- Nations trade to exploit their comparative advantages, focusing on producing what they do best and trading for other goods. - A nation has a comparative advantage when it can produce a good at a lower opportunity cost than other nations. - To evaluate international trade, nations look at their balance of trade (exports - imports) and balance of payments (total inflows and outflows). If exports exceed imports, there is a trade surplus; if imports exceed exports, there is a trade deficit.

1. AGC450
Week 4
Business in a Global
Environment
Dr. Russell Rodrigo

2. How does globalization affect you?

3. Why Do Nations Trade?
1.They import those that they need but don’t produce and
export those that are needed elsewhere.
2.To understand why certain countries, import or export
certain products, you need to realize that not all countries
are good at producing or are able to produce the same
products.
3.The cost of labor, the availability of natural resources, and
the level of know-how vary greatly around the world.

4. To explain how
countries decide
what products to
import and
export,
economists use
the concepts
of absolute and
comparative
advantage.
1.A nation has an absolute
advantage if it’s the only source of a
particular product or can make more
of a product with the same amount of
or fewer resources than other
countries.
2.A comparative advantage exists
when a country can produce a
product at a lower opportunity
cost than other nations.

5. Comparative
Advantage

6. How Do We Measure Trade
between Nations?
• To evaluate the nature and consequences of its
international trade, a nation looks at two key
indicators.
• We determine a country’s balance of trade by
subtracting the value of its imports from the value
of its exports.
• If a country sells more products than it buys, it has
a favorable balance, called a trade surplus.
• If it buys more than it sells, it has an unfavorable
balance, or a trade deficit.

7. • Nations trade to exploit their
advantages: they benefit from
specialization, focusing on what
they do best and trading the output
to other countries for what they do
best.
• To evaluate the impact of its
international trade, a nation looks
at two key indicators: balance of
trade and balance of payments.

8. We determine a
country’s balance of
trade by subtracting
the value of its
imports from the
value of its exports.
• If a country sells more
products than it buys, it has a
favorable balance, called
a trade surplus.
• If it buys more than it sells, it
has an unfavorable balance,
or a trade deficit.

9. The balance of
payments is the
difference, over a
period of time,
between the total
flow coming into a
country and the total
flow going out.
1.As in its balance of trade, the biggest
factor in a country’s balance of
payments is the money that comes in
and goes out as a result of exports
and imports.
2.But balance of payments includes
other cash inflows and outflows, such
as cash received from or paid for
foreign investment, loans, tourism,
military expenditures, and foreign
aid.

10. Opportunities
in
International
Business

11. Importing and
Exporting

12. Key terms
• Importing involves purchasing products from other countries and reselling
them in one’s own.
• Exporting entails selling products to foreign customers.
• Under a franchise agreement, a company grants a foreign company the right
to use its brand name and sell its products.
• A licensing agreement allows a foreign company to sell a company’s
products or use its intellectual property in exchange for royalty fees.
• Through international contract manufacturing, or outsourcing, a company
has its products manufactured or services provided in other countries.

13. Key terms cont.
• A strategic alliance is an agreement between two companies to pool talent and resources to
achieve business goals that benefit both partners.
• A joint venture is a specific type of strategic alliance in which a separate entity funded by
the participating companies is formed to manage the alliance.
• Foreign direct investment (FDI) refers to the formal establishment of business operations
on foreign soil.
• Offshoring occurs when a company sets up facilities in a foreign country that replaces U.S.
manufacturing facilities to produce goods that will be sent back to the United States for sale.
Shifting production to low-wage countries is often criticized as it results in the loss of jobs
for U.S. workers.
• A common form of FDI is the foreign subsidiary, an independent company owned by a
foreign firm.
• A company that operates in many countries is called a multinational corporation (MNC).

