Chapter 2: Integrative Issues in International Business

Introduction

Technological advances in areas such as Information and Communication Technology (ICT) and manufacturing technology have been important drivers of globalization during the past few decades. ICT and other technologies make international business more profitable and international management more feasible as it enables managers to manage offices and factories around the world 24/7. International managers are presented with challenges in various cultural environments and different business practices to find appropriate ethical values, behaviors, and standards of how they do business in many countries. Further, companies need to operate in a socially responsible manner while taking into consideration all stakeholders involved (both home and abroad).

Technology and Technological Environment

The term technology is defined broadly to include not only physical components such as computers and machines but also human knowledge, work methods, and techniques used in business.

Technological Advances Key Areas

The effects of technology are globally farreaching in both our personal lives and business firms. Built upon the infrastructure of the digital revolution, The Fourth Industrial Revolution represents a transition to a new set of systems that brings together physical, biological, and digital technologies in new and powerful ways.

Information and Communication Technology: ICT includes all devices, networking components, information systems and applications, and other digital systems that are combined to allow people and companies to interact, learn, live and work. They encompass both wired Internetenabled and wireless mobile networks. One of the strategic business objectives of using information systems is to improve decision making for international managers and to make geographic barriers less relevant as competitive information is available in real-time from around the world.

Enterprise Resource Planning (ERP): An application such as an ERP system can be used to integrate key business processes in manufacturing, finance and accounting, sales and marketing, and human resources into one software system for more efficient operations and better management especially for firms that operate in several locations internationally with different local requirements and needs. Information is stored in a single comprehensive data repository (a database) where it can be used by those who need it regardless of where they are located.

E-Business & e-Commerce: E-business refers to the use of the Internet and other digital technologies to execute a firm’s business processes and activities and for the internal management of the firm. E-commerce refers to the buying and selling of goods and services conducted over the Internet. E-commerce also includes activities supporting online transactions such as marketing, advertising and customer services. B2B or business-to-business eCommerce is the exchange of products, services or information between firms. B2C or business-to-consumer eCommerce is the exchange of products, services or information between firms and end customers. The majority of B2B e-commerce is based on Electronic Data Interchange (EDI) which enables computer-to computer exchange of transactions such as invoices, purchase orders and shipping schedules in a standard format. Other ways for B2B buying and selling are through private industrial networks or private exchange and net marketplaces. Private industrial networks or private exchange allow companies to coordinate transactions in all aspects and all divisions which enable collaboration and efficiencies for global operations. Net marketplaces bring many buyers and sellers together to carry out transactions.

m-Commerce: e-Commerce activities which are conducted through wireless handheld devices like smartphones and tablets are called mobile commerce or m-commerce. It is the fastest-growing form of e-commerce because of the global high adoption rate, the increase in devices computing power, and the availability of m-commerce applications or apps. The next generation of mobile Internet connectivity is based on 5G networks that offer much faster speeds and more reliable connections on smartphones. Since businesses have been storing huge amounts of data, 5G will provide the infrastructure to carry those data from and to anywhere wirelessly to be used for applications such as the Internet of Things (IoT). Common IoT devices for consumers include smart household controllers and appliances, home security systems, and autonomous cars (in the near future).

Cloud Computing: Current ICT infrastructure includes cloud computing, one of the fastest-growing forms of computing. Cloud computing is the delivery of on-demand self-service computing resources over the Internet on a payfor-use basis from any connected devices and locations. The following are the three major types of services:

• IaaS or Infrastructure as a service where customers use processing power, data storage, networking, and other computing resources from cloud service providers to run their information systems and applications.
• PaaS or Platform as a service where customers use ICT infrastructure and software programming tools supported by cloud service providers to develop their own applications.
• SaaS or Software as a service where customers use software hosted by and is resided on the vendor’s cloud infrastructure and delivered as a service over the Internet.

