International Business

2020-11-10, 12:20 PMModule 2: Understanding the International Business Environment

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Module 2: Understanding the International Business Environment Site: TRU Moodle Course: IBUS 3511_SW5 - International Business (Summer 2020 Power) Book: Module 2: Understanding the International Business Environment Printed by: Sandeep Singh Date: Tuesday, 10 November 2020, 12:20 PM

Table of contents Learning Outcomes Lesson 4: Legal Systems Lesson 5: Ethics and Social Responsibility Lesson 6: Economic Development, Political Risk, and Emerging Markets

Learning Outcomes After you successfully complete Module 2, you will be able to:

Discuss different legal systems of the world and their implications for international business.

Discuss various types of economic systems, and provide insights into their role and importance in international business.

Explain the emerging role of ethics and corporate social responsibility in international business.

Lesson 4: Legal Systems Overview The business environment in a country depends on not only the political and economic environment, but also its legal system. A legal legal systemsystem is the set of laws and the processes through which the laws of a country are enforced (or not enforced). These regulate the behaviour of individuals and companies. Legal systems in many countries are deeply rooted in the history and culture of those countries. Different legal systems include theocratic lawtheocratic law, civil lawcivil law, and common lawcommon law. Legal systems also include precedents, traditions, customs, usage, and religious precepts. A legal system plays an important role in the conduct of international business and in resolving disputes that might arise due to a plethora of reasons. Some of the legal issues that are very important to international business include copyright copyright lawlaw, patent lawpatent law, intellectual property lawintellectual property law, and contract lawcontract law.

Lesson 4 will provide a detailed understanding of political and legal systems, and their effect on international business in terms of the country risks posed by host and home country legal frameworks.

Learning ObjectivesLearning Objectives After you complete the work in Lesson 4, you will be able to:

Explain how different legal systems of the world affect international business.

Distinguish between common law, civil law, and theocratic law.

Identify the important laws in relation to international business.

Discuss the country risk arising out of the legal framework of the host country.

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Analyze the country risk arising out of the legal framework of the home country.

Resources These are the required resources for Lesson 4:

Textbook ReadingTextbook Reading Chapter 3: Political Economy and Ethics

Chapter 6, p. 167, about trade related aspects of intellectual property

Web-Based ResourcesWeb-Based Resources TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights). (n.d.). In Wikipedia. Retrieved June 4, 2019, from https://en.wikipedia.org/wiki/TRIPS_Agreement

WTO (World Trade Organization) TRIPS material at https://www.wto.org/english/tratop_e/trips_e/trips_e.htm

WTO at https://www.wto.org

IMF at http://www.imf.org

Europa: Gateway to the European Union at https://europa.eu/european-union/index_en

EUbusiness at https://www.eubusiness.com/

UN (United Nations) at https://www.un.org/en/index.html

NAFTA (North American Free Trade Agreement) at https://www.nafta-sec-alena.org

CUSMA (Canada–United States–Mexico Agreement) at https://international.gc.ca/trade-commerce/trade-agreements-accords- commerciaux/agr-acc/cusma-aceum/index.aspx?lang=eng

Canada to appeal U.S. softwood lumber duties with WTO. (2019, April 15). Retrieved from https://www.cbc.ca/news/business/wto- softwood-lumber-1.5098656

Checklist: Vocabulary, Learning Activities, and Assessments Done?Done? TaskTask

Vocabulary List: Lesson 4

4.1: Legal Systems

4.2: Risks from Host and Home Country Legal Systems

4.3: Dispute Resolution

4.4: Journal Reflection — Topic for Lesson 4: Legal Systems

Assignment 2 (15%)

Vocabulary List: Lesson 4 Define and/or explain each of the following terms and acronyms. It is better to write the definitions using your own words, rather than trying to memorize what is in the textbook.

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ItemItem TermTerm DefinitionDefinition

1 common law

2 civil law

3 theocratic law

4 intellectual property

5 industrial property

6 copyright

7 anti-trust laws

8 taxation

9 legal systems

10 TRIPS

Download Lesson 4: Activities Checklist and Vocabulary

Learning Activities 4.1: Legal Systems Different countries have different legal systems. The legal systems of a country include a set of laws and the processes used to implement them. Legal systems also provide the framework of individual liberties and obligations, the code of conduct in the society, and the norms and rules of conducting businesses. Some of the important legal issues in international business include product safety, marketing, intellectual propertyintellectual property, copyrightcopyright, and patent lawpatent law. The practice of these laws varies greatly from country to country.

