D. Contract Law
1. A contract is an agreement by the parties concerned to establish a set of rules to govern a
business transaction.
E. Other Regulatory Issues (see slide 1-37)
1. Countries often impose protectionist policies, such as tariffs, quotas, and other trade
restrictions, to give preference to their own products and industries.
2. Tax systems influence the attractiveness of investing in a given country and affect the
Teaching Resource: Electronic Embassy—The Electronic Embassy provides information on all
of the embassies in Washington, D.C., with links to embassy Websites. The site also includes an
online newspaper, Embassy Flash, and an International Business Center for sponsors. This
IV. Chapter Learning Goals & The Technological Environment (see slides 1-38 & 1-39)
Advances in information technology are bringing about increased productivity—for employees,
for companies, and for countries. As noted by Thomas Friedman, technology, as well as other
factors that are opening up borders—“the opening of the Berlin Wall, Netscape, work flow,
outsourcing, offshoring, open-sourcing, insourcing, supply-chaining, in-forming”—have
A. In a global information society, it is clear that corporations must incorporate into their
strategic planning and their everyday operations the accelerating macro-environmental
phenomenon of technoglobalism, in which the rapid developments in information and
communication technologies (ICTs) are propelling globalization and vice-versa. Investment-
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ability of the innovating firm to profit from its own technology by protecting it from
competitors. Especially difficult is managing the transfer of technology to venture partners
who might become future competitors.
D. An MNC can enjoy many technological benefits from its global operations. Advances resulting
from cooperative research and development (R&D) can be transferred among affiliates around
the world, and specialized management knowledge can be integrated and shared. However, the
risk of technology transfer and pirating is considerable and costly.
80 countries for protection of patents.
G. One of the risks to a firm’s intellectual property is the inappropriate use of the technology by
joint-venture partners, franchisees, licensees, and employees (especially those who move to
other companies).
Under the Lens: The Global Role of Information Technology (see slide 1-40)
The city of Seoul—where nine of every 10 residents subscribe to a high-speed wireless
Internet connection—is already one gigantic hot spot. “By 2015, when 80 percent of the
residents are expected to carry smartphones or tablet PCs, wireless connectivity will be almost as
free as it is ubiquitous: the municipal authorities are installing free Wi-Fi wireless hot spots in all
the city’s public spaces, including 360 parks, 3,200 intersections and 2,200 streets around
shopping centers.” Every subway car, motel room, and street corner has high-speed Internet
connectivity.
I. Global E-Business (see slide 1-41) is an important aspect of the changing technological
environment. E-business is the integration of systems, processes, organizations, value
chains, and entire markets using Internet-based and related technologies and concepts. It
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1. Convenience in conducting business worldwide; facilitating communication across
borders contributes to the shift toward globalization and a global market
2. An electronic meeting and trading place, which adds efficiency in conducting
business sales
Although most of media attention has focused on e-commerce and the end consumer, greater
opportunities exist in B2B (business-to-business) transactions. However, problems include
internal obstacles and politics, difficulties in coordination and in balancing global versus local e-
commerce, languages and cultural differences, and local laws. Barriers to e-business also
include a lack of readiness of partners in the value chain, such as suppliers.
Internet Resources
Chapter Discussion Questions
1-1. Poll your classmates about their attitudes toward “globalization.” What are the trends
and opinions around the world that underlie those attitudes?
Learning Objective: 1; AACSB: Dynamics of the global economy
Opinions and comments will vary concerning the issue of globalization, and it is important
that the differing opinions be allowed to be expressed. There is a concern that globalization
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1-2. How has the economic downturn impacted trends in protectionism and
nationalization?
Learning Objective: 1; AACSB: Dynamics of the global economy
As the fallout from the financial meltdown spread around the world in 2009, nationalist
impulses gathered a storm as government maneuvers to take stakes in ailing industries were
1-3. Discuss examples of recent macropolitical risk events and the effect they have or might
have on a foreign subsidiary. What are micropolitical risk events? Give some
examples and explain how they affect international business.
