IB: Globalization

Key aspects of major religions: Christianity: Islam: Hinduism: Buddhism:

"Son of God" Pilgrimage to Mecca Dharma A path for transformation

_______ are established through patents, copyrights, and trademarks. A) Ownership rights over intellectual property B) Digital signatures C) Origination fees and tributes D) Ownership rights over private property

Ownership rights over intellectual property

Arguments Against Globalization: Producers The Environment Consumers Workers

Producers: Can go bankrupt due to competition The Environment: Lack of adequate regulations causes abuse Consumers: Don't know how products are made Workers: Loss of jobs due to competition

What impedes firms from achieving the optimal dispersion of their productive activities to locations around the globe? A) reduction of barriers to trade between countries. B) transportation costs. C) government deregulations. D) reduction of barriers to foreign direct investment.

transportation costs

LO1-5: Understand how the process of globalization is creating opportunities and challenges for management practice.

1) countries are different 2) the range of problems confronted by a manger in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business 3) international business must find ways to work within the limits imposed by government intervention 4) international transactions involve converting money into different currencies.

Theocratic law

A system of law based on religious teachings.

Market economy

An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced.

Historically, command economies were found in ________ blank countries, where collectivist goals were given priority over individual goals. democratic communist libertarian free-market

communist

Home-Country Policies: Encouraging outward FDI

- Risk insurance: government-backed insurance programs to cover major types of foreign investment risk. This is useful in encouraging firms to undertake investments in politically unstable countries. - Capital assistance: several advanced counties also have special funds or banks that make government loans to firms wishing to invest in developing countries. - Tax incentives: many countries have eliminated double taxation of foreign income - Political pressure: a number of investor countries have used their political influence to persuade host countries to relax their restrictions on inbound FDI.

Innovation and Entrepreneurship are...

- the engines of growth - require a market economy - require strong property rights - democracy

LO7-5: Explain the implications for managers of developments in the world trading system.

1) Impact of trade barriers on a firm's strategy. - Tariff barriers raise the costs of exporting products to a country. - Quotas may limit a firm's ability to serve a country from locations outside that country. - To conform to local regulations, a firm may have to locate more production activities in a given market than it would otherwise. - the threat of antidumping action limits the ability of a firm to use aggressive pricing to gain market share in a country. 2) role that business firms can play in promoting free trade or trade barriers. - Intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors. - Intervention may invite retaliation and trigger a trade war. - Intervention is unlikely to be well executed, given the opportunity for such a policy to be captured by special-interest groups.

Host-Country Policies: Encouraging Inward FDI

- Government offering incentives to foreign firms to invest in their countries, such as tax concessions, low-interest loans, and grants or subsidies. Incentives are motivated by a desire to gain from the resource-transfer and employment effects of FDI. They are also motivated by a desire to capture FDI away from other potential host countries.

Location-specific advantages

Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management know-how).

Command economy

An economic system where the allocation of resources, including determination of what goods and services should be produced, and in what quantity, is planned by the government.

Oligopoly

An industry composed of a limited number of large firms. - What one firm does can have immediate impact on the major competitors, forcing a response in kind. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share.

Human Development Index (HDI)

Attempt by the United Nations to assess the impact of a number of factors on the quality of human life in a country. 1) life expectancy at birth 2) educational attainment 3) whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country.

A government intervenes to help firms and industries establish a competitive advantage. What may happen as a result of this action? A) Despite being well executed, the intervention is unlikely to work. B) It may invite retaliation and trigger a trade war. C) They usually establish new tariff levels on technology—to the detriment of all in the industry. D) The policies may be captured by foreign investors and turned to their advantage.

B) It may invite retaliation and trigger a trade war

balance-of-payments accounts current account

BOP: National accounts that track both payments to and receipts from foreigners. current account: In the balance of payments, records transactions involving the export or import of goods and services.

