CHAP 2: NATIONAL DIFFERENCES IN POLITICAL ECONOMY

- Political Economy:
+ involves the use of state power to make decisions about who gets what, when,
how and why in the distribution of public goods and social values.
+ deals with how scarce resources are allocated to different uses
+ brings together political, economic consideration and legal framework in a
country, in allocating resources.
- Collectivism and Individualism: Political systems can be based on different
philosophies and practical dimensions.
+ Collectivism: the primacy of collective goals > individual goals.
+ Individualism: an individual should have freedom in his or her economic and
political pursuits.

- Socialism: political ideologies shows Collectivism (=collectivism)

+ Communism: be achieved through violent revolution and totalitarian
dictatorship
+ Social democrats: achieved through democratic means
- Democracy: Members of society take part in a political process to elect
representatives, who then hold office to exercise political power on behalf of their
voters. (đại khái là trong đi bầu cử để tuồng người vào trong chính quyền)
- Totalitarianism: A political system in which one party has total political power.
+ communist
+ theocratic
 + tribal
+ right-wing totalitarianism.

-
- Political ideology and economic systems are connected
+ stress individual goals= market based economies
+ state-ownership is common=collective goals are dominant

- Legal System: the rules that regulate behavior along with the processes by
which the laws are enforced and through which redress for grievances is
obtained (luật=điều chỉnh hành vi qua các răn đe + hình phạt/ bị ảnh hưởng
bởi chính trị)
- Legal systems are important for business because
+ define how business transactions are executed
 + identify the rights and obligations of parties involved in business
transactions
- Types of Legal System
+ Common Law (based on tradition, precedent, and custom)
+ Civil Law (based on a very detailed set of laws organized into codes)
+ Theocratic Law (based on religious teachings)
- Contract: document that specifies the conditions under which an exchange is to occur
and details the rights and obligations of the parties involved
- Contract law: the body of law that governs contract enforcement (common=detailed,
civil = less specific)
- Property rights: the legal rights over the use to which a resource is put and over the
use made of any income that may be derived from that resource (Strong= democracy
and a well-functioning market economy). Can be violated through:
+ Private action – theft, piracy, blackmail
+ Public action - legally
- Intellectual property: property that is the product of intellectual activity, can be
protected (differs from country to country) using
+ Patents – exclusive rights for a defined period to the manufacture, use, or sale
of that invention
+ Copyrights – the exclusive legal rights of authors, composers, playwrights,
artists, and publishers to publish and disperse their work as they see fit
+ Trademarks – design and names by which merchants or manufacturers
designate and differentiate their products
- To avoid piracy, firms can
+ stay away from countries where intellectual property laws are lax
+ file lawsuits
+ Lobby governments for international property rights agreements and
enforcement
Chapter 3: Differences in Economic Development
- Gross national income (GNI) per person measures the total annual income received
by residents of a nation
- GNI can be misleading because it does not consider differences in the cost of living

- Official figures can also be misleading because they do not account for black
economy transactions
- GNI and PPP data are static and do not consider economic growth rates
 How does Political Economy influence Economic Progress?

- Innovation (new products, new processes, new organizations, new management

practices, and new strategies) and entrepreneurship are the engines of long-run
economic growth
+ Increase economic activity = creating new markets and products
+ Require markets
- There is a strong relationship between economic freedom (6 highest: Hong Kong,
Switzerland, Singapore, the United States, Canada, and Germany) and economic
growth
- Democratic regimes (luat le) = more conducive to long-term economic growth >
dictatorships (nha doc tai), even the benevolent kind (established due to Subsequent
economic growth )
- Favorable geography =more likely to engage in trade= more open to market-based
economic systems, and the economic growth they promote
- Invest in education =higher growth rates because the workforce is more productive
- 2 trends have emerged Democratic revolution
+ Trend 1: Democracy has been spreading
+ Trend 2: centrally planned and mixed economies->the market-based model,
involves:
● deregulation: removing legal restrictions to the free play of markets,
the establishment of private enterprises, and the manner in which
private enterprise operate
● privatization: transfers the ownership of state property into the hands
of private investors
● the creation of a legal system to safeguard property rights
 - democratic regimes + market based economic policies + strong property rights
protection = have higher sustained rates of economic growth
- Doing business in a country
Benefits
+ the market size
+ the purchasing power of its consumers
+ their likely future wealth
Risks:
+ Political risk: political forces cause drastic changes in a country's business
environment-> adversely affects the profit and other goals of a business
enterprise
+ Economic risk:economic mismanagement cause drastic changes in a country's
business environment -> adversely affects the profit and other goals of a
business enterprise
+ Legal risk: a trading partner opportunistically break a contract or expropriate
property rights

-
-

CHAP 4: DIFFERENCES IN CULTURE

- Cross-cultural literacy: an understanding of how cultural differences across and
within nations can affect the way in which business is practiced
- Culture: a system of values and norms that are shared among a group of people and
that when taken together constitute a design for living (not static) (có trong quiz)
+ Norms: social rules and guidelines that prescribe appropriate behavior in
particular situations (Có 2 cái là folkways và mores)
+ Values: abstract ideas about what a group believe to be good
- Folkways: routine conventions of everyday life (có trong quiz)
- Mores: cũng là Norms mà quan trọng hơn folkways
- Determinants of culture:
- Social strata: All societies are stratified on a hierarchical basis into social categories
- Social mobility: refers to the extent to which individuals can move out of the strata
into which they are born. (có trong quiz)
+ Caste system: CLOSED SYSTEM: social position is determined by the
family into which a person is born (kiểu ko thay đổi đc, đã nghèo từ nhỏ thì cứ
z hoài)
+ Class system: OPEN SYSTEM (ngược lại với ở trên)
- Religion: system of shared beliefs and rituals (có 4 religion dominate):
+ Christianity
According to Max Weber, Protestantism encouraged capitalism's development
by emphasizing the importance of wealth creation and frugality. (Có trong
quiz)
+ Islam
+ Hinduism
+ Buddhism