Learning Objective: 2; AACSB: Dynamics of the global economy
An event that affects all foreign firms doing business in a country or region is called a
macropolitical risk event. In many regions, terrorism poses a severe and random political
risk to company personnel and assets and can, obviously, interrupt the conduct of business.
The increasing incidence of terrorism around the world concerns MNCs. In particular, the
kidnapping of business executives has become quite common. In addition, the random acts
1-4. What means can managers use to assess political risk? What do you think is the
relative effectiveness of these different methods? At the time you are reading this,
what countries or areas do you feel have political risk sufficient to discourage you
from doing business there?
Learning Objective: 2; AACSB: Analytic skills
Risk assessment by multinational corporations usually takes two forms.
-One uses experts or consultants familiar with the country or region under
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1-5. Can political risk be “managed?” If so, what methods can be used to manage such
risk, and how effective are they? Discuss the lengths to which you would go to
manage political risk relative to the kinds of returns you would expect to gain?
Learning Objective: 2; AACSB: Analytic skills
On one level, they can decide to suspend their firm’s dealings with a certain country at a
given point—either by the avoidance of investment or by the withdrawal of current
investment (by selling or abandoning plants and assets). On another level, if they decide
that the risk is relatively low in a particular country or that a high-risk environment is
worth the potential returns, they may choose to start (or maintain) operations there and to
1-6. Discuss the importance of contracts in international management. What steps must a
manager take to ensure a valid and enforceable contract?
Learning Objective: 3; AACSB: Multicultural and diversity understanding
Because international managers must operate in a variety of cultures and under a variety
of legal systems, it is imperative that they prepare contracts carefully through consulting
with experts in international law. Contracts reflect the local legal system and political and
currency risks in the country involved, so allowances should be incorporated into foreign
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1-7. Discuss the effects of various forms of technology on international business. What
role does the Internet play? Where is this all leading? Explain the meaning of
“appropriability of technology.” What role does this play in international
competitiveness? How can managers protect the proprietary technology of their
firms?
Learning Objective: 4; AACSB: Use of information technology
Firms have globalized their supply chain, creating a higher level of inter-connectedness.
This results in and creates a greater flow of technology transfer. At the same time,
1-8. Discuss the risk of terrorism. What means can managers use to reduce the risk or the
effects of terrorism? Where in the world, and from what likely sources, would you
anticipate terrorism?
Learning Objective: 1; AACSB: Analytic skills
Terrorism (the use or threat of use of anxiety-inducing violence for political purposes) is on
the rise internationally, particularly in the form of kidnapping of business executives. The
Application Exercises
1-9. Do some further research on the technological environment. What are the recent
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developments affecting businesses and propelling globalization? What problems have
arisen regarding use of the Internet for global business transactions, and how are they
being resolved?
Learning Objective: 4; AACSB: Use of information technology
Technology is influencing global business as never before, and the rate of change is not
expected to diminish any time soon. Technology is increasing the speed and quantity of
information. Information can be sent instantly to almost any part of the world, and
1-10. Consider recent events and the prevailing political and eco- nomic conditions in the
Russian Federation. As a manager who has been considering investment there, how
do you assess the political and economic risks at this time? What should be your
company’s response to this environment?
Learning Objective: 2; AACSB: Dynamics of the global economy
The political and economic situation in Russia is troubling to many international managers,
especially the recent political developments. Beginning with the Yukos action, confidence
in the transparency and honesty of the Russian government has been called into question.
Experiential Exercises
Learning Objective: 2; AACSB: Dynamics of the global economy
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There is no “right” answer to this exercise. It may be useful to begin a discussion of the benefits
of a “China plus one strategy.” Using this framework, China is selected as a manufacturing
location, but an additional Asian country is selected as protection against political risk. China is
fast becoming the manufacturing hub of the world; however, China has had a long history of
End-of-Chapter Case Study: Apple’s iPhone—Not “Made in America”
1-11. What is meant by the globalization of human capital? Is this inevitable as firms
increase their global operations?
