Globalization and Trade

Globalization is “the process of social, political, economic, cultural, and technological integration among countries around the world” (Luthans & Doh, 2012). It has brought both positive and negative impact on labor, equality, government, environment and culture. Ethic and social responsibility is one of the many forces brought up by globalization.

Singhapakdi et al. (2001) provide in-deep study on ethic and social responsibility issue. In the context of globalization, ethic and social responsibility have more comprehensive definition and higher demands comparing to that in its local nation. The international environment is complex, as there are no nations having exactly the same standards. In certain circumstance, fulfilling ethic and social responsibility could be large burden to international traders. In bad case scenario, ethical issue will bring negative impact, such as discriminatory atmosphere in workplace, or environment damage.

Particularly, Singhapakdi et al. mention the social responsibility of international organizations toward human rights. Some good example is given that some large international organizations have clear code of conduct for all parties they are dealing with, including suppliers, buyers, and etc, that they will not cooperate with those parties whose countries could not guarantee the basic human right.

If a company doesn’t concern ethic and social responsibility, there will be consequence. In April, a strike was occurred in Auckland New Zealand (Anthony, 2015). As Anthony reported, the strike is against zero-hour contracts of McDonald’s. Many other International fast food companies, like KFC, Burger King, etc, have ended this kind of contacts, but not McDonald’s. The staffs and many people consider this as violation of ethic and social responsibility, as this is no guarantee on employees’ benefit.

Hence, there are some basic requirement for managers on ethic and social responsibility, when they are doing international management. Firstly, they need to keep learning, as they are always dealing with different standards. Secondly, they must know who to work with people from different cultural background. Thirdly, they must have big picture of globalization, and also they need know local community well.

Anthony, J. (2015). McDonald’s staff to strike over zero-hour contracts. Retrieved from: http://www.stuff.co.nz/business/industries/68111220/mcdonalds-staff-to-strike-over-zerohour-contracts.

Singhapakdi, A., Karande, K., Rao, C.P., & Vitell, S. (2001) “How important are ethics and social responsibility? ‐ A multinational study of marketing professionals”, European Journal of Marketing, 35 (1/2), 133 – 153

Luthans, F. & Doh, J.P. (2012) International Management-Culture, Strategy and Behaviour (8th Edition), New York: McGraw Hill Irwin.

Advertisements

New Zealand government support for business

According to Francois & Nelson (2014), government’s support is important to international trade, where great benefit has been brought to European Union.

This is also true in New Zealand. Mather (2014) reported a new about an organization called ATEED (Auckland Tourism, Events and Economic Development), an organization is created by government. The purpose of this organization is to help New Zealand to attack more foreign investment. Mather mentions that Waikato regional councilors spend time on listening to the tips of success and benefits brought by ATEED to Auckland.

ATEED is a typical service organization. It is created and fully controlled by Auckland City Council. The purpose of this organization is to carry out communications, and marketing to support Auckland (ATEED, 2014). ATEED has a Business and Sector Development team that to:

  • Identify and build high-growth business
  • Ensure Auckland’s key business sectors could growth continuously
  • Provide support and help to innovation in Auckland
  • Attract more talents to Auckland (ATEED, 2014).

Solid evidence could prove ATEED’s success that the economics of Auckland has significant increase in the financial year of 2012-2013. There are $34 million New Zealand dollars direct foreign investments in Auckland and ATEED provide support and help to more than 100 companies in their supporting program (ATEED, 2013).

New Zealand government has many other similar organizations or departments for business support for international business, and Ministry of Foreign Affairs and Trade is another typical example. Ministry of Foreign Affairs and Trade could provide support on trade negotiations, overcome informal barriers, commercial information, political advice, and so on. In addition, this department is in charge of trade relations and agreement, which could enhance market access for international trade companies. Ministry of Foreign Affairs and Trade also establish particular strategies to cooperate with important international trade partners, e.g. China and India (Ministry of Foreign Affairs and Trade, 2015).

ATEED. (2013). Annual Report for the year ended 30 June 2013. Retrieved from http://businessaucklandnz.com/resources/ATEED_Annual_Report_2012-13.pdf.

ATEED. (2014). Auckland Tourism, Events and Economic Development. Retrieved from: http://www.aucklandcouncil.govt.nz/EN/aboutcouncil/representativesbodies/cco/pages/tourism_events_economic_development.aspx.

Francois, J., & Nelson, D. R. (2014). Political support for trade policy in European Union. European Journal of Political Economy. 36, 243-253.

Mather, M. (2014). Regional council get tips on economic growth. Retrieved from: http://www.stuff.co.nz/waikato-times/news/10381038/Regional-council-get-tips-on-economic-growth.

Ministry of Foreign Affairs and Trade. (2015). Trade and Economic Relations. Retrieved from http://mfat.govt.nz/Trade-and-Economic-Relations/index.php.

Political and legal factors

Political risk is referring to that a company’s investment in a foreign country might be constrained by local government, likely due to violate government policy. The major risks are: asset freezing, limitation of remittance of capital, currency devaluing, government corruption and so on (Luthans & Doh, 2012). When the risk happens, loss will be inevitable if there is no corresponding plan against it.