Read Chapter 3 and the section in Chapter 6 that discusses trade-related aspects of intellectual property (p. 167).

The aim of this activity is to provide you insights into different legal systems of the world and their effect on international business.

Respond to the following:

1. Discuss the three major types of legal systems (common law, civil law, and theocratic law) and their characteristics.

2. Look up Trade-Related Aspects of Intellectual Property Rights (TRIPSTRIPS) on Wikipedia. Compare this information with the TRIPS material available at the World Trade Organization.

3. TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights) at https://en.wikipedia.org/wiki/TRIPS_Agreement

4. WTO (World Trade Organization) TRIPS material at https://www.wto.org/english/tratop_e/trips_e/trips_e.htm

5. TRIPS is a WTO requirement for member nations to protect intellectual property. Discuss intellectual property, industrialindustrial propertyproperty, patent law, and copyright laws, and their effect on international business.

6. How does TRIPS slow the spread of scientific information in developing countries?

7. How should TRIPS protect the business of movie distribution in a developing country? How relevant is TRIPS in the digital era?

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4.2: Risks from Host and Home Country Legal Systems International businesses face risks not only from host country legal systems but also from home country legal systems. The risks they face are different, and it is essential that mangers of international businesses develop a clear understanding of these risks.

Respond to the following:

1. Discuss the risks international businesses are likely to face from host country legal systems. Your answer should cover foreign investment laws, laws relating to operational controls on business operations, marketing and distribution laws, laws governing income repatriation, environmental laws, contract laws, cyber law, and the lack of laws (or the lack of enforcement of laws) in certain areas.

2. Discuss the risks international business faces from home country legal system. Your answer should cover laws regarding foreign corrupt practices, laws relating to accounting and reporting procedures, laws relating to transparency in financial reporting, and any other special laws.

4.3: Dispute Resolution Disputes are very common in international business. In many countries, dispute resolution through courts can be very time consuming and expensive. Alternate dispute resolution mechanisms are considered more effective, and thus international trade agreements such as NAFTA/CUSMA and the WTO have provisions for dispute resolution.

Read the CBC background report on the US–Canada softwood lumber dispute. Note that despite consistent rulings from NAFTA/CUSMA and the WTO in Canada’s favour, the US government continued to impose import duties in response to domestic pressure.

Canada to appeal U.S. softwood lumber duties with WTO

Respond to the following:

Discuss the problems involved in dispute resolution in international business.

4.4: Reflective Journal — Topic for Lesson 4: Legal Systems Reflective Journal — Topic for Lesson 4: Legal SystemsReflective Journal — Topic for Lesson 4: Legal Systems Counterfeit goods are imitation products passed off as legitimate trademarks, patents, or copyrighted products (products that normally enjoy legal protection).

Respond to the following in your journal and post to the discussion forum:

Discuss the pros and cons of international companies not speaking out against counterfeiting in potentially lucrative emerging markets for fear of being denied access to them.

Assessments Assignment 2: The International Business Environment (15%)Assignment 2: The International Business Environment (15%) Read the instructions for Assignment 2, which is due at the end of Lesson 6.

In Assignment 2, you will use a SMART matrix to analyze the international business environment of five potential host countries with a goal of selecting two finalists for Assignment 5. You will also complete the graded Journal Reflection 1.

Lesson 5: Ethics and Social Responsibility Overview

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International business provides an opportunity for companies to reach out to new customers and develop new markets for their products and services. International businesses also help the people of the host country gain access to world class products, new jobs, and if in developing countries, improvements in the standard of living. However, the challenge for companies is to conduct their business in an ethical manner and to be socially responsible corporate citizens. This lesson covers two of the most important issues in international business.

Shareholders of a company expect better returns on their investment, and managers and other employees of the company expect job security, career advancement, and higher pay and perks. Thus, income and profit generation are important business objectives. While pursuing profits the important challenge is to conduct the affairs of the company in a manner that is considered appropriate, according to the norms of behaviour acceptable to society. Recently, there have been many reports in the media about international companies resorting to unacceptable behaviours such as corrupt business practices, human rights abuses, or ecological devastation.

Simply put, ethics is a belief that some behaviour or action is right or wrong in the context of the accepted practices of a community. Many things that are legal may not be considered by the society as ethical, and sometimes issues that are considered ethical may not be legal. It is of paramount importance to international business to ensure that their actions are not only legal but also ethical in both the home country and the host country. Any behaviour that can be considered unethical by society or by customers can in the long run have a devastating effect on the performance of the business.