Home-Country Costs:

Balance-of-payments: 1) the balance of payments suffers from the initial capital outflow required to finance the FDI. - this effect is more than offset by the subsequent inflow of foreign earnings. 2) the current account of the balance of payments suffers if the purpose of foreign investment is to serve the home market form a low-cost production location. 3) the current account of the balance of payments suffers if the FDI is a substitute for direct exports. Employment Effects: FDI is seen as a substitute for domestic production.

Which statement is true with respect to multinational firms? - Government policies ultimately have little direct impact on a multinational business. - Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade. - Multinational firms generally try to encourage their government to resist the WTO and to keep constraints on trade among nations. - Despite their pivotal role in international trade, firms do not exert a strong influence on government policy toward trade.

Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade. This influence can encourage protectionism, or it can encourage the government to support the WTO and push for open markets and freer trade among all nations. Government policies on international trade can have a direct impact on business.

Ethnocentrism

Behavior that is based on the belief in the superiority of one's own ethnic group or culture; often shows disregard or contempt for the culture of other countries.

LO3-4: Explain the implications for management practice of national difference in political economy.

Benefits: Size of economy, likely economic growth Costs: Corruption, lack of infrastructure, legal costs Risks: - Political risk: social unrest/antibusiness trands - Economic risk: economic mismanagement - Legal risk: failure to safeguard property rights

Property Rights

Bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource.

________ gives a firm tight control over its technological know-how, operations, and business strategy in a foreign country that may be required to maximize its profitability. A) Exporting B) Franchising C) Foreign direct investment D) Licensing

C) Foreign direct investment

The commercial jet aircraft market - indicates that national markets in consumer goods are now homogenous. - reflects the need for domestic competition to spur innovation. - suggests that national economies are largely self-sufficient. - implies that to effectively engage in trade, a company must be a large multinational. - can best be described as a global market.

Can best be described as a global market.

Mixed economy

Certain sectors of the economy are left to private ownership and free market mechanisms, whereas other sectors have significant state ownership and government planning.

Communist totalitarianism Theocratic totalitarianism Tribal totalitarianism Right-wing totalitarianism

Communist: collectivism advocating that socialism can be achieved only through a totalitarian dictatorship. Theocratic: political power is monopolized by a party, group, or individual that governs according to religious principles. Tribal: party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolized political power. Right-wing: generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the grounds that it would lead to the rise of communism.

International Monetary Fund

Created at Bretton Woods in 1944 by 44 nations to maintain order in the international monetary system.

World Bank

Created at Bretton Woods in 1944 by 44 nations to promote economic development.

Contract law

The body of law that governs contract enforcement.

Trademarks

The designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products.

What are the determinants of Culture? Define them. Then, describe how two of them may interact to create differences in culture among countries

The determinants of culture social structure, religion, political philosophy, language, education, and economic philosophy.

Copyrights

The exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.

The convergence hypothesis

The idea that cultures are converging, or becoming more alike

English is now the preferred language in most business and social situations in Dubai, the headquarters of The Emirates Group. This illustrates the static nature of culture. that culture is not a constant. the desire for the city to be more engaged in international business. the superiority of English in both spoken and unspoken situations. the change in the country's basic value system.

that culture is not a constant.

Folkway (symbolic behavior)

the routine conventions of everyday life

General Agreement on Tariffs and Trade (GATT)

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

The Emirates Group has a workforce comprised of individuals with 160 different nationalities. Suppose that one individual is convinced that his culture is superior to that of his coworkers. The individual is being genocentric bicultural collectivistic polycentric ethnocentric

Ethnocentric. Ethnocentrism is belief in the superiority of one's own ethnic group or culture.

Contracts under a civil law system tend to be very detailed with all contingencies spelled out. True or False

False

Moore's law

The power of microprocessor technology doubles and its costs of production fall in half every 18 months.

LO3-3: Describe how transition economies are moving toward market-based systems.

The shift toward a market-based economic system often entails a number of steps: deregulation, privatization, and creation of a legal system to safeguard property rights.

Totalitarianism

form of government in which one person exercises absolute control over all spheres of human life and prohibits opposing political parties.