14. The Global Business
Environment

15. The Cultural Environment

16. Language:
Lost in
Translation
Table
• In Belgium, the translation of the slogan of an American auto-body company,
“Body by Fisher,” came out as “Corpse by Fisher.”
• Translated into German, the slogan “Come Alive with Pepsi” became “Come
out of the Grave with Pepsi.”
• A U.S. computer company in Indonesia translated “software” as “underwear.”
• A German chocolate product called “Zit” didnʼt sell well in the United States.
• An English-speaking car-wash company in Francophone Quebec advertised
itself as a “lavement dʼauto” (“car enema”) instead of the correct “lavage
dʼauto.”
• A proposed new soap called “Dainty” in English came out as “aloof” in Flemish
(Belgium), “dimwitted” in Farsi (Iran), and “crazy person” in Korea; the
product was shelved.
• One false word in a Mexican commercial for an American shirt maker changed
“When I used this shirt, I felt good” to “Until I used this shirt, I felt good.”
• In the 1970s, GMʼs Chevy Nova didnʼt get on the road in Puerto Rico, in part
because Nova in Spanish means “It doesnʼt go.”
• A U.S. appliance ad fizzled in the Middle East because it showed a well-
stocked refrigerator featuring a large ham, thus offending the sensibilities of
Muslim consumers, who donʼt eat pork.

17. Intercultural
Communication

18. Intercultural
communication
• describes communication efforts between
different cultural groups or subgroups.
Differences between those groups, even if
they speak the same language, can create
problems and make understanding each
other much harder.
• As globalization has brought the whole
world closer together, business between
different cultures happens on a daily basis.
• To make things run smoothly,
intercultural communication skills are
crucial.

19. Geert Hofstede
• Hofstede refers to culture as “the collective programming of the mind distinguishing
the members of one group or category of people from others” (Hofstede, 2013).
• Comparing values, behaviors and organization for different nations Hofstede developed five
dimensions to classify cultural principles. Each dimension builds up between two poles who
describe the idealized extremes of it.
• Hofstedes original dimensions included power distance (PDI), individualism vs. collectivism
(IDV), masculinity vs. femininity (MAS) and Uncertainty avoidance (UAI) (Hofstede,
2001). A fifth definition, the one of long-term vs. short-term orientation or in other
words pragmatic vs. normative, was added by Micheal Bonds research in 1991, followed by
the definition of indulgence vs. restraint by Michael Minkov (Hofstede 2013).
• In each dimension the lowest possible score is 0 and the highest is 100.

20. Power distance
• How flat are hierarchies?
• How does a culture deal with inequalities?
• Is societal influence concentrated in the hands of a few or
distributed throughout the population?
• How authoritarian is a country’s organization?
• Are communication efforts interactive?
New Zealand Score: 12
New Zealand’s low score indicates a culture with flat hierarchies and a
very low power distance. Communication in organisations is interactive
and rather informal.
What are the implications of POWER DISTANCE on
intercultural communications?

21. Individualistic
vs.
Collectivist culture:
1. Does the interest of the group or the individual matter the
most?
2. Are people only looking after themselves and their
immediate family?
3. How well are individuals integrated and networked?
New Zealand Score: 86
• With the rather high score of 86 New Zealand can be
described as a rather individualistic culture with people
looking after themselves and their immediate families first.
What are the implications of individualism and collectivism
on intercultural communications?

22. Low vs. High context
Communication
• Members of cultures with high-context
communication send messages in which
most of the information is either in the
physical context or internalised in the
person, while very little is in the coded,
explicit, transmitted part of the message.
• In contrast, the low-context
communication is one in which the mass
of the information is vested in the explicit
code. The receiver does not have to take a
complex context into consideration, when
decoding the message. What must be said,
will be said.

23. Masculinity vs. Femininity
• Which values are aimed for?
• How strong is a society following material values and
success in comparison to the quality of life,
interpersonal relationships and the concern for the
weak?
New Zealand Score: 59
• A score of 59 signalizes masculinity rather then
femininity. People strive to be the best they can be in
work or school-related settings with the focus on
winning, being proud of their achievements and success
in life.
• What are its implications on intercultural
communications?

24. Uncertainty Avoidance
vs. Taking risks
Ø Do members of a society feel threatened by unknown situations?
Ø Are there attempts to control the future or do people just let it
happen?
Ø How high is the willingness to try something new or different?
New Zealand Score: 39
• With a score of 39 New Zealand can be described as a pragmatic society
that deals with uncertainties in a relaxed and flexible fashion. Originality
is valued. People are willing to accept new ideas, give innovative products
a try and a not too averse to taking risks.
• What are its implications on intercultural communication (business
setting)?

