July 21, 2008

Second Discussion Section:

Culture & Ethics; International Trade
Agenda
Chapters 1, 2 in a Nutshell
Review Chapters 3 and 4
Discussion 1:
Selling Domino’s Pizza Worldwide
Review Chapters 5 and 6
Discussion 2:
Boeing v. Airbus
Chapters 1 and 2
Chapter 1:
 What is globalization?
 What is driving globalization?
 What are the trends in globalization?
 What are the debates about globalization?
Chapter 2:
 How are countries different: politically, economically, legally?
 What are the factors leading to economic development?
 How to measure economic development
 Protection of property rights + Innovation? What about the legal and
political systems of the country?
Chapter 3: Differences in Culture
What is Culture?
 Values and Norms
 Culture, Society, and the Nation-State
 The Determinants of Culture
Social Structure
 Individuals and Groups
 Social Stratification
Religious and Ethical Systems
Language
Culture and the Workplace
 Hofstede study
 Power distance; individualism vs. collectivism; uncertainty
avoidance; masculinity vs. femininity
Chapter 3 Learning Goals
Know what is meant by the culture of a society.
Identify the sources that lead to differences in social
culture.
Identify the business and economic implications of
differences in culture.
Understand how differences in social culture
influence values in the work place.
Develop an appreciation for the economic and
business implications of cultural change.
Chapter 3 Exercise: Domino’s Pizza
commercials from around the world
 U.S.
 http://www.youtube.com/watch?v=8QuozSISqW4
 http://www.youtube.com/watch?v=VIHj7f8mOLI
 http://www.youtube.com/watch?v=YoZhpsNztgY
 Australia
 http://www.youtube.com/watch?v=iyHQHEWpf3A
 http://www.youtube.com/watch?v=f5J8TnWHxVI
 Mexico/Latin America
 http://www.youtube.com/watch?v=x8tSR-itf9o
 http://www.youtube.com/watch?v=YTqtta8VMyo
 Europe
 http://www.youtube.com/watch?v=MdTXbQ6t5os
 http://www.youtube.com/watch?v=GRpixqTRejs
 Middle East
 Israel: http://www.youtube.com/watch?v=lOKPCxRKhdg
 Asia
 Japan: http://www.youtube.com/watch?v=HOlsj46QOwU
 Korea: http://www.youtube.com/watch?v=hh52CqPVj6E
 http://www.youtube.com/watch?v=_k7kcEqdaH4
 India: http://www.youtube.com/watch?v=nhz9JjN942k
 http://www.youtube.com/watch?v=pTQskWbBtW8&feature=related
Chapter 3: Critical Thinking
Outline why the culture of a country might influence
the costs of doing business in that country. Illustrate
your answer with examples.
Chapter 3: Critical Thinking
Choose two countries that appear to be culturally
diverse. Compare the culture of those countries and
then indicate how cultural differences influence (a)
the costs of doing business in each country, (b) the
likely future economic development of that country,
and (c) business practices.
Domino’s Discussion Questions
1. Domino’s has successfully grown its international
presence very quickly. Compare and contrast its
strategy with that of another well-known
international fast food operation, McDonald’s. What
similarities do you see? Are they any significant
differences between the two companies? What has
led to the success of Domino’s?
Domino’s Discussion Questions
2. While its pizza appears to be universally accepted,
Domino’s has had to make some adjustments to its
marketing mix. Discuss the different components in
the marketing mix and how the company has
responded to local needs.
Chapter 4: Ethics in International
Business
 Ethical issues in International Business
 Employment Practices; Human Rights; Environmental Pollution; Corruption;
Moral obligations 
 Ethical Dilemmas
 What are they?
 The Roots of Unethical Behavior
 How do they arise?
 Philosophical Approaches to Ethics
 Straw Men
 Friedman Doctrine; Cultural Relativism; Righteous Moralist; Naïve Immoralist
 Utilitarian and Kantian Ethics
 Rights Theories
 Justice Theories
 Ethical Decision Making
 Hiring and Promotion; Organization Culture and Leadership; Decision-
Making Processes; Ethics Officers; Moral Courage
Chapter 4 Learning Goals
Be familiar with the ethical issues faced by
international businesses.
Recognize an international dilemma.
Discuss the causes of unethical behavior by
managers.
Be familiar with the different philosophical
approaches to ethics.
Know what managers can do to incorporate ethical
considerations into their decision making.
Chapter 4 Critical Thinking
QUESTION 1: A visiting American executive finds
that a foreign subsidiary in a poor nation has hired a
12-year-old girl to work on a factory floor, in violation
of the company’s prohibition on child labor. He tells
the local manager to replace the child and tell her to
go back to school. The local manager tells the
American executive that the child is an orphan with
no other means of support, and she will probably
become a street child if she is denied work. What
should the American executive do?