Driving Force Declining investment barriers

hImplication for Business Better ability to optimize location economies

Collectivism

political system that stresses the primacy of collective goals over individual goals.

The benefits, costs, and risks associated with doing business in a country are a function of that country's political system only. economic system only. legal system only. political, economic, and legal systems.

political, economic, and legal systems. The benefits, costs, and risks associated with doing business in a country are a function of that country's political, economic, and legal systems.

World Trade Organization (WTO)

primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states. Also facilitating the establishment of additional multinational agreements among WTO member states.

Boeing produced just 5 percent of its original 737s and 747s outside the United States but produces 65 percent of its newer 787s in foreign locations. Boeing's production strategy - indicates the presence of trade barriers in the United States. - suggests falling raw material costs require international production. - implies that outsourcing services is virtually impossible. - suggests that Boeing has lost its edge in product design. - reflects the globalization of production.

reflects the globalization of production.

Intellectual property

Products of the mind, ideas (e.g., books, music, computer software, designs, technological know-how); intellectual property can be protected by patents, copyrights, and trademarks.

Internalization Theory

The argument that firms prefer FDI over licensing in order to retain control over know-how, manufacturing, marketing, and strategy or because some firm's capabilities are not amenable to licensing.

Purchasing Power Parity (PPP)

Adjustment in gross domestic product per capita to reflect differences in the cost of living.

Administrative trade policies

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

The growth of trade as a percentage of global GDP - is surprising given the level of conflict among nations. - represents an argument for greater barriers to trade. - indicates growing isolationism among countries, especially developing economies. - reflects the globalization of markets. - suggests that the United States is increasing its role as the most dominant player in global trade.

Reflects the globalization of markets.

Home-Country Benefits:

1) The home country's balance of payments benefits from the inward flow of foreign earnings. - FDI can also benefit if the foreign subsidiary creates demands for home-country exports of intermediate goods, complementary products, etc. 2) Benefits to the home country from outward FDI arise form employment effects. - positive employment effects arise when the foreign subsidiary creates demand for home-country exports. 3) Benefits arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country. - Through its exposure to a foreign market, an MNE can learn about superior management techniques and superior product and process technologies.

LO2-4: Explain the implications for management practice of national differences in political economy.

1) The political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business. 2) The political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site.

LO1-3: Describe the changing nature of the global economy.

1) U.S dominance in the world economy and world trade picture. 2) U.S dominance in world foreign direct investment. 3) Dominance of large, multinational U.S. firms on the international business scene. 4) Roughly half the globe-the centrally planned economies of the communist world-was off-limits to Western international businesses. All four of these facts have changed rapidly.

LO3-2: Identify the macropolitical and macroeconomic changes occurring worldwide.

1) during the late 1980s and early 1990s, a wave of democratic revolutions swept the world. Totalitarian governments fell and were replaces by democratically elected governments that were, on average, more committed to free market capitalism than their predecessors had been. 2) over the same period, more nations moved away from centrally planned and mixed economies and toward a more free markets economic model. 3) counter to the two prior tends, since 2005 some nations have shifted back toward greater authoritarianism, and there are some signs that certain nations may be retreating from the free market model, in the area where protectionism is on the rise again.

LO8-2: Explain the different theories of FDI

1) explain why a firm will favor direct investment as a means of entering a foreign market when two other alternatives, exporting and licensing, are open to it. - The viability of exporting physical goods is often constrained by transportation costs and trade barriers. - Licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor. - Licensing does not give a firm the tight control over production, market, and strategy in a foreign country that may be required to maximize its profitability. 2) explain why firms in the same industry often undertake FDI at the same time and why they favor certain locations over others as targets for FDI. - Oligopoly - Multipoint Competition 3) Eclectic Paradigm (Dunning): Argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located. - Location-specific advantages

Home-Country Policies: Restricting Outward FDI

1) limit capital outflows out of concern for the country's balance of payments. 2) countries have occasionally manipulated tax rules to try to encourage their firms to invest at home. The objective behind such policies is to create jobs at home rather than in other nations. 3) countries sometimes prohibit national firms from investing in certain countries for political reasons.

