activities
Major trends in IB
Global workplace
- people work in foreign countries because of globalization
- people moving from departments more frequently gets to know the country better
- more service oriented
people would have to become more flexible (travel/learn more) and skilled
Increased global competition
- more long-term oriented
- better products for cheaper prices (innovations in products)
more competition worldwide (business may be unable to compete with lower prices from some other countries and have to shut down)
Global information technology, convergence, and infrastructure
- in the 1700's, it took 12 days to get a message from NY to Boston
- easy communication due to technological convergence [easier trade + marketing]
- products must come with instructions in appropriate language
technologies coming together (Apple iPhone: phone, camera, music player, internet)
Education geared towards technology
technology connects people
- fluent in more than just native tongue
markets more accessible as people can contact business around the world quickly
Asia's global impact
- 50% of the world would be Asians in 2050
- many oriental consumers
Global consumer and global culture
monoculture: single culture that lacks diversity and differences of values/beliefs
decreasing birth rates in developed countries
world 1 large market: conversion to materialism from religion; people move to cities, exposed to advertising messages
1 global shopping mall: global companies are making the world more homogeneous [push products on other cultures, disrespects local customs]
code switching: applying the skill to speak 2 languages interchangeably [career strategy to learn 1 or 2 other languages... workers face possible discrimination]
Global companies vs Global nations
technology has created an international community that makes it hard to regulate
business and government will work together
technology will allow small businesses to expand internationally
companies will have more influence and impact the world than nations
The changing workplace in the global economy
downsizing [becoming a management tool helping companies adjust to changes in technology, globalization, business. Done to strengthen future position]
- new markets = new job opportunities
- large differences in labour costs
- international transfers
- travelling office
the home office
Nonprofit organizations (NPO)
- an organization that operates to serve a public good and does not profit from it
Non-government organizations (NGO)
- an organization not associated with the government,
Lobbying: through meetings and discussion, individuals work together to influence decisions by the government/businesses. Some formed to promote the interests of consumers. For example, the American Association of Retired People lobbies for issues of concern to people over the age of 50.
Two Canadian NPO that influence IB practices
•Canadian Business for Social Responsibility (CBSR)
- works with for-profit businesses to encourage socially responsible and sustainable business practices
- developed comprehensive guidelines for communities, employees, customers, suppliers, shareholders, the environment, and the international market
•ethicscentre.ca (formerly The Canadian Centre for Ethics and Corporate Policy)
-an organization made up of volunteers from corporations and the general public
- on its web site, offers articles by prominent Canadians on topics dealing with current issues in business ethics
Greenpeace
Its role
a non-governmental organization for the protection and conservation of the environment
has a worldwide presence, national and regional offices in 46 nations
influenced both the private and the public sector
addresses environmental issues with a focus on stopping global warming and the preservation of the world's oceans and ancient forests
What it does to promote economic progress in developing countries
uses conventional environmental organization methods, such as lobbying businesses and politicians and participating in international conferences and direct action to attract attention to particular environmental problems
runs campaigns and projects on areas of concern; has raised environmental issues to public knowledge
ask developed countries to provide funds to developing nations to support efforts to save the environment i.e. climate change - reducing global greenhouse gas emissions
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