Chapter 4 Critical Thinking
QUESTION 2: Under what conditions is it ethically
defensible to outsource production to the developing
world where labor costs are lower when such actions
also involve laying off long-term employees in the
firm’s home country?
Chapter 4 Critical Thinking
QUESTION 3: Are facilitating payments ethical?
Chapter 4 Critical Thinking
QUESTION 4: Drawing upon John Rawls’s concept of
the veil of ignorance, develop an ethical code that will
(a) guide the decisions of a large oil multinational
toward environmental protection, and (b) influence
the policies of a clothing company to outsourcing of
manufacturing process.
Chapter 5: International Trade
Theory
 An Overview of Trade Theory
 Mercantilism
 Absolute Advantage (Adams Smith)
 Comparative Advantage (David Ricardo)
 The Gains from Trade/Qualifications and Assumptions
 Simple Extensions of the Ricardian Model
 Heckscher-Ohlin Theory 
 The Leontief Paradox
 The Product Life-Cycle Theory (Raymond Vernon)
 Evaluating the Product Life-Cycle Theory
 New Trade Theory (1970’s economists)
 Increasing Product Variety and Reducing Costs
 Economies of Scale, First-Mover Advantages and the Pattern of Trade
 Implications of New Trade Theory 
 National Competitive Advantage: Porter’s Diamond
 Factor Endowments
 Demand Conditions
 Related and Supporting Industries
 Firm Strategy, Structure, and Rivalry
 Evaluating Porter’s Theory
Chapter 5 Learning Goals
 Understand why nations trade with each other.
 Be familiar with the different theories explaining trade flows between
nations.
 Understand why many economists believe that unrestricted free trade
between nations will raise the economic welfare of countries that
participate in a free trade system.
 Be familiar with the arguments of those who maintain that
government can play a proactive role in promoting national
competitive advantage in certain industries.
 Understand the important implications that international trade
theory holds for business practice.
Chapter 5: Critical Thinking
What are some potential costs of adopting a free
trade regime? Do you think governments should do
anything to reduce these costs? What?
Chapter 5: Critical Thinking
The world’s poorest countries are at a competitive
disadvantage in every sector of their economies. They
have little to export. They have no capital; their land
is of poor quality; they often have too many people
given available work opportunities; and they are
poorly educated. Free trade cannot possibly be in the
interest of such nations! Discuss.
Chapter 5 Critical Thinking
Unions in developed nations often oppose imports
from low-wage countries and advocate trade barriers
to protect jobs from what they often characterize as
“unfair” import competition. Is such competition
“unfair”? Do you think that this argument is in the
best interests of (a) the unions, (b) the people they
represent, and/or (c) the country as a whole?
Chapter 5 Critical Thinking
a) Who benefits from the outsourcing of skilled white
collar jobs to developing nations? Who are the losers?
b) Will developing nations like the United States suffer
from the loss of high skilled and high paying jobs to other
countries?
c) Is there a difference between the transference of high
paying white collar jobs, such as computer programming
and accounting, to developing nations, and low paying
blue collar jobs? If so, what is the difference, and should
government do anything to stop the flow of white collar
jobs out of the country to countries like India?
Chapter 5 Critical Thinking
Drawing on the new trade theory and Porter's theory
of national competitive advantage, outline the case
for government policies designed to build a national
competitive advantage in biotechnology. What kind
of policies would you recommend the government
adopt? Are these policies at variance with the basic
free trade philosophy?
Chapter 6: The Political Economy
of International Trade
 Instruments of Trade Policy
 Tariffs
 Subsidies
 Import Quotas and Voluntary Export Restraints
 Local Content Requirements/ Administrative Policies
 Antidumping Policies
 The Case for Government Intervention
 Political Arguments for Intervention
 Protecting jobs and industries; national security; retaliation; protecting consumers; furthering
foreign policy objectives; protecting human rights
 Economic Arguments for Intervention
 The infant industry argument; strategy trade policy

  The Revised Case for Free Trade (or, counter-arguments to the case for government
intervention)
 Retaliation and Trade War
 Domestic Politics
 Development of the World Trading System
 From Smith to the Great Depression  1947–1979: GATT, Trade Liberalization, and
Economic Growth  1980–1993: Protectionist Trend  The Uruguay Round and the
World Trade Organization WTO: Experience to Date The Future of the WTO:
Unresolved Issues and the Doha Round
Chapter 6 Learning Goals
Describe the policy instruments used by governments
to influence international trade flows.
Understand why governments sometimes intervene
in international trade.