Benefits of cloud computing:

• Cost efficiency
• Choice
• Scale: Flexibility and Elasticity
• Speed
• Integration
• Audit and Compliance
• Business Continuity Planning

Big Data & Business Analytics: Big data is a very large data set including data from a business functional areas, audio and video data, social media, and other digital sources. We can look at four important dimensions to define and distinguish big data:

1. Volume – the amount of data
2. Variety – different types of data
3. Velocity – data in motion
4. Veracity – data uncertainty

To drive value from big data, companies need other tools to manage, analyze, and gain insights from the data for better decision making; solve important business problems; increase operational performance; and create new market opportunities. Business analytics (BA) focuses on tools, techniques, and technologies for analyzing and understanding data.

Internet of Things (IOT): Another digital technology that is likely to influence international business activities is the Internet of Things, which is a sensor network of physical objects that are connected to the Internet so they can collect and share data among people, systems, and other applications. IoT devices need four capabilities to deliver value to businesses:

• Identifying capability – each device must be uniquely identifiable, such as the electronic product codes that are used in supply chain and manufacturing.
• Sensing capability – use of sensors.
• Communicating capability – ability to exchange information between devices.
• Computing capability – ability to process instructions, often using the cloud.

Artificial Intelligence (AI): AI is generally defined as the ability of machines to perform cognitive functions associated with human minds such as perceiving, reasoning, learning, and problem solving, i.e., machines that could think autonomously. AI can radically change the way we live and work. In the near future, the presence of AI is expected to be pervasive. Managers should have some understanding of this technology and how it can be used effectively in organizations. AI technologies:

• Automation: A system or a process that functions automatically with an ability to adapt to changing situations such as chatbots, software robots that can mimic a human worker and can respond to customers in real-time.
• Machine Vision: Machine vision allows a computer to see or the ability to capture and analyze visual information such as signature and photo identification.
• Natural Language Processing (NLP): NLP processes human language such as in speech recognition.
• Robotics: Advanced robots are designed and manufactured to perform human tasks.
• Machine Learning (ML): Systems or applications that have the ability to detect patterns and learn how to make recommendations and predictions without being explicitly programmed. ML algorithms learn and improve from experience using very large data sets and adapt in response to new data and experiences to improve efficacy over time.
• Deep Learning: It is a type of ML that can process a wider range of data resources, require less effort by humans to preprocess data, and often produce more accurate results than other ML approaches. DL is used for facial recognition applications.

Challenges to AI adoption come from factors such as lacking AI strategy, finding AI talents, and lacking commitment from a company leadership. Firms can enjoy the benefits and new opportunities of AI, but they must also be aware of potential drawbacks. For example, there have been numerous reported instances of AI bias, discrimination, and privacy violations. Other significant problems include AI and cybersecurity and deepfakes. Cybersecurity refers to the protection of internetconnected systems from cyberattacks. AI-enabled cyberattacks can have grave consequences for people everywhere. Deepfake is an AI-based technology used to produce or alter video content and present something that didn’t actually occur.

Blockchain & Cryptocurrencies: Blockchain, which is the technology underlying cryptocurrencies such as bitcoin, is recent digital technology that can be used to create business value. It is a distributed, decentralized public ledger that facilitates the process of recording transactions and tracking tangible assets (e.g. house, land, cash) and intangible assets (e.g. patents, branding, copyrights) in a business network. The basic goals of blockchain are to ensure the anonymity of its users, to provide a public record (ledger) of a set of transactions that cannot be altered once verified and agreed to (called immutability), and for the system to be independent of a central or trusted authority, i.e., decentralization. Key business benefits of Blockchain:

• Cost savings: Elimination of intermediaries as participants can exchange directly, no duplication of effort as all participants have access to the shared ledger.
• Time savings: Substantially reduce the time to complete complex, multi-party interactions without a central authority.
• Tighter security: Its security features protect against fraud and tampering.
• Enhanced privacy: Users can specify details that they want others to see.
• Improved auditability: The ability to monitor and audit one shared ledger as a single source of truth.
• Increased operational efficiency: Digitization of assets streamlines business processes while transactions can be executed at speed.