- Ethical systems: a set of moral principles, or values, that are used to guide and shape
behavior
→ Thường religion và ethical systems nó sẽ đan xen (intertwined), có ảnh hưởng lên
nhau
- Guanxi: an important mechanism for building long-term business relationships and
getting business done in China. (Có trong quiz)
- Geert Hofstede: (Có trong quiz)
+ Power distance: focused on how a society deals with the fact that pp are
unequal in physical and intellectual capabilities
 + Individualism vs collectivism: focused on the relationship between the
individual and his/her fellows
+ Uncertainty avoidance: measure the extent to which different cultures
socialized their members into accepting ambiguous situations and tolerating
uncertainty
+ Masculinity vs femininity: look at the relationship between gender & work
roles
+ Long Term vs short term orientation: the extent to which a culture
programs its citizens to accept delayed gratification of their material, social,
and emotional needs.
CHAP 5: ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND
SUSTAINABILITY
- Business ethics: accepted principles of right or wrong governing the conduct of
business people.
- Ethical strategy: course of action that does not violate the business ethics.
- Most common ethical issues in business involve: (Có trong quiz)
+ Employment practices
+ Human rights
+ Environmental pollution
+ Corruption
+ Moral obligations of MNCs
- Commons: Some parts of the environment are a public good that no one owns,
but anyone can despoil
- Tragedy of commons: occurs when a resource held in common by all, but owned by
no one, is overused by individuals, resulting in its degradation (Có trong quiz)
- Social responsibility: managers should consider the social consequences of economic
actions when making business decisions
- Ethical dilemmas: situations in which none of the available alternatives seems
ethically acceptable (Có trong quiz)
- Determinants of ethical behavior
 - Straw men approaches: (này nói tiếng việt sơ cho dễ hiểu vì cái này nó lạ lạ): là
trong 1 cuộc lập luận thì người B đưa ra một ý kiến bác bỏ ý kiến của người A nhưng
thật ra người B tự đưa ra ý kiến giả (thường là bóp méo ý kiến người A)xong tự bác
bỏ luôn chứ không đúng chính xác là bác bỏ ý kiến của người A. Ví dụ:
+ Mai: Tắm nước từ vòi hoa sen là có lợi cho sức khỏe.
+ Tuấn: Nhưng nước nóng có thể làm hỏng da của em.
→Tuấn đã bác bỏ một lập luận không tồn tại: Tắm nước nóng từ vòi hoa sen là có
lợi cho sức khỏe (tại Mai đâu nói gì về nhiệt độ nước đâu)
- 4 common straw men approaches:
+ Friedmen Doctrine: the only social responsibility of business is to increase
profits, so long as the company stays within the rules of law (có trong quiz)
+ Cultural Relativism: ethics are culturally determined and firms should adopt
the ethics of the cultures in which they operate
+ Righteous Moralist: a multinational’s home country standards of ethics
should be followed in foreign countries
+ Naive Immoralist: if a manager of a multinational sees that firms from other
nations are not following ethical norms in a host nation, that manager should
not either
- Utilitarian ethics: the moral worth of actions or practices is determined by their
consequences (kiểu như làm gì mà maximize được happiness và minimize được
sadness thì làm :)))
- Kantian ethics: people should be treated as ends and never purely as means to the
ends of others (xem trọng từng cá nhân chứ KO xem ngta là công cụ để đạt được mục
đích của mình)
→ Hai cái Utilitarian với Kantian ngược nhau
- Right theories: human beings have fundamental rights and privileges which
transcend national boundaries and cultures
+ Universal Declaration of Human Rights: principles that should always be
adhered to irrespective of the culture in which one is doing business.
- Justice theories: focus on the attainment of a just distribution of economic goods and
services (kiểu như đặt ra rules sao mà kể cả người ở level thấp nhất vẫn có được công
bằng)
CHAP 6: INTERNATIONAL TRADE THEORY

- Free trade: a situation in which a government does not attempt to influence through
quotas or duties what its citizens can buy from another country, or what they can
produce and sell to another country. (QUIZ)
+ Trade theory shows why it is beneficial for a country to engage in international
trade even for products it is able to produce for itself (QUIZ)
- New trade theory: in some cases countries specialize in the production and export of
particular products not because of underlying differences in factor endowment, but
because in certain industries the world market can support only a limited number of
firms. (QUIZ)
- Mercantilism: a country’s best interests to maintain a trade surplus, to export more
than it imported. (QUIZ)
- Zero-sum game: a gain by one country results in a loss by another
- Absolute advantage theory (ADAM SMITH): Countries should specialize in the
production of goods for which they have an absolute advantage (need less resource)
and then trade these goods for goods produced by other
- Comparative advantage theory (DAVID RICARDO): countries should specialize
in the production of those goods they produce most efficiently (lower opportunity
cost) and buy goods that they produce less efficiently from other countries
+ Trade is a positive-sum game (QUIZ)