Articulate the arguments against strategic trade
policy.
Describe the developments of the world trading
system and the current trade issues.
Explain the implications for managers of
developments in the world trading system.
Chapter 6: Critical Thinking
Do you think that governments should consider
human rights when granting preferential trading
rights to countries? What are the arguments for and
against taking such a position?
Chapter 6: Critical Thinking
Whose interests should be the paramount concern of
government trade policy - the interests of producers
(businesses and their employees) or those of
consumers?
Chapter 6: Critical Thinking
Given the arguments relating to the new trade theory
and strategic trade policy, what kind of trade policy
should business be pressuring government to adopt?
Chapter 6: Critical Thinking
You are an employee of an U.S. firm that produces personal
computers in Thailand and then exports them to the U.S.
and other countries for sale. The personal computers were
originally produced in Thailand to take advantage of
relatively low labor costs and a skilled workforce. Other
possible locations considered at that time were Malaysia and
Hong Kong. The US government decides to impose punitive
100% ad valorem tariffs on imports of computers from
Thailand to punish the country for administrative trade
barriers that restrict U.S. exports to Thailand. How do you
think your firm should respond? What does this tell you
about the use of targeted trade barriers?
Boeing versus Airbus
Boeing 787 Dreamliner
http://www.youtube.com/watch?v=mBuC9_jRVQ0
Airbus A380
http://www.youtube.com/watch?v=AK10MxtCAHc
Subsidy Dogfight: Boeing v. Airbus
What are the facts?
Boeing’s development of Boeing 7E7 (now 787), which
promises as much as 20% reduction in operating costs
Alliance with three Japanese companies
1992 Agreement limits state aid that both companies
can receive from respective governments
Does 1992 Agreement extend to other parties in the
project? Japanese MET? State of Washington and Kansas
Airbus applies for launch aid for A350, direct competitor
to 787
Dispute now before WTO as to the legality of the
various subsidies
Boeing v. Airbus
Boeing’s Claim
 Airbus receives subsidies from UK, France, German and Spain
 Why is this bad?
 $13.5 billion government subsidies between 1970 and 1990 ($25.9 billion
if commercial interest rates applied)
 Loans at below market interest rates and tax breaks
 Airbus is believed to have financed 80% of the cost of aircraft for a term
of 8 to 10 years at an annual interest rate of approximately 7%
 In contrast, US Export Import Bank required 20% down payments from
Boeing customers, financed only 40% of the cost of an aircraft directly,
and guaranteed financing of the remaining 40% by private banks at an
average interest rate to 8.5 for 10 years
 Airbus received government $3.7 billion launch aid and $2.8 billion in
indirect subsidies for the development of the A380 superjumbo and
need not repay the aid if the aircraft is not a commercial success
 Catalyst for latest dispute: launch aid for A350, direct competitor to B-
787 ($700 million by UK, 30% launch aid from EU)
Boeing v. Airbus
 Airbus’ claims
 Airbus success due not to subsidies but to good products and strategy
 Boeing benefited from US government aid for a long time
 Planes were built under government WWI, WWII. Boeing 707, for
example, was subsidized by the US government
 1991 EC study contended that Boeing/McDonnell Douglas received $18 to
$22 billion in indirect aid between 1976 and 1990. US Dept of Defense gave
as much as $6.34 billion from 1976 to 1990, and NASA gave $8 billion to
commercial aircraft production. Moreover, tax exemptions gave an
addition $1.7 billion to Boeing and $1.4 billion to MD
 Boeing rejected these claims, saying no additional 5% for commercial work
for every defense contract; only 3% of Boeing’s R&D from Department of
Defense, and only 4% from NASA funding
 Airbus contends: Boeing received some $12 billion from NASA to develop
technology, much of it found its way to commercial jet aircraft
 Airbus further contends: Boeing would receive as much as $3.2 billion in tax
breaks from Washington, $1 billion in loans from the Japanese government
Boeing v. Airbus
How might the repayable launch aid for Airbus
change its decision making on launching a new
aircraft? What are the potential consequences for (a)
Boeing, (b) airlines, and (c) the profitability of both
Boeing and Airbus?
Boeing v. Airbus
When Airbus originally received government aid back
in the 1960s, it was a new enterprise. Today it is the
global market share leader in the commercial
aerospace business. How do gains in market share
effect the legitimacy of claims for subsidies?
Boeing v. Airbus
Do you think that R&D contracts from NASA and the
Pentagon benefit Boeing’s commercial aerospace
business? How?
Boeing v. Airbus
At this point, what do you think is the most equitable
solution to the long running battle between the US
and EU on subsidies for commercial aircraft
development?