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BUS 203: BUSINESS ENVIRONMENT

Section: 03

Fall 2013
September 29, 2013

L5&6

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Updated course outline with references to materials
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Topics
Property Rights (Cont. from last lecture)
World Development Report 2005 - Ch 4 pp. 79-84

Globalization
Defining characteristics
Potentials and
Dangers

1. Justin Paul. 2010. Business, Environment, pp. 55-82.


2. Paul Wetherly and Dorron Otter. 2008. The Business Environment, pp.
332-356

Property Rights
Secure property rights link efforts with reward
Assure firms that they will be able to reap the fruits of their
investment

Entrepreneurs who believe that their property rights are


secure reinvest 14 to 40% of their profit more
In contrast, firms in low income countries require returns
much higher to compensate the risks resulting from insecure
property rights
More secure the rights, the faster the growth efficiency factor

Property Rights
Land titling is a form of land reform in which private individuals and
families are given formal property rights for land which they have
previously occupied informally or used on the basis of customary land
tenure
Titling increased the value of rural lands anywhere from 43 to 81% in
Brazil, Indonesia, Thailand and Philippines
In case of urban lands, it increased the value by 14% in Manila
Secure property rights and environmental stewardship (Box 4.3)

Property Rights
Rights to land
Improved access to credit, titled land as ready collateral, land ownership as
indicator of creditworthiness
Maintain an effective titling program
Initial cost, multiple claims, inertia to reform

Considering alternative to full-blown titling


Foster competition among service providers

Title to other property


Titling movable assets can provide similar benefits
Easier it is for financial institutions to recover the property for defaulting,
the more willing they are to lend
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Globalization
Globalization and you
Everything you consume in a day and their country of origin

What is globalization?

Supranational focus on business activity

Emphasizes inter-linkage across the spatial levels from local


through global
Global company example? Stakeholders?

Globalization
Main aspects of globalization
International trade and the creation of the global market
place
Globally organized products and investment flows

Migration as a side effect


Communication flows
Cultural flows
Rapid technological change and its effects

Globalization
Mini case: The world in your coffee cup
2.5b cups of coffee consumed in a day
Produced far from where it is consumed
Ethiopia where coffee was believed to be discovered
Choche, Ethopia was studied
Individual farmers sell to the local trader
Shipped to Addis Ababa 250 miles away

Workers earn less that 1 a day


Then sold in international auction
London street coffee price per cup 2.19 to 2.70

Other examples? Different market power at different levels?


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Globalization
Growth over time
The first wave late 19th century
The Age of Empire inputs from colonies, export back finished
products. Big expansion of world trade

The second retreat wave between WWI (1914) & WWII (1939)
Instability, economic problem, trade barrier requested by the
domestic firms; USA erected tariffs and the trading partners followed

The third wave initially after 1945; sped up 1970 onward


Certain parts post 1945; universal post 1970
Trade liberalization was seen as the engine for growth

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Globalization
Views on globalization
Classical and neoclassical view globalization is good
The notion of absolute advantage Smiths argument
Ricardian model and comparative advantage

Trade is important, why?


1.

Source of external funding to fuel trade internally

2.

Expansion of market internationally

Question: what benefit does a developing country get from opening its border to
trade

Colonies traditionally produced raw materials (primary commodities) and


industrialized nations manufactured products (secondary commodities)

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Globalization
Views on globalization
Radical/Marxist views: globalization is bad the dependency
tradition
Karl Marx agreed that it led to growth, argued that there was
a fatal flaw in capitalism
Imperialism capitalism works differently in different parts of
the world
Imperial rivalry among nations derived from rivalry among firms
Expansion among colonies even with military might
Dependency tradition post colonial societies continued to suffer
exploitation thoughts? Reasons? Examples?

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Globalization
Views on globalization
Structurist writers globalization is good if
Success of globalization depends on various conditions
Industrialization and late industrialization economies
cannot utilize the same recipes
The system is different there are developed economies
above

Paradox of efficient primary goods exporter earning less


Bottom-line argument by structurist writers globalization
can made to work if appropriate economic and political
structures are put in place.
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Globalization
International business strategy considerations
Possible objectives

Increase market sales


Acquire cheaper resources
Diversify and spread risk
Counter the threat of rivals

Management challenges
Cross cultural management
Globals marketing
Global finance
Exchange rate risk
Risk of financial contagion
Need to adapt to different financial procedures
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Globalization
Ethical considerations
Global CSR
ethical consumerism, i.e., fair trade, fair sourcing

Global citizenship
Employment practices
Exploitation, fair pay, benefits

Human rights
Allegations around sweatshops

Environment
Abuse market power
Attitude to graft and corruption
Padma bridge and SNC Lavalin

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Back to the coffee story


Why do producers have less market power than roasters or
others in the supply chain?
Where do you see issues here? How would you
recommend solving it?
Other examples?

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