Brian ChenJuly 14, 2008

Introduction to Course About the GSI Overview of the Course Course Expectations Course Grading and Policy About the Sections

Chapter 1: Introduction and Overview Chapter 1 Exercise: Globalization Exercise

Chapter 2: National Differences in Political Economy Chapter 2 Exercise: Case – The Troubled Giant

Fifth-Year PhD Candidate in Business and Public Policy Group, Haas School of Business, UC Berkeley

Research Interests: Health Care Management and Health Policy,

Regulation, Law and Economics, International Law and Business

Education: Harvard College 1992, Stanford Law School 1997

Work Experience: Air Liquide (Paris, France); Teisan KK (Tokyo,

Japan), Baker & McKenzie (Taipei, Taiwan); Sullivan & Cromwell (New York), Orrick Herrington & Sutcliffe (San Francisco), Kaohsiung Medical University (Kaohsiung, Taiwan)

Course is divided into two major themes: (1) The political, economic, and financial landscape of

international business Instills awareness of the issues a firm might encounter in

international business: Globalization of the marketplace, differences that remain in the

global marketplace (culture, ethics, etc), the international trade /investment environment, political economy of trade, foreign exchange and international monetary system

(2) Firm Strategies to undertake in order to operate in a global arena With an awareness of the political, economic, and financial

landscape of international business, how do firms operate transnationally? Strategy in general, entry strategy, alliances,

exporting/importing, global production/outsourcing/logistics, global marketing, R&D, global human resource management, international financial management

Note that Midterm Examination is placed right between the two parts of the course

Thorough understanding of the landscape of international business and issues arising therefrom in the course of conducting international business

To perform well in the course: Thorough grasp of material (lecture and

cases) as demonstrated in examinations Participation in class and section Excellent participation grade *may* help

move your grade one level up (e.g., from B+ to A-)

Word about academic honesty: No plagiarism: pasting sentences or paragraphs

from various sources without attribution DOES constitute plagiarism. Copying from another student also constitutes plagiarism

No dishonesty in attendance: Signing in for one or more other students constitutes academic dishonesty

No dishonesty in examination: No talking or exchanging notes during examination

Students caught committing an act of academic dishonesty will automatically fail the assignment or the course

Final course grade is determined by a rough curve

Many UC Berkeley undergraduate courses curved around a C+. This course was curved around a B last semester

Spring 2007: the top 13 received an A, the next 24 an A-, the next 28 a B+, the next 21 a B, the next 11 a B-, the next 2 a C+, the next 7 a C, the next 6 a C-, and a D for the bottom 3 students

In other words, 1/3 of the class received some type of A

And to emphasize: active participation in section and in class can only help you

Goal: To apply concepts learned in class through discussion

GSI is merely a facilitator and an agenda-setter

Format: (1) One-slide review of the previous section (2) Review of important points in lecture (3) If necessary, “overflow” material from the

class (4) Two to four lecture-related topics to discuss

in small groups and in class Topics may be drawn from the textbook, from the

professor, or self-prepared by the GSI

Quality trumps quantity HOWEVER, NO POINT IS EVER DEDUCTED FOR

“WRONG” ANSWERS Again, to emphasize, there is only upside

potential by participating in section discussions GSI will attempt to permit a diverse group of

students to answer questions on a voluntarily basis However, in the event of lack of participation, GSI

may cold call Foreign students are especially welcome to share

their experiences, so please do not allow perceived linguistic barriers to get in way

Globalization: Definition, Market, Production Is the globalization of markets “universal”?

Global Institutions GATT, WTO, IMF, World Bank, UN

Drivers of globalization Declining barriers Technological change

How the Global Economy is Changing Output is shifting FDI destination is shifting East MNE

Globalization Debate Jobs and income security Labor policies and the environment National Sovereignty

Understand what is meant by the term globalization.

Be familiar with the main drivers of globalization.

Appreciate the changing nature of the global economy.

Understand the major arguments in the debate over the impact of globalization.

Appreciate how the process of globalization is creating opportunities and challenges for business managers.

(1) Describe how international business has affected you in your daily life. Think about who made the clothes you’re wearing, what type of food you ate for breakfast or lunch (muesli cereal, sushi, Italian-style coffee), what type of cell phone you have and where it was made, where your car was designed and manufactured, where the components for your computer were manufactured, and so on.

(2) Why (or why not) are so many of the products you use made abroad? Which are the ones made abroad? (Think about an integrated world economy vs. distinct national economies)

Describe the shifts in the world economy over the past 30 years. What are the implications of these shifts for international businesses based in Europe? North America? Hong Kong/Taiwan?

“The study of international business is fine if you are going to work in a large multinational enterprise, but it has no relevance for individuals who are going to work in small firms.” Evaluate this statement.

How have changes in technology contributed to the globalization of markets and production? Would the globalization of production and markets have been possible without these technological changes?

When grading: Questions asking mere facts are

weighted less Questions asking for inferences and

requiring careful analysis are weighted more

As much as possible, consider both sides of the issue

Imagine as many likely scenarios as possible when asked to make a guess

Does globalization cause poverty? Why are so many people opposed to

globalization? Does globalization diminish cultural

diversity? Can globalization be controlled?