- Heckscher-Ohlin theory: comparative advantage arises from difference in Factor

endownments.
+ Factor endownments: the extent to which a country is endowed with
resources like land, labor, and capital (QUIZ)
 + export goods that make intensive use of locally abundant factors (QUIZ)
+ import goods that make intensive use of factors that are locally scarce
- Product life-cycle theory (RAY VERNON): as products mature both the location of
sales and the optimal production location will change affecting the flow and direction
of trade
- New trade theory (PAUL KRUGMAN): the ability of firms to gain economies of
scale (unit cost reductions associated with a large scale of output) can have
important implications for international trade (QUIZ)
+ First-mover advantage: the economic and strategic advantages that accrue to
early entrants into an industry (QUIZ)
- Porter’s diamond of competitive advantage:

1. Nhi - Chapter 7,8,10

CHAP 7: GOVERNMENT POLICY AND INTERNATIONAL TRADE
- Free trade occurs when the government do not attempt to restrict what citizen can
buy from another country or what they can sell to another country
+ Benefit: static economic gains (because free trade supports a higher level of
domestic consumption and more efficient utilization of resources) and
dynamic economic gains (because free trade stimulates economic growth and
the creation of wealth)
- Government use many methods to intervene (can thiệp) in markets
1. Tariff: taxes levied on imports (or exports) that effectively raise the cost of imported
products relative to domestic products → Including 2 types
+ Specific Tariff: levied as a fixed charge for each unit of a good imported
+ Valorem Tariff: levied as a proportion of the value of the imported good
+ Benefit: (1) increase government revenues (2) force consumers to pay more
for certain imports (3) are pro-producers and anti-consumer (4) reduce the
efficiency of the world economy
 + Sometime tariff are levied on exports of a product → raise government
revenue, and reduce exports from a sector (often for political reason)
2. Subsidies: government payment to domestic producers
+ Help domestic producers: (1) compete against foreign imports (2) gain export
market → Fact: Agriculture is one of the largest beneficiaries of subsidies in
most countries
+ Help a firm achieve first-mover advantage
+ Consumers typically absorb the cost of subsidies
3. Import Quota: a direct restriction on the quantity of some good imported in a
country
+ Tariff rate quota: a hybrid of a quote and a tariff which a lower tariff rate is
applied to import within a quota than to those over the quota → Goal: LIMIT
THE IMPORT OVER QUOTA
+ Hơi khó hiểu nên thương tình t ví dụ cho: Giả sử như Hàn Quốc bị restrict chỉ
được sản xuất 1 tấn gạo thì tariff rate của nó sẽ là 10%, nhưng nếu nó sản xuất
2 tấn gạo thì 1 tấn còn lại gọi là out-of-quota nên nó bị đánh tariff 80%. Vậy
nếu nó sản xuất 2 tấn gạo thì 1 tấn 10%, 1 tấn còn lại 80%
4. Voluntary Export Restraint (VER): a quota on trade imposed by the exporting
country, typically at the request of the importing country’s government.
+ VER may limit a firm’s ability to serve a country from locations outside that
country
→ Both (3) and (4) will benefit domestic producers and raise the price of import goods
5. Local Content Requirement (LCR): demand that some specific fraction of a good
be produced domestically
+ Benefit domestic producers → consumers face high prices
6. Administrative Policies: bureaucratic rules designed to make it difficult for imports
to enter a country → Hurt consumer by the limited choices
7. Antidumping Policies: designed to punish foreign firms that engage in dumping
+ Dumping: selling goods in a foreign market at below their costs of production
or as selling goods in a foreign market at below their “fair” market value
+ Predatory Behavior: use their profits from home market to subsidize the price
that drive competitors out of market and then raise the price again

CHAP 8: FOREIGN DIRECT INVESTMENT (FDI)

