1 Fall 2007 NU FAST International Business Assalam-o-Alaikum to Fall 2007 Semester Your Teacher: Muhammad Zahid Siddique.

1 Fall 2007 NU FAST International Business

Assalam-o-Alaikum to Fall 2007 Semester

Your Teacher: Muhammad Zahid Siddique

2

Lectures 1-5: Foundations of International Business

Objectives, Focus and OutlineIntroduction to International BusinessOrigins of GlobalizationSocial Sciences and PoliticsIntroduction to Globalization Debate


Objectives, Focus and Theme of this course

• The objective of this course is to introduce students with:– the process with which world is moving towards a

particular vision of life– the way that vision of life is expanding the realm of

capital accumulation, both for firms and countries– the way that accumulation of capital is affecting the

technological and business environment within which firms have to survive

• Focus will be to impart necessary information so as to develop the required skills to make managerial decisions within this new business environment

• The major theme will be to reveal that IB is an out product of capitalist business forms– Be open to have an exposure to new ideas and world

views


Course Outline

Tentative Topics (Total Lectures 45)– Foundations of International Business– Role of Political and Cultural Factors in IB– International Trade Theory– Government Intervention in Trade– Economic Integration– Foreign Direct Investment– International Financial System– Determination of Exchange Rates– Strategy and Organization of International Business– Export-Import Strategies– Global Marketing and HRM


Assessment

• 80% attendance is compulsory [9 absences are allowed]• Following marks distribution scheme will be applied

– Two Mid-Terms = 30 Marks– Assignments + Quizzes = 20 Marks– Final Exam = 50 Marks

• 30-60 minutes text reading and following weakly lectures guarantees you good grades in this course– Concentrate on the theme of this course


Pre-requisites

• Conventionally, a good understanding of this course presumes knowledge of– Micro and Macroeconomics– Marketing and HRM

• The course is mainly based upon– economic theory, especially of trade and finance

theory– and partly based upon marketing and HRM

• Given your week knowledge of economics, we will try to cover the relevant topics


Text readings and Related

• Any good book on International Business will work, such as:– Hill W. Charles, International Business, 5th Ed. – Daniel, Radebaugh and Sullivan (2005), International

Business, 10th Ed, Prentice Hall, USA• Xerox of selected study material may also be available at

photo copy shop, if required• Off class contact

– Room # 17, NU-FAST (city campus)• Wednesday 1:00–3:00 pm, Thursday 11:00 am–1:00

pm– 439 09 41-5, Ext. 20 and [email protected]

• any time during office hours– Avoid disturbing on mobile

• allowed only in case of high emergency


A Dream comes true

• Some four hundred years ago, intellectuals began to dream of a society characterized by:– Freedom– Equality– Progress

• The dream emerged out of a change in human thought where after intellectuals started to think ‘what we should do on the earth now, rather than what we are supposed to do to reach heaven in the future’– they convinced masses that salvation had to be

achieved here on this earth right now via• technological innovation and capital accumulation

at an exponential rate• A complete system of academics—known as science

(both physical and social)—served to materialize the formation and sustenance of that dream


A Dream comes true

• Today, world is seemingly heading towards that picture of life which transcends– cross-border trade and investment barriers– interventionist state-regulations in businesses– distance and time– languages, cultural and religious differences

• The process of this transformation is called ‘Globalization’—universalization of capitalist value-system (discussed below)

• IB is all about commercial transactions between two or more countries within this particular world order– those transactions are made either by

• private-sector—motivated by profit motive—or• public sector—multi-objective


Why IB matters to managers?

• A hierarchical view: starting from the bottom & working up– The firm– The market/industry– The economy– Finance– International business

• Conventional economic theories of the above are– Profit maximizing behavior, types of competition, Game

theory, IS-LM, Efficient Markets, Comparative advantage• Different perspectives

– Empirical data– Critiques of conventional theories– Alternative theories

• This aspect is beyond the scope of this course


• Understanding theories about the economy matters because:– theories are aimed to explain how the real world works– frequently (too often!) theories affect how people behave

in the economy• Govt. follows economic advice and applies economic

theory in policies (e.g. easy credit policy, privatization)• Firms/unions think about economy in terms of economic

models• So you have to understand economic theories of world order

in order to be a ‘good executive’• Given that international transaction is becoming a growing

proportion of world business over time, IB is also important for managers at firm level b/c:– firms engaged globally face different modes of business– physical and societal conditions are diversified across

world

Why IB matters to managers?