Modern theories suggest that apart from shareholders and employees, there can be many stakeholders for any business. They include suppliers, customers, providers of finance (like banks), community groups, unions, et cetera. Corporate socialCorporate social responsibilityresponsibility is going beyond the legal requirements to ensure that the interests of society and other stakeholders are protected. Corporate social responsibility is about giving back to society and can take many forms including corporate philanthropy. Increasingly, most corporations believe that corporate social responsibility can enhance their reputation and can be a tool in providing competitive advantage. Thus, most international businesses are incorporating corporate social responsibility codes into their business strategies.

Lesson 5 provides an overview of ethics and corporate social responsibility in conducting international business.

Learning Objectives After you complete the work in Lesson 5, you should be able to:

Define ethical behaviourethical behaviour.

Discuss the importance of ethics in international business.

Identify the ethical issues that firms encounter in cross-cultural environments and international businesses.

Discuss how ethnocentrism affects our perceptions of the ethics of corruptioncorruption and briberybribery in different countries.

Discuss the ways of managing ethical behaviour in the context of international business.

Define corporate social responsibility and explain its importance to international business.

Explain how corporate social responsibility can help achieve competitive advantage.

Resources These are the required resources for Lesson 5:

Textbook ReadingTextbook Reading Chapter 3: Political Economy and Ethics

Web-Based ResourcesWeb-Based Resources Transparency International. (n.d.). Corruption perceptions index 2018. Retrieved from https://www.transparency.org/cpi2018

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Johnson & Johnson. (n.d.). Our credo. Retrieved from https://www.jnj.com/credo/

Halliburton. (n.d.). Corporate sustainability report. Retrieved from https://www.halliburton.com/en-US/about- us/sustainability/default.html?node-id=hgeyxt7i

Halliburton. (n.d.). Code of business conduct. Retrieved from https://www.halliburton.com/en-US/about-us/corporate- governance/code-of-business-conduct/default.html

Tulett, S. (Producer), & Butler, E. (Host). (2018, August 11). How to avoid a bribe. In the Balance [Podcast]. Retrieved from https://www.bbc.co.uk/sounds/play/w3cswk0c

Checklist: Vocabulary, Learning Activities, and Assessments Done?Done? TaskTask

Vocabulary List: Lesson 5

5.1: Ethics

5.2: Ethics in Practice

5.3: Corporate Social Responsibility (CSR)

5.4: Journal Reflection — Topic for Lesson 5: Ethics and Social Responsibility

Chapter 3 Practice Quiz

Assignment 5 (25%)

Vocabulary List: Lesson 5 Define and/or explain each of the following terms and acronyms. Write in your own words, rather than trying to memorize what is in the textbook.

ItemItem TermTerm DefinitionDefinition

1 ethical behaviour

2 the righteous moralist view

3 corporate social responsibility

4 cultural relativist view

5 utilitarian view

6 Friedman view

7 bribery

8 corruption

9 fair trade

10 carbon footprint

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Download Lesson 5: Activities Checklist and Vocabulary

Learning Activities 5.1: Ethics Ethics is differentiating right behaviour from wrong behaviour. Ethics are contextual and different groups, professions, and cultures will have different ethics. Ethics are deeply rooted in the culture and history that shapes individual and social beliefs about the rights and wrongs. What is legal may not be considered ethical in some cases. The ethical behaviour of an international firm (and its employees) has a profound effect on its reputation at home and abroad. The aim of this activity is to provide you a deep understanding of ethics.

Respond to the following:

Define ethical behaviourethical behaviour, and discuss the importance of ethical behaviour to international firms.

Ethics are deeply rooted in the culture of a country. How does Canadian culture shape ethical values? How might the business ethics of China differ from those of Canada?

Discuss five ethical issues that are currently important to international business.

5.2: Ethics in Practice To practice ethics one needs an understanding of the culture, politics, legal framework of a country, and also the values of society and individuals. In international business one often finds that the ethics, laws, and customs of a host country come into a conflict with what is considered “normal” at home. For example, gift giving is acceptable or desired practice in many cultures; whereas, it can be construed as bribing in others. This activity throws light on these important issues.

Respond to the following:

1. “Everything that is legal may not be ethical, and everything that is ethical may not be legal.” Discuss this statement in relation to international business. Giving an example of each situation.