- There are two main types of foreign investment:
+ Green Field Investment: MNC’s invest in a host country by establishing new
company entities and building resources from the ground up.
+ Merger and Acquisitions (Brown Field Investment): MNC’s purchase
already existing companies and company resources in a host country.
- Flow of FDI: the amount of FDI undertaken over a given time period
+ Outflow: are the flows of FDI out of a country
+ Inflow: are the flows of FDI into a country
- Stock of FDI: total accumulated value of foreign- owned asset at a given time
- The growth of FDI is a result of
+ a fear of protectionism → investors want to avoid trade barriers
+ political and economic changes
+ new bilateral investment treaties → designed to help investment
+ the globalization of the world economy
- USA and China is currently dominate of FDI inflows → the flow of FDI has become
a two-way street between US and China
- Why firms choose Acquisitions vs Greenfield Investments
+ Most cross-border investment is in the form of mergers and acquisitions
rather than greenfield investments → BUT in developing countries ⅔ of
FDI is Greenfield
+ Firms prefer to acquire existing markets because:
1. Mergers and acquisitions are quicker to execute than greenfield
investments
2. It is less risky for a firm to acquire desired assets than build them from
the ground up
3. Firms believe that they can increase the efficiency of an acquired unit
by transferring capital, technology, or management skills
- Why choose FDI over exporting + licensing
+ Exporting - producing goods at home and then shipping them to the receiving
country for sale → may limit by transportation cost and trade barriers ( FDI thì
response dựa trên những trade barriers thiết thực hơn (actual) such as tariffs or
quota
+ Licensing - granting a foreign entity the right to produce and sell the firm’s
product in return for a royalty fee on every unit that the foreign entity sells
1. Internalization Theory is less attractive compared to FDI licensing
2. Firm could give away valuable technological know-how to a potential
foreign competitor
3. Does not give a firm the control over manufacturing, marketing, and
strategy in the foreign country
4. Firm’s competitive advantage may be based on its management,
marketing, and manufacturing capabilities
- Theoretical Approach to FDI:
+ The Radical View - the multinational corporation (MNC) is an instrument of
imperialist domination and a tool for exploiting host countries to the exclusive
benefit of their capitalist-imperialist home countries → in retreat everywhere
+ The Free Market View - international production should be distributed
among countries according to the theory of comparative advantage →
embraced by developing countries: U.S and Britain but not its purest form ( có
sự hiệu chỉnh chứ ko y chang vầy)
+ Pragmatic Nationalism - FDI has both benefits (inflows of capital,
technology, skills, and jobs) and costs (repatriation of profits to the home
country and a negative balance of payments effect) → FDI should be allowed
only if the benefits outweigh the costs
 - FDIs benefit host country
+ Resource transfer effect: FDIs bring capital, technology, and management
resource
+ Employment effect: FDIs bring job
+ Balance-of-payment effect: FDI can help to achieve a current account surplus
+ Effects on competition and economic growth: Greenfield Investments
increase the level of competition in a market, driving down prices and
improving the welfare of consumers → lead to increase productivity growth,
product and process innovation, and greater economic growth
- Cost of FDI to the host country (adverse effect)
+ Competition within host country: subsidiaries of foreign MNCs may have
greater economic power than indigenous competitors because they may be part
of a larger international organization
+ Balance of Payment
+ Perceived loss of national sovereignty and independence
- FDIs benefit home country:
+ The effect on the capital account of the home country’s balance of payments
from the inward flow of foreign earnings
+ The employment effects that arise from outward FDI → international trade
theory suggests that home-country concerns about the negative economic
effects of offshore production (FDI undertaken to serve the home market) may
not be valid
+ The gains from learning valuable skills from foreign markets that can
subsequently be transferred back to the home country
CHAP 9: REGIONAL ECONOMIC INTEGRATION
- Regional economic integration is an attempt to exploit the gains from free trade and
investment
- Linking countries together, making them more dependent on each other
+ Creates incentives for political cooperation and reduces the likelihood of
violent conflict
 + Gives countries greater political strength when dealing with other nations
- The EU is the most integrated economic region in the world.
- Regional economic integration is only beneficial if the amount of trade it creates
exceeds the amount it diverts
+ Trade Creation occurs when low cost producers within the free trade area
replace high cost domestic producers
+ Trade Diversion occurs when higher cost suppliers within the free trade area
replace lower cost external suppliers
CHAP 10: FOREIGN EXCHANGE MARKET
- Foreign exchange market: is a market for converting the currency of one country
into that of another country ( has two functions, định nghĩa cũng chính là function đầu
tiên) → provides some insurance against foreign exchange risk (The risk that arises
from volatile changes in exchange rates) → The firms that insures itself against
foreign exchange risk called Hedging
- Exchange Rate: is simply the rate at which one currency is converted into another
- Forward Exchange Rate is the rate used for currency exchange are typically quoted
for 30, 90, or 180 days into the future
- Currency Swap is the simultaneous purchase and sale of a given amount of foreign
exchange for two different value dates
- If exchange rates quoted in different markets were not essentially the same, there
would be an opportunity for arbitrage → the process of buying an asset low and
selling it high
- Three factors impact future exchange rate movements
1. A country’s price inflation
2. A country’s interest rate
3. Market psychology
- Purchasing power parity theory (PPP) argues that given relatively efficient markets
(a market with no impediments to the free flow of goods and services) the price of a
“basket of goods” should be roughly equivalent in each country
+ PPP theory suggests that changes in relative prices between countries will lead
to exchange rate changes, at least in the short run
- International Fisher Effect states that for any two countries the spot exchange rate
should change in an equal amount but in the opposite direction to the difference in
nominal interest rates between two countries
- Bandwagon Effect occurs when expectations on the part of traders turn into
self-fulfilling prophecies - traders can join the bandwagon and move exchange rates
based on group expectations

CHAP 11: THE INTERNATIONAL MONETARY SYSTEM

Foreign exchange market:
Primary role: Transfering funds from one country to the other
3 Functions:
Short term Credit Function
Managing Risk
 Speculative Purposes
Money:
4 Functions:
Medium of Exchange
Store of value
Unit of account
Standard of deferred payment
Reserve Currency: a major world currency that is used internationally as a standard of
value. Since 1945 it has been the US Dollar
The international monetary system: the system of agreements and institutions that control
exchange rates between currencies. (QUIZ)
It is a fiat monetary system because the value of currencies today is extrinsically supported
by government decree.
History of Money:
9000 BC Barter System