Three main reasons for the spread of democracy:

1) many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations. 2) new information and communication technologies have reduced a state's ability to control access to uncensored information. 3) in many countries, economic advances have led to the emergence of increasingly prosperous middle and working classes that have pushed for democratic reforms.

Chapter 4: Cultural literacy and competitive advantage

1) need to develop cross-cultural literacy. 2) centers on the connection between culture and national competitive advantage. 3) looks at the connection between culture and ethics in decision making.

LO1-2: Recognize the main drivers of globalization.

1) the decline in barriers to the free flow of goods, services, and capital that has occurred in the recent decades. 2) technological change, particularly the dramatic developments in communication, information processing, and transportation technologies.

Rise in Protectionist

1) the economic success of Japan during that time strained the world trading system. 2) world trading system was strained by the persistent trade deficit in the world's largest economy, the US. 3) many countries found ways to get around GATT regulations.

Which situation would require the use of a trademark? - A clothing manufacturer wants to differentiate its new line of jeans by naming the line "Ocean Blue." - A children's book author wants to use his most popular book character in a new line of comic books. - A software manufacturer has invented a business software program utilizing artificial intelligence. - A musician is seeking to obtain legal protection for a newly composed song.

A clothing manufacturer wants to differentiate its new line of jeans by naming the line "Ocean Blue." Trademarks are designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products (e.g., Christian Dior clothes).

Which scenario exemplifies privatization? - A country reduces trade barriers, allowing individuals to engage in export and import. - A country sells its postal services to a consortium of companies that runs it as a profit-making venture without any state funding. - A country enlists the services of Somers Consultancy, a global management consulting firm, to improve the profitability of the state-owned airlines company. - A country allows state-owned coal companies to sell coal to private parties.

A country sells its postal services to a consortium of companies that runs it as a profit-making venture without any state funding. Privatization transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.

Local content requirement (LCR)

A requirement that some specific fraction of a good be produced domestically.

United Nations Convention of Contracts for the International Sale of Goods (CISG)

A set of rules governing certain aspects of the making and performance of commercial contracts between sellers and buyers who have their places of businesses in different nations.

Civil law

A system of law based on a very detailed set of written laws and codes. Judges in a civil law system have the power to only apply the law.

Common law

A system of law based on tradition, precedent, and custom; when law courts interpret common law, they do so with regard to these characteristics. Judges in a common law system have the power to interpret the law.

Ethical systems are defined as A) a set of moral principles, or values, that are used to guide and shape behavior. B) routine conventions of everyday life. C) shared beliefs and rituals that are concerned with the realm of the sacred. D) social rules that govern people's actions toward each other.

A) a set of moral principles, or values, that are used to guide and shape behavior.

The government is considering placing additional taxes on foreign lumber imports that are a proportion of the value of the imported lumber. This is an example of an ad valorem tariff. a specific tariff. a subsidy tax. an import quota.

Ad valorem tariff. Ad valorem tariffs are levied as a proportion of the value of the imported good. In most cases, tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods.

FDI

Direct investment in business operations in a foreign country

Foreign Direct Investment

Direct investment in business operations in a foreign country.

Dumping Antidumping policies Countervailing duties

Dumping: Selling goods in a foreign market for less than their cost of production or below their "fair" market value. Antidumping: Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition. Countervailing: Antidumping duties.

Smoot-Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States. Other countries reacted by raising their own tariff barriers, U.S exports tumbled in response, and the world slid further into the Great Depression.

Ethical System: Four religions

Ethical System: A set of moral principles, or values, that is used to guide and shape behavior. 1) Christianity: most widely practices religion in the world 2) Islam 3) Hinduism 4) Buddhism Confucianism: teaches the importance of attaining personal salvation through right action.

