QUIZ 1 NOTES.docx

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Department
Global Management Studies
Course
GMS 691
Professor
Shavin Malhotra
Semester
Winter

Description
QUIZ 1 NOTES Lecture1 AVG GROWTH OF ASIAN ECONOMIES 2005- 2011: 8.54% • Number1: Qatar 18.7% • Number5 : china 9.5% • Number13: India 7.8 • Number 132: Canada 2.2 • Number 149: U.S. 1.7% Lecture 2 What makes East Asia Different? • Rapid Growth : Rapid growth over the 30-40 years from Singapore and South Korean to China and India South and East Asia grown rapidly over Latin America • Large Population Largest population: Japan, South Korea, Pakistan, India, china Densest population: South Korea, India, China • Different Business environment than that in the Western countries Rapid Growth • ASEAN (Association of South East Asian Nations) ( Indonesia, Malaysia, Philippines, Thailand) 1999-2004, growth starting to fall off: 6.2%-4.9% • China (Including Hong Kong): Doing Well 8.2% • Japan doing tremendously in the 80’s but lost footing in the 90’s Some blame goes to the Keiretsus Growth has just fallen off since 1990 Depreciation of the Japanese currency, exports hit badly 7.8%-0.5% • NIEs (Newly Industrialized Economies) Singapore, South Korea, Taiwan 1.1%-2.7% • Comparison to European union & US EU has been growing at a very slow pace compared to the Asian nations (1.5%) US have been growing at a very slow pace too (1.1%) Enormous diversity • 1.3 billion people in China • 1.17 billion people in India • 4 million people in Singapore (Singapore per capita GDP is 48 times that of Myanmar) • City by population o Mumbai:13,922,1135 o Shanghai:13,831,900 o Karachi:12,991,000 o Delhi:12,259,230 EARLY CIVILIZATIONS: • Many early Chinese civilizations started early in the Yellow River • Indus Valley civilization REASONS FOR RAPID GROWTH 1) High savings rate: China 25% GDP vs. US: 0.5% GDP Influences of high saving rate o Lack of credit market o Interest Rates are high o High amount of savings promote consumption of durable goods (less debt) o More stable growth o Bank uses these saving to promote capital intensive projects 2) Demographic situation o Population of working age is high o Not a lot of burden to support retirees as most of pop. Is young o Starting a business in India, there will not be a problem in finding workers 3) Investment in Education o Large Skilled and educated population o Many parents invest a lot of time in their children’s education o Engineering and business schools in India IMPORTANT ELEMENT IN ASIAN BUSINESS: BUSINESS GROUP Business group: a collection of diversified firms that are formally and informally linked to each other and are under a central control Examples: • Business houses in India: Aditua Birla, Reliance Ambani Group, Tata Company • Chaebol in South Korea: Samsung, Hyundai, LG(Lucky Goldstar). Hyndai-largest one • Keiretsu in Japan: Matsushita, Toyota, Mitsubishi Motors Market capitalization : Share price * Share volume Business Group Originated: • Japan, originally known as Zaibatsu (1850’s-1860’s) • Owned by a single family • Three main Zaibatsus pre WW2: Mitsubishi, Mitsui, Sumitomo • Predominantly trading companies • Strong political connections • Became stronger and bigger when japan decided to expand and capture international companies Characteristic of Japan: • Historically isolated • Environment of resource scarcity • 70% of japan is mountains • Located on a geologically and tectonically landscape prone to earthquakes • Houses hungered of active volcanoes • Led to a homogenous group with strong attitude towards themselves and others • Strong ethnocentrism in Japan, strong preference for their own things • Have an acute awareness of their vulnerability As a result….. • To catch up with the west, the best thing to do was to capture other countries • Building their own empire • Defected China in 1895, Russia in 1905 • Expanded to Korea, Taiwan, and Southeast Asia • By the end of WW1, Japan was a world power • Zaibatsu’s enjoyed tremendous political power • Controlled most of Japan’s economy After WW2” • It was shrunk back to its main landmass • US had taken control of Japan • Dismantle Zaibatsus • Japanese government followed suit and started restrictions • Taxing business groups dramatically • Zaibatsus tremendously shrinking • Tremendous fear of takeovers by other firms and governments Cross Shareholding • Zaibatsu fear lead to cross shareholding • 20% of ownership owned by each firm allowing NOBODY to have majority ownership • Allowing each firm to be a separate legal entity Differences between Keiretsus and Zaibatsus: Keiretsus are cross shareholding groups and not majority ownership groups TWO TYPES OF kEIRETSUS 1) Horizontal Keiretsus: Affiliated firms in cross shareholdings are into multiple business and multiple firms o Central nervous system is a CENTRAL BANK o That is why in Japan, banks are very powerful (ex. Sanwa Bank) President’s council meeting- Shacho Kai o Sit together and strategize plans how to take the next group forward o Group assist to help each other out o Helps run the Keirestsus in Japan 2) Vertical Keiressus: ex- Toyota o Suppliers  TOYOTA Distributors/Retailers (flip 90 degrees clockwise) o Extremely difficult to break into retail outlets in Japan ADVANTAGES OF KEIRETSUS FORMED: • Helps reduce competition • Control market • Lower production and