1200 BC Cowry shells

700 BC Minted coins

1870-1930 AD Gold Standard

1945-1971 AD Bretton Woods System

After 1971 Fiat

2009 AD Cryptocurrency

Gold standard: refers to a system in which countries peg currencies to gold and guarantee
their convertibility
The gold standard dates back to ancient times when gold coins were a medium of
exchange, unit of account, and store of value
Payment for imports was made in gold or silver
Later, payment was made in paper currency which was linked to gold at a fixed rate
In the 1880s, most nations followed the gold standard
The gold par value refers to the amount of a currency needed to purchase one ounce of gold
Gold Standard Made Sense:
A powerful mechanism for achieving balance-of-trade equilibrium by all countries
(when the income a country’s residents earn from its exports is equal to the money its
residents pay for imports) → Return a gold standard (QUIZ)
The gold standard worked well from the 1870s until 1914
But, many governments financed their World War I expenditures by printing
money and so, created inflation
People lost confidence in the system
The demand on gold for their currency put pressure on countries' gold reserves
and forced them to suspend gold convertibility
 By 1939, the gold standard was dead
Bretton Woods System: facilitate postwar economic growth. Established 2 multinational
institutions:
The International Monetary Fund (IMF): maintain order in the international
monetary system through a combination of discipline and flexibility
The World Bank (International Bank for Reconstruction and Development
(IBRD)): promote general economic development
Fixed Exchange Rate System Collapse:
Bretton Woods worked well until the late 1960s
Huge increases in welfare programs and the American War in Vietnam were
financed by increasing the money supply and causing significant inflation
Jamaica Agreement: established in 1976 and still now
Floating rates were declared acceptable
Gold was abandoned as a reserve asset (QUIZ)
Exchange Rates since 1973: have been more volatile and less predictable than they were
between 1945 and 1973 because of
Oil crisis (1973-1979)
The loss of confidence in the dollar after US inflation (1977-1978)
The rise in the dollar (1980-1985)
Asian currency crisis (1997)
Global crisis (2008-2010)
Sovereign debt crisis (2010-2011)

Floating Rates Fixed Rates

Monetary policy autonomy Provides monetary discipline

Removing the obligation to maintain Ensures that governments do not
exchange rate parity restores expand their money supplies at
monetary control to a government inflationary rates

Automatic trade balance adjustments Minimizes speculation

Under Bretton Woods, if a country Causes uncertainty
developed a permanent deficit
in its balance of trade that could not
be corrected by domestic
policy, the IMF would have to agree
to a currency devaluation

Help countries recover from financial Reduces uncertainty

crises Promotes growth of international
trade and investment
→ No real agreement as to which system is better
Bretton Woods-style fixed exchange rate regime will not work
Different kind of fixed exchange rate system might be more enduring
→ Free Float is the MOST practiced today
Pegged Rate System: pegs the value of its currency to that of another major currency
 Popular among the world’s smaller nations
Imposes monetary discipline and leads to low inflation
Adopting a pegged exchange rate regime can moderate inflationary pressures in a
country (QUIZ)
Currency Board: To converting their domestic currency on demand into another currency at
a fixed exchange rate
Holds reserves of foreign currency equal at the fixed exchange rate to at least 100%
of the domestic currency issued
Issue additional domestic notes and coins only when there are foreign exchange
reserves to back them
Role of IMF today: Focuses on lending money to countries in financial crisis
Three main types of financial crises:
Currency crisis (ex: Brazil 2002)
Banking crisis
Foreign debt crisis (Greece and Ireland 2010)
By 2012, commiting loans to 52 countries
The Monetary System Means for Managers
Currency Management: Managed float - government intervention can influence
exchange rates (create volatile movements in exchange rates)
Business Strategy: Major impact on the competitive position of businesses (Need
strategic flexibility)
Corporate–Government Relations: Businesses can influence government policy
toward the international monetary system

CHAP 12: GLOBAL CAPITAL MARKET

Capital: The amount of cash and other assets owned by a business
Represent the accumulated wealth of a business, represented by its assets less
liabilities
Stock or ownership in a company
→ Accumulated assets or ownership
Capital is traded in the financial markets. But the capital market is where capital is traded
specifically for different types of security e.g. Stocks and bonds.
Foreign Investment:
Foreign Direct Investment
Foreign Portfolio Investment: more closely related to Global capital markets

Stocks Bonds

Meaning An equity instrument A debt instrument with a

carrying ownership interest promise to pay back the
money with interest

Return Dividend Interest

Return Guarantee No Yes

 Additional Benefits Voting rights in the company Preferential treatment when
bond matures

Market interactions

More risky Less risky

Volatile Face value

Possible higher returns Lower but Safer returns

Do well when economy Do well when economy

Booming Slows

Market liquidity: The amount of market activity measured in the number of trades and sums
of money exchanged.
High market liquidity is good for markets, because it means that transactions can
be done: Easily, quickly, lower spreads
The liquidity of international capital markets grew hugely after 1989
Capital Market Exist:
Investors - corporations with surplus cash, individuals, and non-bank financial
institutions
Borrowers - individuals, companies, and governments
Market makers - the financial service companies that connect investors and
borrowers, either directly (investment banks) or indirectly (commercial banks)
Capital market loans can be equity or debt

Global Capital Market Is Attractive:

