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July 16, 2007

Second Discussion Section:

Culture & Ethics; International Trade

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Agenda Chapters 1, 2 in a Nutshell

Review Chapters 3 and 4

Discussion 1: Selling Dominos Pizza Worldwide

Review Chapters 5 and 6

Discussion 2:

Boeing v. Airbus

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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 legaland political systems of the country?

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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

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Chapter 3: Critical Thinking Outline why the culture of a country might influence

the costs of doing business in that country. Illustrateyour answer with examples.

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Case: Selling Dominos Pizza

WorldwideView video presentation

Additional videos:

U.S. Pizza Hut Commercial http://www.youtube.com/watch?v=xEqHOETejjU

U.S. Dominos Pizza Commercial

http://www.youtube.com/watch?v=MxR3CKzXm_s

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Dominos Discussion Questions 1. Dominos has successfully grown its international

presence very quickly. Compare and contrast itsstrategy with that of another well-known internationalfast food operation, McDonalds. What similarities doyou see? Are they any significant differences betweenthe two companies? What has led to the success ofDominos?

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Dominos Discussion Questions 2. Dominos owes its rapid expansion into foreign

markets to its franchisees. Consider the companysfranchising strategy. How does Dominos ensure thatits corporate values and strategies are adopted by thefranchise operations?

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Dominos Discussion Questions 3. While its pizza appears to be universally accepted,

Dominos has had to make some adjustments to itsmarketing mix. Discuss the different components inthe marketing mix and how the company hasresponded to local needs.

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Dominos Discussion Questions 4. Dominos made some significant changes to its

Mexican operation in the late 1990s. Discuss Dominosefforts there, the economic risk the company wasfacing, and the strategies it used. Is Dominos currentstrategy viable in the long-term? Why or why not?

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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; Nave 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

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Etch-A-Sketch CaseWas it ethical of the Ohio Art Company to move

production to China? What were the economic andsocial costs and benefits of this decision? What wouldhave happened if production had not been moved?

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Etch-A-Sketch CaseAssuming that the description of working conditions

given in The New York Times is correct, is it ethical forthe Ohio Art Company to continue using Kin Ki tomanufacture Etch-A-Sketch toys?

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Etch-A-Sketch Case Is it possible, as Mr. Killgallon claims, that the Ohio

Art Company had no knowledge of labor problems atKin Ki? Do you think company executives had anyknowledge of the working conditions?

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Etch-A-Sketch CaseWhat steps can executives at the Ohio Art Company

take to make sure that they do not find the companyprofiled in The New York Times again as an enterprisethat benefits from sweatshop labor?

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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 (1970s 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: Porters Diamond

Factor Endowments Demand Conditions Related and Supporting Industries Firm Strategy, Structure, and Rivalry Evaluating Porters Theory

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Critical Thinking QuestionsWhat are some potential costs of adopting a free trade

regime? Do you think governments should doanything to reduce these costs? What?

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Critical Thinking Questions The worlds poorest countries are at a competitive

disadvantage in every sector of their economies. Theyhave little to export. They have no capital; their land isof poor quality; they often have too many people givenavailable work opportunities; and they are poorlyeducated. Free trade cannot possibly be in the interestof such nations! Discuss.

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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 governmentintervention) Retaliation and Trade War Domestic Politics

Development of the World Trading System From Smith to the Great Depression 19471979: GATT, Trade Liberalization, and

Economic Growth 19801993: Protectionist Trend The Uruguay Round and theWorld Trade OrganizationWTO: Experience to DateThe Future of the WTO:

Unresolved Issues and the Doha Round

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Boeing versus Airbus Boeing 787 Dreamliner

http://www.youtube.com/watch?v=JRbV6lZsaE0

Airbus A380 http://www.youtube.com/watch?v=AK10MxtCAHc

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Subsidy Dogfight: Boeing v. AirbusWhat are the facts?

Boeings development of Boeing 7E7 (now 787), whichpromises 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

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Boeing v. Airbus Boeings 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 anaverage interest rate to 8.5 for 10 years

Airbus received government $3.7 billion launch aid and $2.8 billion inindirect subsidies for the development of the A380 superjumbo andneed 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)

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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 gaveas much as $6.34 billion from 1976 to 1990, and NASA gave $8 billion tocommercial aircraft production. Moreover, tax exemptions gave anaddition $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 Boeings R&D from Department ofDefense, 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

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Boeing v. Airbus How might the repayable launch aid for Airbus change

its decision making on launching a new aircraft? Whatare the potential consequences for (a) Boeing, (b)

airlines, and (c) the profitability of both Boeing andAirbus?

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Boeing v. AirbusWhen Airbus originally received government aid back

in the 1960s, it was a new enterprise. Today it is theglobal market share leader in the commercial

aerospace business. How do gains in market shareeffect the legitimacy of claims for subsidies?

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Boeing v. Airbus Do you think that R&D contracts from NASA and the

Pentagon benefit Boeings commercial aerospacebusiness? How?

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Boeing v. Airbus If the EU does file a complaint with the WTO

protesting Japanese launch aid on the Boeing 787aircraft, how might the Japanese retaliate? Given this,

what should Airbus urge the EU to do?

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Boeing v. AirbusAt this point, what do you think is the most equitable

solution to the long running battle between the USand EU on subsidies for commercial aircraft

development?

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Boeing v. AirbusApplication of Concepts/Instruments learned in class

What are some examples of instruments of trade policy inthe aviation industry? Tariffs

Russia levies a 20% tariff on imported aircraft

Ad valorem Subsidies Cash grants (e.g., launch aid) Low-interest loans (e.g., 7% versus 8.5% interest) Government equity participation (early version of Airbus consortium)

Quotas E.g., if U.S. limited number of allowable importation of foreign aircraft

to 100 per decade Voluntary Export Restriction

E.g., if EC limits sale of Airbus aircraft to 100 per decade to the U.S. Local Content Administrative Policies

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Boeing v. AirbusApplication of concepts learned in class

Political Arguments for Intervention Protecting jobs and industries

National security

Retaliation Protecting consumers

Economic Arguments for Intervention Infant Industry

Strategy trade policy