25. Long-term vs. Short-term
Orientation (Pragmatic vs.
Normative):
ØHow are individuals subordinating themselves for
longer term purposes?
ØHow are the tendencies towards short-term
spending and long-term savings, perseverance and
quick results?
New Zealand Score: 28
• New Zealand is shown to be a normative country
with a normative way of thinking. Motivation to
save for the future is rather low, therefore the
focus on quick results is high.

26. Indulgence vs. Constraint
ØHow freely are hedonist drives as gratifications towards
enjoying life and having fun tolerated and allowed?
ØIs the gratification of needs restricted by strong social
norms?
New Zealand Score: 75
A rather high score of 75 pictures New Zealand’s society
indulgent. With it, people tend to possess a positive attitude
and a tendency towards optimism. Leisure time is regarded
as important, also the ability to spend money as one likes
and and to follow desires and needs to enjoy life and have
fun.

27. Perception of Time
(Chronemics)
Monochronic vs Polychronic
Study of the use of time and
the way that time is perceived
and valued by individuals and
cultures.
What are its implications on
intercultural communication?

28. Discussion
1. What can you say about your nation’s culture?
2. How would you classify it in terms of
Hofstede’s model?
3. How do you evaluate New Zealand’s scores?
Do you agree?
4. Have a look online to compare your estimation
with your country’s scores!
5. Compare with other countries you know.

29. How Does Culture Affect
Communication?
• Instant communications and an ever-
expanding internet have made the world a
much smaller place, presenting both barriers
and opportunities as we interact across
borders with people of different cultures.
• In this new, complex world of communication,
cultural differences stand out as one of our
biggest challenges.
• Different cultures affect how individuals
participate in groups and how they work
within communities.

30. New Challenges With the
Way We Communicate
Different styles of communicating

31. Verbal Communication Styles by Gudykunst
and Ting-Toomey
Direct Style
• The direct-indirect style refers to the
way of expressing the speaker’s true
intention in terms of his needs, wants
and desires.
• Members of individualistic, low-
context cultures tend to use the direct
style, which corresponds best to the
value orientations (honesty, openness,
individual worth) of such cultures.
Indirect Style
• Members of collectivistic, high-
context cultures prefer to use the
indirect verbal style.
• Speakers of such cultures often use
imprecise and even ambiguous words
to communicate their message. By
doing so, they “emphasise listener’s
abilities to infer speaker’s intentions.

32. According to Weggel, ʻyesʼ carries various
meanings in cultures using the indirect style.
The problem is how to interpret the term in the
right way.

33. • The use of direct speech in
individualistic, low context cultures,
asserts self-face need and self-face
concern whereas in collectivistic,
high-context cultures, the indirect
speech is preferred in order to keep
up group harmony and to preserve
mutual-face need.
• Assumptions on values and a “set of
deep-rooted historical-political
logics” are decisive elements for the
choice of one of these two
dimensions.

34. Elaborate vs. Exacting
vs. Succinct Style
• The elaborate style distinguishes itself by a rich, expressive
language, which uses a large number of adjectives describing
a noun, exaggerations, idiomatic expressions, proverbs and
metaphors. This style is mainly used in cultures of the Middle
East such as Iran, Egypt, Lebanon and Saudi-Arabia which are
moderate on Hofstede’s uncertainty avoidance dimensions and
are high- context cultures.
• The exacting style can be found in low-context cultures which
are low to moderate on Hofstede’s uncertainty avoidance
dimension. These are mainly North American and North
European cultures. It says that neither more nor less
information is required to communicate a message. The
speaker just uses those words, which describe exactly the
speakers’ intention.

35. Elaborate vs. Exacting
vs. Succinct Style Cont.
• Finally, the succinct style refers to
the use of understatements,
pauses and silences.
• This style is used in cultures high
in uncertainty avoidance and high-
context.