• Collect data on GDP, export-import, FDI (or any other variable) over last 15 years for any three countries (Pakistan is compulsory) and see the trends of IB

• Data sources:– IFS (International Financial Statistics)– DOT (Directions of Trade)

• Last Date of Submission :– August 16, 2007 (Coming Thursday)

Assignment 1


Economic Picturization of Dream World Order

• Economics is said to be about efficient allocation of scarce resources among alterative uses

• Key word is scarcity. It is built on two propositions:– Infinite wants (because they are immaterial)– Finite resources (due to physical limits on producing

new universe), so• Scarcity = gap b/w infinite wants and finite

resources• Scarcity (S) = Wants (W) – Resources (R)

– It is a relative concept• Resources are limited with respect to wants

– It does not mean ‘rarity’• It is not about physical-quantity of resources

– It is a subjective feeling• Scarcity exists b/c we feel ‘we want more’


• Scarcity implies ‘choice among wants’ as all can’t be satisfied – Choice means trade-off, i.e. either this or that

• poses the problem of allocating resource among its multiple uses

• Resource is anything that can satisfy a human want– Height, weight or beauty can also be resource

• Almost all resources have multiple uses• Resources can be allocated in multiple ways

– Lottery system: the lucky are the winners– First come first serve: slow and steady loses the race– Dictatorship: who is the boss– Quota: i am the special one




• If it were merely the problem of allocation, then economics would be an insubstantial discipline– allocation can be done easily, as pointed out above

• Actual problem is not mere allocation, but efficient allocation– Efficiency is to produce maximum output/utility from

given resources—utilizing limited resources for the maximum satisfaction of wants

– This unlimited end is materialized via capital accumulation —an ever increasing but never ending expansion in the resources of a firm or a societyObjective:

Maximization of Capital

accumulationMaximization

of profitMaximization

of utilityinterdependent



• It is believed that competition brings about efficiency– It is the rivalry among individuals to control given resources

• So b/c it forces resources to more skillful of producing efficiency– Competition can take multiple directions and forms to

identify the necessary skills consistent with the achievement of efficiency in a particular activity

• Competition and efficiency are so related b/c, it is believed, that competition is a natural response of people when faced with scarcity

Scarcity

Choice

Competition

Efficiency

Allocation Problem

Self-interested individuation


• Economics is fundamentally concerned with the institution of competition– description of its legitimacy– outlining of its process and – desirability of its consequences

• Its role is to provide the foundations for allocating resources on the basis of free market mechanism

• The demand for free markets and trade alongside the abolition of state control is a straight forward implication of economic theory



Enlightenment: The Preamble of Globalization

• Social Sciences are a project of Enlightenment movement or Enlightened Moderation– Enlightenment emerged in 17th and 18th century

Europe:• It is revolt against God. Its goal is to free humanity

from the subordination / obedience of God• Its central construct is the invention of

‘Humanity’—dedicated to autonomy• It is a rejection of mankind—dedicated to worship

and obedience

• Human is the exact opposite of عبد (slave of God)– Enlightenment seeks to promote equal-freedom. It

can be characterized by three important features:



1) Autonomy / Freedom: the desire to be self-sufficient -Human is one who asserts freedom—i.e. self .(الصمد)determination– It is to reject dependence on any external source and

authority for guidance about objectives of life• Showing reliance is immaturity

– There is no authority to decide ‘good and bad’, except our own ‘self’ and ‘critical judgment’—knowledge is constructed through human faculties of perception, reasoning, intuition and language

– Good is what we want provided it can be universalized—principle of universalizability