cost/ lowering economies of scale Risk sharing: like a group insurance plan (today if somebody is not doing well, you help them out, if you are not doing well today, somebody will help you out) • Ex. Sumitomo Bank o Mazda motors beginning of 1980’s was going bankrupt o Sumitomo bank stepped in to help out o They asked top management of other banks to help Mazda motors bby spending time o They asked the other banks not to sell shares of Mazda o They asked their employees and other employees to buy when they did need one, a Mazda car • Mitsubishi Motors helping Akai Transaction Cost: Cost associated in relation to transaction • Made famous by Oliver Williamson • Before transaction has happened what are the cost (exantake cost) Ex. Finding a supplier, negotiating with the supplier, writing up the contract • After the transaction has gone through (Exposed cost) Ex. Monitoring supplier, enforcement cost, legal issues Other Advantages: • Quasi-internal capital markets (capital markets are institutions providing capital) • Keirestsus work as capital markets with all the central banks • Firms had an incentive to join these groups because the keirestsus were efficient • Source of scarce capital: human capital Keirestsus can transfer top management between each group • Business group reputation signals quality Keiretsus represent quality (providing good quality products) Lecture 3 What is Culture? Culture is a set of assumptions and values that are shared by a group of people and that guide that group of people’s interaction with each other. Hofstede’s Cultural Dimensions (Hofstede 1980- Culture’s consequences) • Survey of 72,215 IBM employees in more than 70 nations between 9162 and 1973 High vs. Low power distance: the degree of inequality among people which the population of the country considers as normal Power Distance High Power Distance o Minimize inequalities o Order of inequality o Equal rights o Special privileges o Subordinates and superiors are equals o Subordinates are different from superiors o Ok for boss to ask subordinates for answers o Boss should know all Low Power Distance Causes for planes crashes may lie in cultural issues • Korean air crash history • Crash of Colombia airliner Avianca flight 052 in 1990 Uncertainty Avoidance Degree to which people in a country prefer structured over unstructured situations (What is different is dangerous) High o Willing to take risks o Avoid risks o Prefer common sense to rules o Need written rules and o Logic and common sense better regulations than expert opinions o Believe in experts Low Affect of high uncertainty avoidance on employees: • Career stability • Rules, regulations, direction • Avoid conflict/disagreement • Resist change • Fear of failure (may appear less ambitious) • Stable employees Individualism vs. collectivism Degree to which people in a country prefer to act as individual rather than as members of groups Individualism • Extended families, loyalty, protection • Responsible for self and immediate family • Identity in the social system • Identity based on the individual • Order and security provided by the in-group • Autonomy and individual financial security • Group decisions • Individual decisions Collectivism Masculine vs. feminine Degree to which tough values like assertiveness, performance, success, and competition (associated with the role of men in most societies) prevail over tender values like the quality of life, maintaining warm personal relationships, service and care for the weak (associated with the role of women in the most societies) Masculine • Quality of life • Material success • Relationships • Ambition, assertive • Concern for weak • Competitive • Work to live • Live to work • Men& women nurture • Women are nurturers • Disapprove of high achievers • Achievement Feminine Long-term vs. Short-term orientation Degree to which values oriented towards the future, like saving and persistence prevail over values oriented towards immediate or short-term gratification Leadership discussion ROLES OF CULTURE AND SOCIETY IN CHINA ­ Chinese culture is one of the oldest culture, strongly influence by Confucius teaching. ­ Heavily focused on family, business relationships, trust , and respect for authority China’s rating on Hofstede’s 5 cultural dimensions: 1) Power distance – 80 high, meaning they submit to and accept authority and inequality 2) Individualism vs. collectivism- 20 low, low care for personal achievement, strong ties with extended family 3) Masculinity vs. Feminity – 66 high 4) Uncertainty Avoidance – 40 medium 5) Long term orientation – 118 very high score, high savings rate, building of strong relationships Important Chinese concepts: 1) Mianzi (face) o The recognition by others of an individual’s social standing and position o It is important to protect a person’s face as well as dignity and prestige o Important in the development of personal and interpersonal relationships in China o Related to Hofstede’s dimension of Collectivism 2) Guanxi (personal connection/network) o Basic dynamic in personalized networks of influence o Often translated as connections and network within the business culture o Core of the Chinese society and the relationship between the people within it o Linked to Hofstede’s Power Distance 3) He (surface Harmony) o The art
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