Political Systems: Collectivism/Socialism vs. Individualism; Democracy vs. Totalitarianism

Economic Systems: Market Economy vs. Command Economy vs. Mixed Economy

Legal Systems: Common Law, Civil Law, Theocratic Law

Contract Law: Property Rights, Private Action, Public Action, Foreign Corrupt Practices Act

Intellectual Property: Patent, Copyrights, Trademarks, (TRIPS)

Determinants of Economic Development Measuring economic development: PPP, GDP,

Amartya Sen Political Economy:

Innovation as engine of growth. Innovation requires market economy Innovation requires strong property rights But what is the right political system? Does progress lead to democracy?

Geography and Education on development States in transition: What is the general

trend in political economy worldwide?

Understand how the political systems of countries differ.

Understand how the economic systems of countries differ.

Understand how the legal systems of countries differ. Be able to explain what determines the level of

economic development of a nation. Discuss the macro-political and economic changes

taking place worldwide. Describe how transition economies are moving

towards market based systems. Articulate the implications for management practice

of national differences in political economy.

QUESTION 1: What political factors explain Indonesia’s poor economic performance? What economic factors? Are the two related?

The political factors are totalitarianism, corruption and red tape. The economic factors are the flight of foreign capital and poor infrastructure. Yes, they are related.

For 30 years, Indonesia was run under a dictatorship style government where internal dissent was repressed. Today, while a democracy is in place, the country continues to be plagued by corruption and red tape. Foreign capital is fleeing the country, and the infrastructure is in desperate need of improvement. All of these factors have contributed to the nation’s poor economic climate. Indonesia’s political and economic situations are intertwined, and that to fix one area, changes will have to made to the other.

For thirty years, Indonesia’s economy grew steadily under the ironclad rule of President Suharto – but at the heavy cost of internal suppression of dissent. This suppression of dissent robbed Indonesia’s economy of the vitality and incentives associated with a free-market economy in which individual property owners, who in the process of seeking to accumulate wealth enrich the entire economy and create economic growth. While Indonesia has since overthrown the dictatorial government, corruption and red tape remain rife at almost all levels of government in Indonesia. A World Bank study revealed how excessive red tape in Indonesia hurts business activities: An entrepreneur in Indonesia must wait an average of 151 days to complete the necessary paperwork to start a business, compared to 30 days in Malaysia and a mere 8 days in Singapore, severely hampering the Indonesian entrepreneur’s speed and desire to participate in the economy. In turn, the excessive red tape translates into long lines of government bureaucrats, whose low salaries make it attractive for them to seek a bribe at every step of the business transaction, further distracting and detracting the entrepreneur from legitimate business pursuits.

In addition to these political factors, Indonesia also suffers from economics factors that hinder growth. Indonesia’s poor infrastructure makes it difficult to conduct business: A poor infrastructure in roads signifies that it is difficult to transport goods and services to the consumers, and may even hinder export-related businesses if companies cannot ship the finished intermediary or final products to their intended customers abroad. The unreliability of the electric grid means that production and even administrative activities can be interrupted at any moment. Together, these inhospitable business climates decrease business confidence in Indonesia, leading to capital flight and a decrease in investments, shaking the very foundation of economic growth.

The political and economic factors that hinder growth in Indonesia are indeed intertwined. The unfriendly political environment makes it less likely that foreign or domestic capital would be interested in investing in Indonesia because of the business costs associated with red tape and corruption. In turn, the lack in investment feeds the desire of government officials to continue to seek bribes and create red tape in order to supplement their low income due to a stagnant or slow-growing economy.

QUESTION 2: Why do you think foreign firms have been exiting Indonesia in recent years? What are the implications for the country? What is required to reverse this trend?

QUESTION 3: Why is corruption so endemic in Indonesia? What are its consequences?

QUESTION 4: What are the risks facing foreign firms that do business in Indonesia? What is required to reduce these risks?

How is the case related to the course material?

Do not be surprised if the questions ask for the same answers from different angles.

However, this is not always the case. Use your judgment. REMEMBER: The best answers support

their claims with facts or logic.

Free market economies stimulate greater economic growth, whereas state-directed economies stifle growth. Discuss.

A democratic political system is an essential condition for sustained economic progress. Discuss.

What is the relationship between corruption in a country (i.e., bribe taking by government officials) and economic growth? Is corruption always bad?

The Nobel Prize-winning economic Armatya Sen argues that the concept of development should be broadened to include more than just economic development. What other factors does Sen think should be included in an assessment of development? How might adoption of Sen’s views influence government policy? Do you think Sen is right that development is about more than just economic development? Explain.

You are the CEO of a company that has to choose between making a $100 million investment in Russia or the Czech Republic. Both investments promise the same long-run return, so your choice is driven by risk considerations. Assess the various risks of doing business in each of these nations. Which investment would you favor and why?

Consider: political risks, economic risks, legal risks

“Many Factories in China’s South Sound Last Whistle”

“The Forbidden City of Terry Gou” “Look Who’s Pumping Out Engineers?”

How are they related to the course material?

What do they teach us? Do you agree with the message(s) of the

articles?