Highly interconnected and facilitate the free flow of money around the world
Borrowers: Lower the cost of capital
Investors: Portfolio Diversification
Reasons the Global Capital Market is Growing:
Advances in information technology: data processing capabilities
Deregulation by governments: since 1980s, these restrictions have been falling
Began in the US then moved to Great Britain, Japan, France
2008-2009: Global financial crisis raised questions as to whether deregulation
had gone too far (Are new regulations for the financial services industry needed?)
Global Equity Market: allows firms to:
Attract capital from international investors
List their stock on multiple exchanges: result in an internationalization of
corporate ownership
Raise funds by issuing debt or equity around the world
Global Bond Market
Bonds are an important means of financing for many companies (the most common:
fixed rate → Give investors fixed cash payoffs)
Gre rapidly 1908s-1990s and continues 21st
Eurocurrency: Any currency banked outside its country of origin(QUIZ)
An important source of low-cost funds for international companies
US internal credit market
UK internal credit market
Japanese internal credit market
Reasons Eurocurrency Market Grown:
Began 1950s
1957, the market surged again after changes in British laws
London became the leading center of the Eurocurrency market
Eurocurrency Market Is Attractive:
Not regulated by the government
Banks can offer higher interest rates on Eurocurrency deposits than on
deposits made in the home currency
Banks can charge lower interest rates to Eurocurrency borrowers than to
those who borrow the home currency
The spread between its deposit and lending rates is less than the spread between the
domestic deposit and lending rates
Gives Eurocurrency banks a competitive edge over domestic banks
Offer attractive interest rates - but they carry institutional and foreign exchange
risk.
Eurocurrency Market Is Unattractive:
Higher risk that bank failure could cause depositors to lose funds (avoid by accepting
a lower return on a home-country deposit)
Companies borrowing Eurocurrencies can be exposed to foreign exchange risk
(forward market hedges)
Generally used for short-term liquidity, not long term loans
CHAP 13: STRATEGY IN INTERNATIONAL BUSINESS
Strategy and the firm:
- A firm’s strategy can be defined as the actions that managers take to attain the goals
of the firm
- Firms need to pursue strategies that increase profitability and profit growth
+ Profitability: the rate of return the firm makes on its invested capital
+ Profit growth: the percentage increase in net profits over time
Determinants of enterprise valuation:

→ Higher profitability and a higher rate of profit growth will increase the value of an
enterprise
Value creation
- The way to increase the profitability of a firm is to create more value

- The firm’s value creation is the difference between V and C : V-C

- The consumer surplus per unit is equal to V – P ( value for the money)
→ A firm has high profits when it creates more value for its customers and does so at a
lower cost
- Profits can be increased by:
+ Low-cost strategy: Strategy that focuses primarily on lowering production
costs (lowering cost)
 + Differentiation strategy: strategy that focuses primarily on increasing the
attractiveness of a product ( adding value to increase buying intention)
Strategic positioning
Efficiency frontier

- To maximize its profitability, a firm must do three things:

+ Pick a position on the efficiency frontier that is viable (enough demand to
support)
+ Configure its internal operations, such as manufacturing, marketing, logistics,
information systems, human resources… to support that position
+ Make sure that the firm has the right organization structure in place to execute
its strategy
→ The strategy, operations, and organization of the firm must all be consistent with each
other if it is to attain a competitive advantage and garner superior profitability
- Operation: a value chain composed of a series of distinct value creation activities
- Value creation activities can be categorized into:
+ Primary activities: Primary activities have to do with the design, creation,
and delivery of the product; its marketing; and its support and after-sale
service: R&D, production, marketing and sales, customer service.
+ Support activities: The support activities of the value chain provide inputs
that allow the primary activities to occur: information systems, company
infrastructure, logistics, human resources.
How Can Firms Increase Profits Through International Expansion?
● Expand the market, sell in international markets
● Realize location economies
● Realize greater cost economies from experience effects
● Earn a greater return by leverage skills developed in foreign operations
Core competency: skills within the firm that competitors cannot easily match or
imitate.These skills may exist in any of the firm’s value creation activities → allow firms to
reduce the costs of value creation and/or create higher perceived value so that higher
pricing is possible.

Location economies: economies that arise from performing a value creation activity in the
optimal location for that activity.
- It can lower the costs of value creation and help the firm achieve a low-cost position,
and/or it can enable a firm to differentiate its product offering from those of
competitors
- Firms that take advantage of location economies in different parts of the world, create
a global web of value creation activities

Experience curve: the systematic reductions in production costs that occur over the life of a
product
Learning effects (experience effects) refer to cost savings that come from learning by doing

Economies of scale: producing a large number of units reduces the marginal cost of
producing extra units. → Can lower costs and increase profitability
Three sources of economies of scale:
+ Ability to spread fixed costs over a large volume
+ Attaining efficient scale of production by serving international markets
+ Bargaining power with suppliers increases

Cái này thì hiểu quá rồi không cần phải nói nhiều nữa ha
International business strategy
Global Standardization: goal is to pursue a low-cost strategy on a global scale. Ex:
Microsoft, Coca Cola, Shell…
Localization: increase profitability by customizing goods or services so that they match
tastes and preferences in different national markets. Ex: Grab, Gojek…
Transnational: simultaneously tries to achieve low cost and differentiate products. Ex:
Unilever, P&G, Nike…
International: take products first produced for the domestic market and sell them
internationally with only minimal local customization. Ex; VinFast, Trung Nguyen…

CHAP 14 The Organisation of International Business

Organizational architecture is the totality of a firm’s organization, including:

1. Organizational structure: the formal division of the organization into subunits
(horizontal differentiation), the location of decision-making responsibilities within that
structure (vertical differentiation), and the establishment of integrating mechanisms.
2. Control systems and incentives
+ Control systems: the metrics used to measure performance of subunits
+ Incentives: the devices used to reward managerial behavior
3. Processes, organizational culture and people
+ Processes: how decisions are made and work is performed within the
organization
+ Organizational structure: norms and values that are shared among the
employees of an organization
+ People: the employees and the strategy used to recruit, compensate, and
retain employees
Vertical differentiation determines where decision-making power is concentrated.