Exporting Licensing

Exporting: Sale of products produced in one country to residents of another country. Licensing: the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

Most modern democratic states practice pure democracy in which citizens are directly involved in decision making. True or False

False

Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. True or False

False

Tariffs are seen as being anti-producer since they tend to increase foreign competition and lower domestic prices overall. True or False

False

A common feature of many right-wing dictatorships is their support for socialist or communist ideas. True or False

False A common feature of many right-wing dictatorships is an overt hostility to socialist or communist ideas.

In calculating GDP data, the official figures account for barter agreements that take place as part of daily business transactions. True or False

False In many countries, the "official" figures do not tell the entire economic story. Large amounts of economic activity may be in the form of unrecorded cash transactions or barter agreements. People engage in such transactions to avoid paying taxes.

The common law system is a relatively new form of law that emerged in the United States and is based on codes written within the last 80 years or so. True or False

False The common law system evolved in England over hundreds of years. It is now found in most of Great Britain's former colonies, including the United States.

The location-specific advantages argument associated with John Dunning explains why firms prefer FDI to licensing or to exporting.

False The location-specific advantages argument associated with John Dunning does help explain the direction of FDI. However, it does not explain why firms prefer FDI to licensing or to exporting.

A civil law system tends to be more adversarial than a common law system. True or False

False A civil law system tends to be less adversarial than a common law system, since the judges rely upon detailed legal codes rather than interpreting tradition, precedent, and custom.

Norms are abstract ideas about what a group believes to be good, right, and desirable. True or False

False, it's value.

The infant industry argument relies on an assumption that firms can make efficient long-term investments by borrowing money from the domestic or international capital market. True or False?

False. The infant industry argument relies on an assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market. Consequently, governments have been required to subsidize long-term investments.

Advantage of FDI

Firm will favor FDI over exporting as an entry strategy when transportation costs or trade barriers make exporting unattractive. Favor FDI over licensing when it wishes to maintain control over its technological know-how, or over its operations and business strategy, or when the firm's capabilities are simply not amenable to licensing. Moreover, gaining technology, productive assets, market share, brand equity, distribution systems, and purchasing the assets of an established company can all speed up market entry, improving production in the firm's gome base, and facilitate the transfer of technology from the acquired company to the acquiring comany.

LO2-3: Understand how the legal systems of countries differ.

First, we look at some basic differences in legal systems. Second, we look at contract law. Third, we look at the laws governing property rights with particular reference to patents, copyrights, and trademarks. Then we discuss protection of intellectual property. Finally, we look at laws covering product safety and product liability. Three main types of legal systems: common law, civil law, and theocratic law.

Import quota Tariff rate quota Voluntary export restraint (VER) Quota rent

Import: A direct restriction on the quantity of a good that can be imported into a country. Tariff rate: Lower tariff rates applied to imports within the quota than those over the quota. VER: A quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's government. Quota rent: Extra profit producers make when supply is artificially limited by an import quota.

Import tariff Specific tariffs Ad valorem tariffs Export tariff

Import: A tax levied on imports of goods or services. Specific: A tariff levied as a fixed charge for each unit of good imported. Ad valorem: A tariff levied as a proportion of the value of an imported good. Export: A tax placed on the export of a good.

Most economists would probably argue that the best interests of international business are served by - a laissez-faire stance. - the government aggressively blocking trade. - a free trade stance. - the government efforts to support certain domestic industries in a manner consistent with the recommendations of strategic trade policy.

Free trade stance. It is probably in the best long-run interests of the business community to encourage the government to aggressively promote greater free trade by, for example, strengthening the WTO. Business probably has much more to gain from government efforts to open protected markets to imports and foreign direct investment than from government efforts to support certain domestic industries in a manner consistent with the recommendations of strategic trade policy.

Subsidy

Government financial assistance to a domestic producer. Subsidies help domestic products by 1. competing against foreign imports and 2. gaining export markets.

Strategic Trade Policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market. 1) a government can help raise national income if it can somehow ensure that the firms that gain first-mover advantages in an industry are domestic rather than foreign enterprises. 2) pay a government to intervene in an industry by helping domestic firms overcome the barriers to entry created by foreign firms that have already reaped first-mover advantages.