2. Distinguish between corruption, bribery, and gift giving, and discuss how they create an ethical dilemma.

3. Do you need a formal code of ethics for managers and employees engaged in international business? What issues would you include in such a code? To what extent is it possible for an ethical code to cover all circumstances? Should the code be the same for all countries?

5.3: Corporate Social Responsibility (CSR) Corporate social responsibility is going beyond the legal obligations and performing activities that help the community and society. Most people feel that corporate social responsibility activities of the firm have a positive influence on the firm performance. This activity will help in providing you a better understanding of CSR and its effect on the international business performance.

In this context, respond to the following:

1. Define corporate social responsibilitycorporate social responsibility (CSR), and state why it is important for the successful performance of international businesses.

2. Discuss how CSR helps an international business firm to achieve a competitive advantage.

3. Discuss how CSR helps a company to evaluate its performance using triple bottom-line (profit, people, and planet).

4. Look online at Johnson & Johnson’s “Our Credo.” How is this statement of CSR reflected in programs featured in the company’s ResponsibilityResponsibility web page? Note that the company also has a code of ethics for executives.

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1. Johnson & Johnson’s Our Credo at https://www.jnj.com/credo/

5. Look at Halliburton’s CSR focus. To what extent do you think such CSR and ethical codes reflect the reality of conducting international business?

1. Halliburton’s Corporate Sustainability Report at https://www.halliburton.com/en-US/about-us/sustainability/default.html? node-id=hgeyxt7i

2. Halliburton’s Code of Business Conduct at https://www.halliburton.com/en-US/about-us/corporate-governance/code-of- business-conduct/default.html

5.4: Reflective Journal — Topic for Lesson 5: Ethics and Social Responsibility Reflective Journal — Topic for Lesson 5: Ethics and Social ResponsibilityReflective Journal — Topic for Lesson 5: Ethics and Social Responsibility Listen to How to Avoid a Bribe, an episode of the BBC’s In the Balance podcast (26:29), at https://www.bbc.co.uk/sounds/play/w3cswk0c

Respond to the following:

1. What steps can international businesses take to avoid getting caught up in corruption, particularly in countries and sectors where bribery is the norm?

2. What is legitimate business conduct, and what crosses the line into illegality?

Chapter 3 Practice Quiz Chapter 3 Practice QuizChapter 3 Practice Quiz Check your understanding of the vocabulary list items and basic concepts in the textbook reading before taking this quiz. If you have done the readings and answered the questions in the learning activities, then this online quiz should take approximately 5 to 10 minutes. You have 15 minutes in total to complete the quiz.

Assessments Assignment 5: Country Profile for International Business (25%)Assignment 5: Country Profile for International Business (25%) By now, you may have realized that many of the questions in the outline for the Assignment 5 are similar to the questions in your reading activities.

It is a good idea to draft responses to the questions in the Assignment 5 Project as you work through the readings, rather than waiting until the end of the course to do so.

Lesson 6: Economic Development, Political Risk, and Emerging Markets Overview After having studied the cultural, political, legal, and ethical issues in international business, it is time to move on to the economic development of nations. The economic development of a country has a very important effect on its international business activity. Different countries have different philosophies on how to manage their economic systems and resources, and are in different stages of economic development. For example, while economies of some countries, like China and India, are growing rapidly, others, like Japan, are shrinking.

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When a company wants to enter another country for business, the company must study and understand the present economic system; national income; growth rates of the economy; income levels of the people; and the country’s wealth, employment, national debt, interest rates, productivity, balance of payments, et cetera. Ideally, an international business manager should be able to predict the future behaviours of these variables. National economic environments change continuously; hence, international businesses must be on constant lookout to monitor changes and predict how they are likely to affect their business.

Lesson 6 provides a comprehensive understanding of the economic systems of the world, ways to measure the level of economic development of a nation, and insights into the economic transition of the countries.

Learning Objectives After you complete the work in Lesson 6, you will be able to:

Identify the macro-economic indicators.

Develop different ways to measure the economic development of the countries. Explain economic transition and identify obstacles to international business.

Identify and discuss how to manage the different forms of political riskpolitical risk for international companies.