Centralized decision making Decentralized decision making

- Facilitates coordination - Relieves the burden of centralized

- Ensures decisions are consistent decision making
with the organization’s objectives - Has been shown to motivate
- Gives managers the means to bring individuals
about organizational change - Permits greater flexibility
- Avoids duplication of activities - Can result in better decisions
- Can increase control
Horizontal differentiation: refers to how firms divide into subunits
When firms expand internationally, they often group all of their international activities into an
international division

( CÒN MẤY CÁI NÀY XEM THÊM TRONG SLIDE WEEK 7 NHÉ)
Types of control systems:
+ Personal controls
+ Bureaucratic controls
+ Output controls
+ Cultural controls

Performance ambiguity exists when the causes of a subunit’s poor performance are not
clear
CHAP 15: ENTRY STRATEGY AND STRATEGIC ALLIANCES
Firms expanding internationally must decide (where, when how)
1. Which markets to enter
2. When to enter them and on what scale
3. Which entry mode to use

Favourable markets
- Are politically stable
- Have free market systems
- Have relatively low inflation rates
- Have low private sector debt
Less favorable markets
- Are politically unstable
- Have mixed or command economies
- Have excessive levels of borrowing
→ The choice of foreign markets will depend on their long-run profit potential

Timing of entry
- Early entry → FIRST MOVER ADVANTAGE
- Late entry
First mover advantages First mover disadvantages

- Preempt rivals by establishing a Pioneering cost: costs that an early

strong brand name entrant has to bear
- Build up sales volume rivals and - Costs of business failure
gain a cost advantage over later - Cost of educating customers
entrants
- Create switching costs
ENTRY MODES

1. Exporting: a common first step for many manufacturing firms

2. Turnkey projects : the contractor handles every detail of the project for a foreign
client, including the training of operating personnel
3. Licensing: a licensor grants the rights to intangible property to the licensee for a
specified time period, and in return, receives a royalty fee from the licensee
4. Franchising: a specialized form of licensing in which the franchisor not only sells
intangible property to the franchisee but also insists that the franchisee agree to
abide by strict rules as to how it does business
5. Joint ventures with a host country firm: a firm that is jointly owned by two or
more otherwise independent firms
6. Wholly owned subsidiary: the firm owns 100 percent of the stock
→ The optimal entry mode depends on the nature of a firm’s core competencies

When competitive advantage is based on proprietary technological know-how avoid

licensing and joint ventures
When competitive advantage is based on management know-how, franchisees or
joint-venture partners is not that great

Greenfield or Acquisition?
Greenfield strategy: build a subsidiary from the ground up. Better when the firm
needs to transfer organizationally embedded competencies, skills, routines, and culture
Acquisition strategy: acquire an existing company. Better when there are
well-established competitors or global competitors interested in expanding

Strategic alliances: cooperative agreements between potential or actual competitors

+ Facilitate entry into a foreign market
+ Allow firms to share the fixed costs and risks of developing new
+ Products or processes
+ Bring together complementary skills and assets that neither
+ Partner could easily develop on its own
+ Help a firm establish technological standards for the industry that will benefit the firm

Cái bảng này có vẻ quan trọng

CHAP 16: EXPORTING, IMPORTING, AND COUNTERTRADE
- Global imports and exports have increased hugely since the beginning of
containerisation in the early 1970’s
- Reason why to export:
+ Identify market opportunities.
+ Deal with foreign-exchange risk.
+ Navigate import and export financing.
+ Understand the challenges of doing business in a foreign market.
1. The promise and Pitfalls of Exporting
1.1. The promise
- Provide with large revenue and profit opportunities in foreign markets.
- Enable firms to achieve Economies of scale. → cost reduction.
- Leveraging the technology, products, and marketing skills in foreign countries.
→ Big firms proactive, small firms reactive.
1.2. The pitfalls
- Poor market analysis.
- Poor understanding of competitive conditions in foreign market.
- Failure to customize the product offering to the needs of foreign customers.
- Lack of an effective distribution program.
- Poorly executed promotional campaign.
- Problems securing financing.
1.3. Improving export performance
 - International comparisons.
- Information sources.
- Service providers.
+ Export management companies (EMCs) act as the export marketing
department or international department for clients firms.
+ EMCs start services with the understanding that the EMCs will have
continuing responsibility for selling the firm’s products.
- Export strategy.
- Globaledge diagnostic tools.
1.4. Export and Import financing
- Lack of trust
+ The issue of trust is important.
+ International transactions are normally facilitated by a reputable bank
(third party)
- Letter of credit:
+ The bank will pay a specified sum of money to the beneficiary,
normally the exporters.
- Draft (bill of exchange)
+ Sight draft: payable on presentation to the drawee.
+ Time draft: allows payment delays (normally 30, 60, 90, or 120 days.)
- Bill of lading
+ A receipt.
+ A contract
+ A document of title
1.5. Export Assistance
- Export-Import Bank
- Export credit insurance
1.6. Countertrade
- An alternative means of structuring an international sale when conventional
means of payment are difficult, costly, or nonexistent.
- Approximately 8% to 10% of world trade is in the form of the countertrade.
- Types of countertrade deal:
+ Barter
- Direct exchange of goods and/or services
- No cash transactions
- One-time-only deals
+ Counterpurchase
- Reciprocal buying agreement.
- Occurs when a firm agrees to purchase a certain amount of
materials back from a country to which a sale is made.
+ Offset
- Similar to counterpurchase
- Specified percentage of the proceeds from the original sale.
+ Buyback
 + Switch trading
PROS:
- A way to finance export deals.
- A competitive edge over firms
- Countertrade arrangements may be required by the government of a country
CONS:
- The exchange of unstable or poor-quality goods that firms cannot dispose of
profitably.
- Require firms to establish an in-house trading department to handle countertrade
deals.