– reason can tell us ‘what objectives to achieve’ in life• that objective is to ‘expand self-determination—

more and more determination of self



– This end is treated as ‘self-evident’—needs no argument for its justification• one who does not accept this has no human rights

2. Equality: that all humans are equally justified in choosing their own conceptions of good as per their desires – No rational ground for evaluating conceptions of good– Their ranking is not possible, can only be

concatenated such that there is no contradiction among them

– All ways of life are equally valuable, so must be given equal weight in social organization

– Hence, principle of ‘tolerance’ is the order of society—to treat all ends of life equally valuable



3. Progress: This is the way to achieve equal-freedom– Progress is to deny that this world is دارالامتحان

• is to believe that objective of life is maximization of utility—the most immoral impulse of all– “Man and pig are equal in their capacity to

derive utility from consumption” (Bentham)– This ideal of life begat a new conception of

knowledge. Progress • is to equate knowledge with the dominance of

human will over nature which• is realized through scientific laws whereby human

asserts his will over nature to satisfy his desires• is expansion in the knowledge of science

(submission of nature to human will) and not of revelation (submission of will to God’s Will)



• Practically, maximization of freedom means maximization of capital accumulation—i.e. growth, the practical commitment of Enlightenment

• Accumulation of capital requires:– Marketization of relations and liberalization of trade

from all sorts of barriers• economic• political• religious and cultural

– Technological innovations to realize the potential of globalization of markets and production• telecommunication and internet technology• transportation technology


Enlightenment Beliefs: Are you Enlightened?

• According to Emanuel Kant, the Enlightenment movement’s leading philosopher, you are ‘enlightened’ only if you have the following beliefs: – You are self-determined, and not عبد– Every human has equal right to define good and evil

as he likes to define it and to change that definition at his will

– Reason is the sole source of knowledge• Reason is to pursue your self-interest

– Everyone’s self interest is realized through material progress and development• maximization of wealthy, income, power &

authority– One can have no knowledge of life after-death

• No room for it in social organization• For better understanding, compare world views


Contrasting World Views

Worldly (Capitalist)• Man is god—self-determined

• Focus—“this” world only• Objective—Freedom• Source of knowledge—human

faculties (sciences)• Spirituality dominated by

– Accumulation (حرص) and Competition (حسد)

– Consumption (شہوت) and dominance (غضب)

• Motivational force—self interest

• Attitude—growth and change-oriented (i.e. dynamic)

• Social rationality—competition in worldly riches ( (تکاثر

Religious (Islamic)• Man is Abd—accountable for

his actions• Focus—“that” world mainly• Objective—obedience (اطاعت)• Source of knowledge—

revelation (وحی)• Spirituality dominated by

– Patience (صبر) and thankfulness (شکر)

– zuhd (زھد) and Qanat (قناعت)

• Motivational force—God’s pleasure

• Attitude—Orthodox and traditional

• Social rationality—companionship (رفاقت) and wel-being (خیرخواھی)


Contrasting World Views: Example of Change

Arabs before Islam• Our history books portray

them as barbarous and uncivilized b/c they used to:1) Worship idols2) Drink3) Gamble and charge

interest

4) Commit fornication and indulge in nudeness (فحاشی)

5) Wage wars for plundering

6) Bury their daughters alive– Anything else that you can

add to this list?– No! now open eyes to see

around

Today’s Civilized World• We use for it words like ‘first’

and ‘developed world’, despite that it is characterized by:1) Man’s divinity (millions

gods)2) Wine as industry3) Institutionalization of

economy around gambling and interest

4) Legalization of even…(no comments required)

5) Colonization and genocides for exploitation

6) Indiscriminate abortion– Then why change in

evaluation?– b/c of the dominance of a

different world view


Social Sciences: Embodiment of Enlightenment

• Social sciences emerged from this ‘different world view’– They study the behaviour of HUMANS

• work out laws governing behavior of individuals and social institutions of a society that live to lead and enforce capitalist world view

