Ethnocentric Behavior in Business World - Report Example

International Business Globalization of Markets and Production Globalization is a twenty first century movement which looks for economic, communicational and financial integration of the world. It looks to develop intra-state and even intra-continental trade in order to dismantle the trade barriers among various economies in terms of both economic markets and goods produced. In other words we can say that two key elements of globalization are globalization of markets and globalization of production. Globalization of market means that standardized consumer products can be bought and sold in various markets of the world irrespective of the fact that who has produced them. Globalization of production means that good are not necessarily prepared at one place; various stages of production may take places at various places in the world. Globalization of markets and production took pace in early 1980’s and escalated during 1990’s. One of the most prominent places of the world where globalization has really hit a high is San Francisco Bay Area in US. There are various firms based in this area e.g. Chevron Texaco Corp, Sun Microsystems Inc., Intel Corp., Oracle Corp, Cisco Systems Inc., PG&E etc. which has taken wide scale stakes in emerging global markets. Lets take the example of one of these companies i.e. Cisco Systems. Cisco provides Network equipments like routers and switches in more than 190 countries of the world reflecting the market side of globalization. It also has its production centre located out of US e.g. it has chosen India as the site for its globalization centre thus globalizing the production side of business as well. (Carr and Kutty, 2008) Political, Economic and Legal Risks Political, economic and legal risks are three different but parallel risks a firm can face in an economy. Political risk means the potential risk of loss to a business entity because of political instability or political decisions’ instability of a particular country. Economic risk potentially means a situation where a business’ expenses become greater than its income. Financial risk is also a connotation of economic risk. Legal risk refers to a situation where law of a particular country poses challenges for a business entity to either carry on the business or lose a substantial part of income due to legal obligations. All these three kinds of risks are closely integrated as well. A political decision from a country to wage war can have economic repercussions. An economic decision to tax foreign business entities can have both political and legal consequences for the companies. A legal decision to try all multinational companies’ cases in local courts can have economic impacts. So, a company analyzing the political, economic and legal risks in a country has to take into account the larger picture. Reliance on any one factor may lead to wrong calculations. Different countries in the world have different scales of risks involved. Afghanistan may be subject to extreme risk of all kinds i.e. political, economic and legal. A country like Cuba may not be subject to economic risk but its political risk index may be very high. In US, political risk is almost minimal due to strong political set-up, sustained policies and stable political institutions. The economic risk for a country entering the US market is historically very low. USA is the biggest economy in the world and profit margins are very high. Taxation standards are also very suitable for foreign countries as compared to other developed nations. Recent recession has hit the economy hard though. The economic risk, particularly financial risk index has reached record highs. It is pertinent to note that economy is shaping towards a better tomorrow and long term economic risks are not so high. Legal risks in US have a mixed scenario. The legal system is very good thus the rights of investors are well covered but on the other hand legal obligations are also very high and a wrong can cause serious damages to a business. Ethnocentric Behavior in Business World Ethnocentrism is the belief that one’s own race or ethnicity is superior to the other. Ethnocentric behavior in business cultures means the belief that one’s own business norms are of prime importance and others’ values are only to be seen in relation to one’s own concerns. In this era of globalization ethnocentricity is a barrier in business expansion. Unfortunately, it is present in many countries’ markets and it also causes major setbacks at times. Every country has its own social background, cultural values and language. By focusing on one’s own background one ends to ignore other people’s stance. Such behaviors in business dealings can result in not only getting isolated in a global market but may also limit the company or individual’s ability to learn and adopt. For example English has become a medium of trade internationally, so if a business entity is reluctant to adopt English as mode of communication it may not be able to develop relationships with international partners and clients. It is important to understand the problems of ethnocentricity in the business world and steps should be taken to better understand the perspective of other stake holders. For example, entering into a Muslim country without understanding their traditions and selling wine may not be a suitable idea for any company. Similarly, an intentional effort to understand the global trends in business in crucial for modern day business success e.g. knowing the current fashions in international market before preparing cloths. Veil of Ignorance and Oil Companies The veil of ignorance is a theory introduced by John Rawl which states that true morality of an issue can not be understood unless one is prepared to think from every stake holder’s perspective. Everyone’s concerns an only be