Julio & Yook (2012) firstly describe the risks investors may face in international trading. For a foreign investor, the major traditional risks are government regulation, national financial risk, currency exchange rate volatility and political disturbances. As time goes by, nowadays, investors are facing more new risks, including violation of intellectual property, terrorism, and so on. In addition, there are many micro risks. For example, the treating investor differently from local companies, extra taxes, or restriction on employment, resources, etc. In recent, Greek would be a typical bad example. According to NZ Herald (2015), Greek government is on the edge of cliff, that the country might be bankrupt. Not only are the international companies in Greek significantly affected, but also the world market.

Julio & Yook then provide clear suggestion on how to deal with political risk and cultural distance when investing in a foreign country, when investors may encounter political uncertainty. Before actually enter a foreign country, the investors must know the different political system in destination country comprehensively. A famous example is Google that they encounter political issue when try to do business in mainland China. Finally, Google has to make a decision that discontinues the services in mainland China. Secondly, prepare to deal with different legal system. First things first, the commercial law and tax must be taken into account. Not like civil law or common law, which is similar all over the world, the law on financial terms might be totally different. Misunderstanding or mis-violate these law may also bring critical consequences.

Therefore, a company must well know the local political and legal system.

Julio, B. & Yook, Y. (2012), Political Uncertainty and Corporate Investment Cycles. The Journal of Finance, 67: 45–83.

Luthans, F. & Doh, J.P. (2012) International Management-Culture, Strategy and Behaviour (8th Edition), New York: McGraw Hill Irwin.

NZ Herald. (2015). Greek crisis frays nerves on world markets overnight. Retrieved from: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10805987.

Developing countries and international management

Pisik (2010) reported a news about doing business in India and Chinese market, where are developing countries. As the title indicated, doing international business with developing country is “Not easy”, but it is “Worth it”.

At the very beginning, Pisik depicts a few informal barriers, such as different habit of time in India, training issue in Africa, and language issue in mainland China. These could be all cultural issues, which will be inevitable when doing international business in foreign countries. Furthermore, Pisik provides more specific examples of how people act in different countries, and how people struggle to adapt these, where some examples are from her, and some are from others.

When businessmen face these differences, it brings more challenges for international management. The more important opinion from Pisik is that those international companies need their own people on the ground, as many issues could not be effectively or efficiently dealt with via email, phone, or Skype. Guedes & Faria (2007) have similar opinion that international management has been impacted by national interest. Their study also provide clear in-deep perspective that international management involve many factors, not only managers, but also diverse kinds of other parties, such as local government, policy maker, local consumers, local communities, and many others. It is not doubt that when communicating with government, they will not accept Skype and email might be slow. For an international company, it has to send one or more managers to be on the ground, to guarantee the sound communication with all parties. If these managers could work effectively with local people, it will make the whole business process on right track and save significant time and money.

Guedes, A., & Faria, A. (2007). Globalization and International Management: In Search of an Interdisciplinary Approach. Brazilian Administration Review.

Pisik, B. (2010). It’s Not Easy, but It’s Worth It. Retrieved from: http://upstart.bizjournals.com/news/wire/2010/04/13/challenges-to-doing-business-abroad-abound.html?page=all.

Culture issue in International trade

Rauch (2002) has a study on culture issue in international trade. This study identifies the importance of social network (ethnic Chinese network in this study) in international trading. Trading with people from same background will help to remove informal barriers, such as insufficient information, weak legal institution, and many others. According to Hofstede’s cultural dimension, business people may notice cultural dimensions during trading, which shows that people may feel threatened by uncertain situations. Hence, these people will try to create beliefs, in order to avoid these kind situations (Luthans & Doh, 2012).

Rauch’s study addresses two things. First of all, how co-ethnic network could be helpful to remove informal barriers in international trade. Second, Chinese market might be the largest and most international dispersed interlinked market in the world. How important co-ethnic network is when trading in this market and social networks?

Some previous work has been done on studying the impact of ethnic Chinese networks on bilateral trade. Greif (1989) has significant contribution to this topic. Built up on previous work, Rauch uses improved version of Greif’s framework to do his study.

Eventually, Rauch has a conclusion that ethnic Chinese network has significant positive impact on bilateral trade. This result is under the conditions:

  • Differentiated than homogeneous products
  • Between 1980 and 1990
  • Network strength is measured by the case that when choose a businessman from each side, both of them are Chinese.

Though the conclusion is from 25 years ago, it might be also true nowadays. There is a news report from New Zealand Herald in 2015, it discusses that New Zealand economic will benefit from learning a secondary language, particular Chinese, as China is one of New Zealand’s most important business partners (NZ Herald, 2015). This news, to some extent, proves that people would like to spend time with those who speak the same language, and so do businessman.

Luthans, F. & Doh, J.P. (2012) International Management-Culture, Strategy and Behaviour (8th Edition), New York: McGraw Hill Irwin.

NZ Herald. (2015). Editorial: We all benefit if students learn second language. Retrieved from: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11440648.

Rauch, J. E. (2002). Ethnic Chinese Networks in International Trade. The Review of Economics and Statistics, 84(1), 116-130.