• Such a society is called capitalist—a way of life in which: – people are committed to the ideal of ‘maximization of

freedom’– society is characterized by exchange-based relations– state is dedicated to the formation of policies so as to

ensure maximum freedom (accumulation of capital) for its citizens

– religious-rationality and meaning of life are trivialized



• An important feature of Enlightenment is the rejection of the question of ‘death’– Enlightenment disciplines; i.e. social sciences

including economics, never mention death or the afterlife as realities

– In social sciences• Problem and meaning of death for life is trivial• Question of ‘where people go after death’ is

excluded from the question of ‘formation of society’

– Problem of death is rejected because there is no source of knowing its reality except revelation• People forget about or seek to push back all limits• However, one constraint that cannot be pushed

back infinitely is life itself, so the policy of over-looking of ‘death’ is employed



• Social sciences are like arms and feet of Enlightenment ideals– equivalent to what فقہ is to Islamic epistemology

• Their primary role is:– to provide a theoretical foundation for legitimizing

liberal capitalist social order– to provide policy tools in order to organize, govern

and regulate such an order of life on the basis of ‘universal self-interest’ as the very fabric of society

– to present it as a ‘rational social order’—which it is not…

• Discussion– What is the role of Business Administration Sciences

in this society?


Quick Quiz

• List out some of the ethical values embodied in a typical individual living in capitalist societies?– Self-interest—sense of exchange based relationships– Greed (accumulation) and envy (competition for

worldly riches)– Devotion for worldly life—desire for longer and longer

life ( امل (طول– Multiplication of wants—utility hunting attitude ( لذت

(پرستی– Wastage of time in useless activities– Unimportance of I’badah – Non-sense speaking ( لغو (کلام

• This is the standard ethical system of Enlightened societies


Political Economy of IB

• A logical relationship between individual, society and state and the general function of economics within this relation can be shown as

World Order Economics Seeks to

Promote

Individual Maximizes

Utility

Society that is a sum total of

exchange relationships

A democratic government which should provide only

an economic framework for

accumulation of capital

Leads to a model of

This justifies

Theoretical Paradigm of Economics



• Today we see politicians and bureaucrats handing over the world to social scientists, mainly to economists, to make it a better place to live in—a world with ever increasing possibilities of capital accumulation – This subjugation of countries’ fate in their hands is

not because they have won some public election, rather

– it is due to the belief that• economic theory is sound and • considers a big picture in understanding how the

objective of capital accumulation can be carried out most effectively

• It is the belief that they know how capitalist society work, and how it can be made to work even better. e.g.:– Minimum wage law controversy– WTO policy– Privatization debate



Actual Societies

Social Sciences

Desired picture of society

Transformation

justify

Policie

s

• Social sciences cannot be studied in isolation from politics– both are linked with each other like mind-body

relation—the body (politics) obeys the commands passed on by mind (social sciences)


• Pick up any aspect/practice/norm of our society that has gone or is going through transformation due to the dominance of capitalist practices or business forms– Last date of submission

• August 23, 2007 (Next Thursday)

Assignment 2


• Globalization has both its proponents as well as critics• Major plea for globalization takes economic form

– results in lower prices of goods and services– stimulates economic growth– raises incomes of consumers– creates new job avenues

• Critics take a multi-dimensional approach– job loss in industries attacked by foreign competition– downward pressure on wages of unskilled labour– environmental degradation– cultural imperialism of global media and multinationals– political hegemony of America

Globalization: pros and cons


• An unintended result of globalization is glocalization—i.e. think globally but act locally

• Interaction among cultures revealed the importance of differences– Globalization: looking at similarities– Glocalization: looking at differences

• Multiculturalism is presented as the solution to the problem of glocalization– We should differences– b/c we can’t rationally prove any conception of good as

true– all should be treated equally valuable

From Globalization to Glocalization

1 Fall 2007 NU FAST International Business Assalam-o-Alaikum to Fall 2007 Semester Your Teacher: Muhammad Zahid Siddique.

Documents

course slide

new business environment

hrm slide

nufast city campus

world views slide

economic theory

globalization debate

course concentrate