Learning Objective: 1; Analytic skills
Firms around the world have been offshoring manufacturing jobs to low-cost countries for
decades. An increasing number of firms have been producing or assembling parts of their
products in many countries; that is, outsourcing by contracting to a local firm, and then
1-12. How does this case illustrate the threats and opportunities facing global companies in
developing their strategies?
Learning Objective: 1; Analytic skills
Opportunities: Companies can source product, technology, parts etc. from all over the
world to get the best possible mix. Apple maintains that the large number of engineers and
1-13. Comment on the Apple executive’s assertion that the company’s only obligation is
making the best product possible: “We don’t have an obligation to solve America’s
problems.”
Learning Objective: 2; Ethical understanding and reasoning abilities
To a large degree this is correct. Apple’s primary obligations are to its customers and
shareholders. By producing excellent products at a reasonable price Apple is doing well to
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1-14. Who are the stakeholders in this situation and what, if any, obligations do they have?
Learning Objective: 1; AACSB: Analytic skills
Apple’s stakeholders are their clients and shareholders – described above.
1-15. How much extra are you prepared to pay for an iPhone if assembled in the United
States? (See question 16)
Learning Objective: 1; AACSB: Analytic skills
1-16. How much extra are you prepared to pay for an iPhone assembled in China but
under better labor conditions or pay? What kind of trade-off would you make?
Learning Objective: 1; AACSB: Analytic skills
Both questions could only be answered on an individual basis, but it is important to
1-17. To what extent do you think the negative media coverage has affected Apple’s recent
decision to ask the FLA to do an independent assessment and the subsequent decision
by Foxconn to raise some salaries?
Learning Objective: 4; AACSB: Communication abilities
It could be surmised that the negative reaction had a major impact on Apple’s decision. It
Student Stimulation
Group or Class Learning Activities
1. Students are often unaware of the physical distances involved in global business. A simple
quiz or game can be an effective class exercise. Ask students to compare the distances
between sets of U.S. cities and sets of international destinations.
a. Which is the greater travel distance?
New York to San Francisco OR Hong Kong to Singapore
2. Branding and Ethnocentrism: Ask your students to identify the national origin of a variety of
products/brands. After they have written their answers, show the correct ones. Ask why they
thought certain brands came from the countries they originally named.
Some effective brands for this exercise include:
Disney (United States)
3. Experiencing currency translation exposure: Ask students to imagine that they are employed
by an American MNC in Europe. They are paid in Euros but in a few days they will be sent
home to the United States and will need to change their earnings into dollars. Check the
4. Assessing political risk activity: Assign students three countries in relatively close proximity
to each other (e.g., India, Pakistan, Nepal; or Thailand, Malaysia, and Singapore). Have the
students use the format from Ex. 1.2 to develop a risk comparison of their three countries for
presentation in the next class period. Discussion questions should probe learning experiences
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Additional Stimulation Discussion Questions
1. A major issue in global business is the protection of intellectual property rights. Have you
used Websites like audiogalaxy.com or morpheus.com? Are such uses a violation of
intellectual property rights? Why or why not? How might such issues become relevant to
global business?
5. Do you feel prepared to work in a multicultural environment? Why or why not?
6. Do you see any advantages for small companies when competing against larger companies
on a global scale?
7. If you had the opportunity to work abroad after graduation and could choose any country,
which would you choose and why?
Web Exercise
The text describes how the financial crisis from 2008 has hit many industries hard, in fact
crippling some and forcing others to retrench or downsize. The fact is that many companies have
had to rethink what they previously assumed to be long-view growth patterns in terms of
international strategy and global network structure. In addition to specific companies and
industries, entire countries have also found that their position within the global business
environment has changed—some for better, some for worse.
Look at the following Websites and develop an argument that shows how a financial crisis might
completely change the thinking of global strategists in individual companies and in foreign
governments?
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