36. Elaborate vs. Exacting vs.
Succinct Style
• The exacting style can be found in low-context
cultures which are low to moderate on
Hofstede’s uncertainty avoidance dimension.
• These are mainly North American and North
European cultures.
• It says that neither more nor less information is
required to communicate a message. The
speaker just uses those words, which describe
exactly the speakers’ intention.

37. Personal vs. Contextual style
• Individualistic. Low-context cultures tend to see every individual as equal
which is also reflected in their language. North Americans for example
prefer a first name basis and direct address. Using titles and honorifics is
avoided. Differences of age, status and sex are no reasons to use different
language styles.
• Collectivistic, high-context cultures find themselves during a conversation
in certain roles which can depend on the status of the interlocutors.
• In the Korean language for example, exist different vocabularies for different
sexes, for different degrees of social status or intimacy. Using the right
language style in a conversation is a sure sign for a learned person.

38. Instrumental vs. Affective style
• The instrumental style is goal-oriented in
verbal exchange and employs a sender-
oriented language. Speaker and listener are
clearly differentiated. Dominant in
individualistic, low-context cultures.
• Affective style is process-oriented in verbal
exchange and uses a receiver-oriented
language. The roles of speaker and listener
are rather integrated than differentiated and
are interdependent. The speaker is not only
expected to transmit his or her message, but
at the same time to be ”considerate about
other’s feelings. Dominant in collectivistic,
high-context cultures.

39. Silence
• Bruneau stated that "Silence is to speech as the white
of this paper is to this print. Physiologically, silence
appears to be the mirror image of the shape of
discernible sound for each person. Speech signs,
created by necessity or will, appear to be mentally
imposed grounds of silence.
• Mind creates both. (...)
• Hence, silence destroys continuity which is necessary
in order to lend clarity to speech. Only by the
destruction of continuity we can consider a thought
or an emotion as finished.

40. The Economic Environment

41. Economic Development
• A country’s level of economic development can be evaluated by
estimating the annual income earned per citizen. The World Bank,
which lends money for improvements in underdeveloped nations,
divides countries into four income categories (World Bank Group,
2011):
• High income—$12,276 or higher (United States, Germany, Japan)
• Upper-middle income—$3,976 to $12,275 (China, South Africa, Mexico)
• Lower-middle income—$1,006 to $3,975 (Vietnam, Philippines, India)
• Low income—$1,005 or less (Kenya, Bangladesh, Haiti)

42. Currency Valuations and Exchange Rates
• In dealing with countries whose currency is different
from yours, you have to be aware of the impact that
fluctuations in exchange rates will have on your profits.
• If a foreign currency goes up relative to the U.S. dollar,
Americans must pay more for goods and services
purchased from sellers in the country issuing the currency
(foreign products are more expensive). This is bad for
exporters who have to pay more for the foreign-made
goods they buy to bring back to the United States to sell.
• If a foreign currency goes down relative to the U.S.
dollar, Americans pay less for products from the country
issuing the currency (foreign products are cheaper).

43. Foreign Corrupt Practices Act
Corruptibility Around the World, 2010
Rank Country CPI Score*
1 Denmark 9.3
1 New Zealand 9.3
1 Singapore 9.3
4 Finland 9.2
4 Sweden 9.2
6 Canada 8.9
15 Germany 7.9
17 Japan 7.8
20 United Kingdom 7.6
22 United States 7.1
98 Mexico 3.1
175 Iraq 1.6
176 Afghanistan 1.4
178 Somalia 1.1
*A score of 10 means that a country is squeaky clean. Anything under 3 means that corruption is
rampant.
http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

44. To prepare for a global career, you might want to consider
doing some of the following while a student:
1.Major in international business.
2.Develop your knowledge of international politics, economics, and
culture.
3.Study a foreign language.
4.Take advantage of study-abroad opportunities.
5.Interact with fellow students from other cultures.

45. Week 4 Discussion
• If you had an opportunity to spend a summer working as an intern
in a foreign country, which country would you select? Why? In
what ways would the internship be valuable to your future career in
business? How would you prepare for the internship?