CHAP 17: GLOBAL PRODUCTION & SUPPLY CHAIN MANAGEMENT

- Through the upstream and downstream chains, the objectives of reducing costs and
increasing quality are not independent of each other.
- The relationship between quality and costs
 - The Six Sigma program is particularly informative in structuring global processes that
multinational corporations can follow in quality and productivity initiatives. → boost
product quality and productivity

- In Europe, ISO 9000 measures the firm’s manufacturing processes and products.
● Where should production be located?
1. Why?
- Production and logistics can be locally responsive.
- Production and logistics can respond quickly to shifts in customer demand.
2. Factor considerations.
- Country factors
+ Economic, political, and cultural conditions are most conducive to the
performance.
+ Create a global web of activities.
+ Global concentrations of activities at certain locations.
+ The availability of skilled labor and supporting industries.
+ Formal and informal trade barriers.
+ Expectations about future exchange rate changes.
+ Transportation costs.
+ Regulations affecting FDI.
- Technological factors
+ The level of fixed costs
- Fixed cost high → single or few locations.
- Fixed cost low → multiple production plants.
- Allows to respond to local demands.
+ The minimum efficient scale.
+ The flexibility of technology.
- Lean production
- Allows firms to produce a wide variety of end products at a
relatively low unit cost.
- Production factors
 + The product’s value-to-weight ratio.
+ Whether the product serves universal needs.
+ Strategic roles for production facilities.
- Offshore factory
+ Produce component parts/ finished goods at a lower
cost.
+ Investments are kept to a minimum to achieve greater
cost efficiencies.
+ Minimal everything.
- Source factory
+ Drive down costs in the global supply chain.
+ Significant than the offshore factory.
+ Purchase raw materials and component parts
+ Located when production costs are low, well-developed
infrastructure.
- Server factory
+ Overcome intangible and tangible barriers in the global
marketplace. (tariff barriers, reduce taxes, and reinvest
money made in the region.)
+ Reduce/ eliminate costly global supply chain
operations.
+ Make minor customizations to please customers.
- Contributor factory
+ Responsible for products and process engineering and
development.
+ Compete with global firm’s home factories for testing
new ideas and products.
+ Has its own infrastructure when it comes to
development, engineering, and production.
- Outpost factory
+ Intelligence-gathering unit.
+ Placed near a competitor’s headquarters or main
operations, near the most demanding customers, or near
key suppliers of unique and critically important parts.
- Lead factory
+ Intended to create new processes, products, and
technologies.
+ Cutting edge production takes place.
+ Located in an area where highly skilled employees can
be found (or where they want to locate).
● Hidden costs of foreign production locations
- High employee turnover.
- Poor workmanship.
- Poor product quality.
 - Low productivity.
1. Make-or-buy decisions
- Lowers costs.
- Facilitates investments in highly specialized assets.
- Protects proprietary technology.
- Facilitates the scheduling of adjacent processes.
- GIves the firm greater flexibility.
- Helps drive down the firm’s cost structure.
- Helps the firm capture orders from international customers.
2. Global supply chain functions
a. Core activities of logistics:
- Global distribution center management.
- Inventory management.
- Packaging and materials handling.
- Transportation.
- Reverse logistics.
b. Global purchasing
- Part of the supply chain that involves worldwide buying of raw
material,component parts, and products.
- Include development of an appropriate strategy for global purchasing and
selecting the type of purchasing strategy best suited for the company
3. Managing a global supply chain
- Just-in-time (JIT) systems
+ Generate major cost savings from reduced warehousing and inventory
holding costs.
+ Help firms spot defective parts and take them out of the manufacturing
process.
+ No buffer stock of inventory to meet unexpected demand or supply
changes.
- Information technology (IT)
+ Allow firms to optimize production scheduling according to when
components are expected to arrive.
+ Electronic data interchange (EDI)
+ Enterprise resource planning (ERP)
+ Collaborative planning, forecasting, and replenishment (CPFR)
+ Vendor management of inventory (VMI)
+ Warehouse management system (WMS)
- Coordination in global supply chains
+ Responsiveness
+ Variable reduction
+ Inventory reduction
+ Shipment consolidation
+ Quality
+ Life-cycle support
 - Interorganizational relationships
+ Upstream/Inbound relationships

+ Downstream/Outbound relationships

● The minimum efficient of scale (MES): is the scale of output where internal
economies of scale have been fully exploited.
 - MES is high → centralized production.
MES is low → decentralized production to diversify and avoid risk.
CHAP 19: GLOBAL HUMAN RESOURCE MANAGEMENT
- Firms need to ensure that there is a fit between human resources practices and overall
international strategy.
● Strategic role of HRM in international firms.
- HRM helps the firms reduce the costs of value creation and add value by better
serving customer needs.
- Staffing policy:
+ Ethnocentric approach
+ Polycentric approach
+ Geocentric approach
- Training for expatriate managers
+ Cultural training
+ Language training
+ Practical training