Cryptocurrencies are decentralized currencies that enable two parties (peer-to-peer) to transact business without a central authority such as a bank or a government. Bitcoin is seen as a radical innovation and can be widely adopted globally as a means of payment because of the benefits such as quick, inexpensive, and convenient transactions. However, for greater universal acceptance, the bitcoin system must be fully transparent, secure, and easy to use.

Manufacturing Technology

The manufacturing industry has seen big changes as we see the transition from the industrial to the information age, i.e. the digitization of manufacturing. This is reflected in what is called Industry 4.0.

Industry 4.0: Industry 4.0 signifies the promise of this new industrial revolution that includes advanced production and operation techniques with smart digital technologies and the IoT. It creates manufacturing systems which are interconnected and autonomous and which could communicate, analyze, and use the information to drive intelligent actions back to the physical world. Potential ımpacts of Industry 4.0 on business firms:

• Improvements in operational productivity: Better managed supply network to lower costs and tighter integration. Maximizing asset utilization. Labor efficiency. Minimizing downtime.
• Reduction in operational risks: Ensuring raw material price and availability. Mitigating data, vendor, and geographic risks.
• Incremental revenue growth: Deepening customer understanding, insights, and integration. Finding sources of growth and new efficiencies in the core business.
• New revenue growth: Creating new products and services. Expanding into new markets and internationally.

Advanced Robotics: Advanced robotics is a decentralized intelligent system that allows devices and equipment to make decisions and take actions autonomously without human intervention. Today’s advanced robotic systems have superior perception, adaptability, mobility, and the ability for system integrations. This leads to more efficient, flexible, and stable operations in both the factory and the supply chain while being more responsive to customers’ needs.

3D Printing: 3D printing or additive manufacturing is a process of making three-dimensional objects from a digital file or model. This process is the opposite of the traditional subtractive manufacturing process that removes material (i.e. cutting, drilling, grinding, and sanding) until the desired shape is obtained. Therefore, the process produces waste which is minimized with the use of additive manufacturing. A digital file or model can be produced using the computer-aided design (CAD) software and then printing from metals, plastics, ceramics, and glass in a typical production. In an international context, additive manufacturing can be produced anywhere in the world such as productions made closer to customers and the process itself saves delivery time and reduces transportation costs.

Technology and Related Issues

Technology & Employment: Globalization, robotics, AI, and various digital technologies are seen as unprecedented disruptions that could displace workers at a much faster pace than ever before. The depth and breadth of these changes often occur simultaneously including the substitution of capital for labor, leading to a dramatic change of the nature of work across all industries and occupations.

Technology Transfer: Technology transfer is the transmission of technology from one country to another. Technology diffusion happens when a new technology is adopted widely for general use over time. Technology transfer usually takes place in two ways: internalized transfer from a parent company to affiliates under its ownership and control in the form of direct investment, and externalized transfer in various forms such as franchising, licenses, technical assistance, and subcontracting.

Foreign Direct Investment: Foreign direct investment (FDI) is defined as a cross-border investment by an individual or a firm in one country into business interests located in another country. Access to key technologies is seen as a factor influencing FDI as technologies of parent companies are often based on expensive R&D that would only be shared with related parties in the forms of whollyowned or majority-stake affiliates. It is also more advantageous to acquire ownership interests in the form of FDI in existing firms than to develop or reproduce new technology in-house to gain superior technology.

Ethics In International Business

Ethics or moral philosophy is a discipline concerned with what is morally good and bad, right and wrong. Business ethics examines moral issues in a business environment such as ethical or unethical behaviors of the employees in the workplace.

Individual Level Issues

At the individual level, we can look at personal ethics which are based on personal moral principles and beliefs within one’s social context that guide decision making in daily home and work life. Managerial ethics involve a manager’s moral principles and behaviors in an organization influenced by his/her individual personal ethics.