Resources These are the required resources for Lesson 6:

Textbook ReadingTextbook Reading Chapter 4: Economic Development of Nations

Web-Based ResourcesWeb-Based Resources WTO at https://www.wto.org

IMF at http://www.imf.org

Europa: Gateway to the European Union at https://europa.eu/european-union/index_en

EUbusiness at https://www.eubusiness.com/

UN at https://www.un.org/en/index.html

NAFTA at https://www.nafta-sec-alena.org

CUSMA (Canada–United States–Mexico Agreement) at https://international.gc.ca/trade-commerce/trade-agreements-accords- commerciaux/agr-acc/cusma-aceum/index.aspx?lang=eng

Big Mac Index. (n.d.). In, Wikipedia. Retrieved June 4, 2019, from https://en.wikipedia.org/wiki/Big_Mac_Index

Checklist: Vocabulary, Learning Activities, and Assessments Done?Done? TaskTask

Vocabulary List: Lesson 6

6.1: Economic Development of Nations

6.2: Classification of Countries

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6.3: Political Risk

6.4: Reflective Journal — Topic for Lesson 6: Economic Development, Political Risk, and Emerging Markets

Chapter 4 Practice Quiz

Assignment 2 (15%) (includes Journal Reflection 1)

Vocabulary List: Lesson 6 Define and/or explain each of the following terms and acronyms. Write in your own words, rather than trying to memorize what is in the textbook.

ItemItem TermTerm DefinitionDefinition

1 economic development

2 political risk insurance

3 Purchasing Power Parity

4 human development

5 economic transition

6 nationalization

7 confiscation

8 expropriation

9 local content requirements

10 NIC

11 GNP

12 GDP

13 per capita

14 PPP

15 HDI

16 lobbying

Download Lesson 6: Activities Checklist and Vocabulary

Learning Activities 6.1: Economic Development of Nations The economic developmenteconomic development of a nation is measured by comparing the economic well-being of people one country with that of others. The three bases of comparison normally include:

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National Income (GNPGNP and GDPGDP), Purchase Power Purchase Power ParityParity (PPPPPP), and Human Development IndexHuman Development Index (HDIHDI).

After completing Chapter 4 in your textbook, respond to the following:

Discuss productivity. How is the standard of living of a country dependent on productivity?

Define GNP and GDP and discuss how they can be used to measure economic development?

Discuss the effectiveness of Purchase Power Parity in measuring economic development.

How does the Big Mac Index work, and how accurate is it?

Discuss the concept and effectiveness (advantages and disadvantages) of the Human Development Index in comparing the economic development of nations.

6.2: Classification of Countries Based on their economic development, countries can be classified as developing economies, advanced economies, and newly industrialized countries.

After completing the Chapter 4 textbook reading, respond to the following:

1. Discuss the key features of an economy, including: inflation, unemployment, national debt, income distribution, poverty, labour costs, productivity, and balance of payments.

2. Make a table to compare the eight key features for classifying countries as advanced, newly industrialized, or developing nations.

3. The textbook uses the term developeddeveloped instead of advancedadvanced. Which term do you think is more appropriate? Why?

6.3: Political Risks International business executives must have a clear understanding of political risks and the methods of risk management. This activity will help you identify some important political risks and discuss ways to manage them.

After a thorough study of the resources for Lesson 6, respond to the following:

1. Discuss in detail different types of political risks and their effect on international business. (Discuss each risk separately).

2. Distinguish between confiscationconfiscation, expropriationexpropriation, and nationalizationnationalization.

3. Discuss different methods that international managers can use to manage political risks, aesthetics, values, and attitudes, and explain how they affect international business.

4. What advice would you provide your international managers regarding safety measures to be followed while on international assignments?

6.4: Reflective Journal — Topic for Lesson 6: Economic Development, Political Risk, and Emerging Markets Reflective Journal — Topic for Lesson 6: Economic Development, Political Risk, and EmergingReflective Journal — Topic for Lesson 6: Economic Development, Political Risk, and Emerging MarketsMarkets Respond to the following in your journal and post to the discussion forum:

Cuba’s government has embarked on a path of economic transition. How might Cuba’s experience differ from that of Russia and China?

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Chapter 4 Practice Quiz Chapter 4 Practice QuizChapter 4 Practice Quiz Check your understanding of the vocabulary list items and basic concepts in the textbook reading before taking this quiz. If you have done the readings and answered the questions in the learning activities, then this online quiz should take approximately 5 to 10 minutes. You have 15 minutes in total to complete the quiz.

Assessments Assignment 2: The International Business Environment (15%)Assignment 2: The International Business Environment (15%) Turn in Assignment 2, which includes Journal Reflection 1. In Assignment 2, you will use a SMART matrix to analyze the international business environment of five potential host countries with a goal of selecting two finalists for Assignment 5.