understood if one assumes that society is to be re-shaped and he could end up on any body’s place in the new society. So the uncertainty of everyone’s fate would be the ‘veil of ignorance’ for him and he would like to have a balanced society. In modern day world this concept is often raised when describing the double standards of the developed nations and their people towards there own interests and the interests of others. Let us take the example of oil companies. They are mostly western companies but most of the oil in the world is located in Middle East or Africa so they do all their drilling in these countries, earn profit on behalf of that but the poor nations are the ones who are left to face the negative sides of this trade, particularly the environmental hazards created by that. If the oil companies work according to the theory of ‘veil of ignorance’ they would want certain issues to taken seriously considering that it may turn into their fate. The steps those companies would take would be: A pollution free air system where there is ample security against chemical compounds and dangerous gases leaked due to mining. Plantation of new tree and bush in place of those cleared for mining. Reclamation plants to ensure that damages to soil at the time of mining are reversed. Water clearing plants so that water does not get polluted by toxic waste of oil. Ensure better technology to reduce carbon dioxide emission. A public awareness campaign to convince share-holders that a small reduction of profit is better than damaging the society. International Trade and Countries with Poor Human Rights Index In modern world a country’s human rights policies are of paramount importance in reflecting its statue on global scene. Countries with low human right standing are considered to have lesser degree of personal and business freedom with low law and order ratings. Whether a country’s human rights position should be considered while giving it preferential trade rights or developing intra-state ties or not is a serious question posed in recent decades. Those who oppose developing such ties argue that country where there is least regard to human freedom should not be included in the society of civilized nations. They argue that putting economic barriers and not having state level ties will isolate such a nation, forcing it to follow the standardized norms of civilized world. They give the example of South Africa, where isolation from the world stage ultimately resulted in a democratic South African nation. There are others who argue that isolating a nation and not developing trade or government ties is not the solution. They believe that the only way a country’s human rights policies can be improves is by having more and more interaction with them, both socially and economically. I personally believe that the second opinion have much more weight. Often the countries with low human right standing are those where corrupt rulers are controlling governments who have no effect if the country suffers because of economic blockade from other countries. The poor of those countries are the ones who suffer such blockade. Also, developing economic ties enable the suffering country’s people to have better understanding of international norms and a domestic struggle to adopt those norms can rise. Finally, economic ties make a country dependent on other countries and by making a country dependent, other countries can build pressure for human rights improvement. Electric Paradigm, Intel.-China Case Electric paradigm –also knows as OLI Model- is a theory of economics which focuses on three kinds of advantages for a company in order to get best benefits of foreign Direct Investment (FDI). These three advantages are: Comparative advantages as compared to other products or companies in market, advantages of reaching international markets itself rather than through partner companies, and location specific advantages. Sometimes, there are certain advantages associated with a certain place and thus any company which is present at that place can be in comparative advantage as against others. This is known as location specific advantage. For example a company located at a port will be better able to o fisheries business than accompany located 100 miles away from a sea. John Dunning – the main supporter of electric paradigm- suggests that location specific advantages are extremely important for not only local business but also FDIs. This arguments make a lot of sense considering that we are living in a global village and certain services or labor are far cheaper and effective in certain countries than others. Let us take the example of Intel. The company has shown its twenty first century vision by announcing to establish a base in mainland china where micro processors and chipset products will be manufactured. The company started to move it employees to China in 2007 and is expected to invest $ 2.50 Billion on the project as FDI. (New York Times, 2007) The decision is made keeping in view the location specific advantages of China; the country has huge labor force in technological world which would now be available locally to the plant. Also, Intel sells a huge part of its products in Asia, specifically Far-East, India and Central-Asia so products would easily be deliverable due to relative closeness of manufacturing plant. China also has the biggest English speaking population in the world, bigger than the European Union or US even. All these location related advantages are added along with the benefit of partnering with Chinese upcoming economy which will become the biggest economy of the world by 2025. References Carr, James and Kuty, Nandinee, (2008) Segregation: The Rising Costs for America, Page 333 New York Times, (March 27, 2007), retrieved on Noember 24, 2009 from http://www.nytimes.com/2007/03/27/technology/27chip.html Read More