Organizational Level Issues

Ethical organizational culture needs to be created and sustained through communication about those ethical values, e.g., the use of the code of ethics. Code of ethics is a formal written document that organizations use to guide employees in their actions and decision makings in order to conduct business fairly and honestly. Executives and the top-level management team have a significant role in organizational ethical culture. They have to lead by example.

National Level Issues

At the national level, a strong rule of law is seen to constrain unethical behavior, and it is essential to corporate integrity. In developing and emerging economies, firms need to deal with a weaker rule of law and fewer resources to support its enforcement. Another important dimension at the national level is national culture. Differences in moral practices and standards across cultures raise an issue in ethics around the concept of ethical relativism. Ethical relativism is the theory that holds morality is relative to the norms of one’s culture such that what is seen as morally right in one society can be seen as wrong in another. Ethical normativism is the belief that ethical standards are universal, cutting across cultures and countries. Therefore, there is a set of moral rules that everyone should follow with a wide acceptance of some basic principles for doing business.

International Level Issues

At the international level, all of the issues in different levels of analysis must be recognized and worked through in order to be effective. For example, American companies are prohibited from bribery, not only morally at a personal level but also legally at the national level.

Corruption & Bribery: A broad definition of corruption is the abuse of entrusted power for private gain. There are different types of corruption such as bribery, fraud, extorting, and embezzlement. Bribery is a common form of corruption in the international business environment and is seen as an illegal offering or receiving anything of value such as payments, gifts, and favors. International efforts such as the OECD Working Group on Bribery in International Business Transactions established in 1994 is responsible for monitoring the implementation and enforcement of anti-bribery convention in order to reduce the incident of bribery in international trade transactions (OECD, 1994).

Human Rights & Labor Conditions: Human rights are the basic rights and freedoms that belong to every person in the world that is based on shared values such as dignity, fairness, equality, respect, and independence. While employees’ pay and work conditions are not expected to be the same across countries within the same organization, extreme divergence should not be the norm. SA8000 is a social certification standard that can be used as a framework by businesses to help certify their dedication to the fair treatment of workers across industries in any country.

Environment: One of the top environmental concerns of today is climate change, also known as global warming. Climate change is the term for the shift in worldwide weather phenomena associated with the increase in average temperatures globally. Businesses can shift their portfolio to renewable energy, use energy conservation business practices and other methods to reduce their carbon footprint. Pollution is the presence in or introduction into the natural environment of contaminants which have harmful effects. Governments have played major roles in environmental issues in terms of the protection of natural resources along with the introduction of substantial regulations to eliminate and prevent damages to the environment.

Ethics in Decision Making

Ethical dilemmas in the workplace involve problematic situations in which options to resolve them are equally undesirable because of the conflicts that can arise between personal values, organizational goals, or social values. Concepts that are essential to managerial decision making, particularly in international settings with weak institutions or a rule of law, are moral imagination and moral courage. When faced with ethical dilemmas, international managers need to have moral imagination and think more creatively about how a decision will affect the primary stakeholders. Moral courage is needed to go against “business as usual” and to object to unethical activities in the organization.

Corporate Social Responsibility in International Context

CSR refers to a view of corporations that assume a responsibility to pursue social goals in addition to profit maximization and a responsibility among their stakeholders to hold them accountable for their actions.

Arguments for CSR

Arguments for CSR are often based on ethical moral, rational and economic issues. The ethical argument for CSR refers to the actions that benefit the good of society and to duties and obligations including guiding the principles to carry out those actions. Firms have a moral obligation to act to benefit society beyond profit. The rational argument represents a means of anticipating and reflecting societal concerns and expectations to minimize the operational and financial constraints on businesses (through sanctions such as laws, fines, prohibitions, or boycotts). The economic argument reflects the sum of the previous arguments of the economic self-interest for businesses, i.e. CSR adds value by satisfying various stakeholder groups, retaining legitimacy and reputation thereby maximizing the firm’s financial potential in the long-run.

Types of CSR

• Philanthropic responsibilities – contribute resources such as money, facilities, and employees’ time to the community and improve its quality of life.
• Ethical responsibilities – obligations to do what is right, just, and fair while avoiding harm to stakeholders.
• Legal responsibilities – obey the law of the society.
• Economic responsibilities – provide products and services while maximizing profits. Economic performance is seen as the foundation upon which all other responsibilities rest.

Managing CSR Globally

Managers in global firms need to consider CSR activities as the issues of localization and globalization. ISO 26000 provides guidance on how businesses can operate in socially responsible ways. Firms follow ISO26000 principles and share best practices for effective CSR actions globally.

Approaches to CSR

Four broad strategic responses or approaches that global managers can use are: reactive, defensive, accommodative, and proactive. Reactive approach indicates that firms often do as little as possible to address CSR and ethical issues. Defensive approach indicates that managers focus on legal compliance but nothing more. Accommodative approach indicates that managers accept social responsibilities, meet all legal requirements, and often act beyond those requirements. Adopting a universal code of conduct would indicate to stakeholders that the firm is willing to accept CSR and make ethical decisions regardless of their location. Firms will try to do the right things (CSR) and to do things right (ethics). Proactive approach indicates that managers will follow the highest degree of ethical standards and of socially responsible practices. Firms not only do all that is required but at the same time anticipate, actively participate, and seek the opportunity to contribute to CSR initiatives globally (even in places they have no operations).

Broader Issues in CSR

Organizational Issues: They involve corporate governance, employees, investors, and social entrepreneurship. Corporate governance is the system of rules, practices, processes, and mechanisms by which firms are controlled and operated, often under a board of directors. It is connected to CSR and ethics as the board can ensure organizational transparency and oversight of the top management team while representing the shareholders’ interests. Weak governance can allow unethical or illegal behaviors to go unchecked.

Social entrepreneurship is an approach by entrepreneurs or startup companies to develop, fund, and implement solutions that would have positive impacts on social or environmental issues.

Economic Issues: Ethical consumption or ethical consumerism is a form of political activism in which consumers base their purchasing decision on the ethical (or unethical) decisions made by the firm, not only based on price and quality alone. Ethical sourcing is the process of ensuring that products or services are obtained through responsible and sustainable methods. Fairtrade is a system of trading where a good price is paid such that the producers can work in good conditions and are paid fair wages.

Societal Issues: The issues related to CSR include accountability, transparency, and compliance. Although the measurement of CSR actions is problematic in practice, CSR reports and CSR audits have emerged as important tools to promote transparency relations among firms and their stakeholders. Corporate social audit is defined as a systematic or formal analysis to identify, measure, monitor, and evaluate the performance and effectiveness of a firm’s social efforts, goals, and programs. A CSR report is a report published by a company about the economic, environmental, and social impacts caused by its everyday activities. CSR reflects the extent to which firms should voluntarily or through government regulations be compelled to practice social responsibilities.

Sustainability: Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Environmental sustainability requires a longterm perspective, a systematic understanding of the ecosystem with built-in limits to human impact on that ecosystem. In the business context, environmental sustainability business practices include three elements: limits, interdependence, and equity. Limits are applied to things such as emission control to reduce harmful greenhouse gases, and in recognition that resources are exhaustible. Interdependence of ecological, social, and economic systems means that an action in one affects the others. Equity refers to the equitable distribution of gains in the economic system such that the interdependence of the social, economic, and ecological systems can be sustained in the long-term.

Economic sustainability recognizes the importance of providing secure employment while creating a healthy natural environment as the basis for a dynamic economy. Businesses can focus on limiting their use of natural resources in terms of water, land and air.

Equity and equality aspects focus on the equitable distribution of resources including food, health care, education, and job opportunities at the national level for the long-term viability of the society. At the global level, businesses need to look at the problem of inequities such as poverty and migration.