Patent

Grants the inventor of a new product or process exclusive rights to the manufacture, use, or sale of that invention.

FDI: Acquisition vs. Greenfield investments

Greenfield investment: Establishing a new operation in a foreign country. Acquisition (faster): acquiring or merging with an existing firm in the foreign country.

LO3-1: Explain what determines the level of economic development of a nation.

Gross domestic product (GDP): Measures the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period

Social Strata

Hierarchical social categories often based on family background, occupation, and income. Although all societies are stratified to some degree, they differ in two related ways. First, they differ from each other with regard to the degree of mobility between social strata. Second, they differ with regard to the significance attached to social strata in business contexts. 1. is a trait of society, not a reflection of individual difference. 2. carriers over a generation to the next generation. 3. generally universal but variable. 4. involves not just inequality but also beliefs.

Driving Force Declining trade barriers

Implication for Business Better ability to export goods

Driving Force Advances in communication technology

Implication for Business Growth in e-commerce

Driving Force Advances in transportation technology

Implication for Business Lowered distance between countries

Uruguay Round of GATT

Member countries sought to extend GATT rules to cover trade in services. They also sought to write rules governing the protection of intellectual property, to reduce agricultural subsidies, and to strengthen the GATT's monitoring and enforcement mechanisms.

LO2-2: Understand how the economic systems of countries differ.

In countries where individual goals are given primacy over collective goals, we are more likely to find market-based economic systems. In contrast, in countries where collective goals are given preeminence, the state may have taken control over many enterprises; markets in such countries are likely to be restricted rather than free. Three broad types of economic systems: a market economy, command economy, and a mixed economy.

International Trade Theory Offshore Production

International Trade Theory: home-country concerns about the negative economic effects of offshore production may be misplaced. Offshore Production: FDI undertaken to serve the home market.

United Nations

International organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, and cooperation. - As much as 70 percent of its work is devoted to establishing higher standards of living, full employment, and conditions of economic and social progress and deelopment.

World Intellectual Property Organization

International organization whose members sign treaties to agree to protect intellectual property.

G20

International organization, established in 1999, that comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank to coordinate policy on global financial crises. - Formulate a coordinated policy response to financial crises in developing nations.

The Emirates Group is headquartered in Dubai where the dominant religion is

Islam

Maribel's company has made a greenfield investment. What does this mean? - It merged with an existing firm in a foreign country. - It established a new operation in a foreign country. - It acquired an existing firm in a foreign country. - It collaborated with a firm in a foreign country.

It established a new operation in a foreign country. Foreign direct investment takes on two main forms. The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in the foreign country.

LO7-4: Describe the development of the world trading system and the current trade issue.

Lack of trust between governments. - Smoot-Hawley Act - Establishment of GATT - Rise in protectionist - The Uruguay Round - WTO: umbrella organization that encompasses the GATT along with two sister bodies, one on services and the other on intellectual property. - Doha

globalization of markets vs. globalization of production

Market: merging of historically distinct and separate national markets into one huge global marketplace. Production: sourcing of goods and services form locations around the globe to take advantage of national differences in the cost and quality.

Internatlization theory

Marketing imperfection approach to foreign direct investment.

Flow of FDI

The amount of foreign direct investment undertaken over a given time period (normally one year).

A company wishing to engage in foreign direct investment must evaluate all its options. Which statement is an important consideration for the modern firm wishing to expand into new markets? - It is less risky to expand through a greenfield investment than it is through an acquisition. - Mergers and acquisitions are quicker to execute than greenfield investments. - Mergers do not allow the acquiring firm to tap into the strategic assets of the foreign firm. - Greenfield investments do not allow the expanding firm to have control over its new operation.

Mergers and acquisitions are quicker to execute than greenfield investments.

Infant Industry Argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

World Trade Organization

Organization that succeeded the General Agreement on Tariffs and Trde (GATT) as a result of the successful completion of the Uruguay Round of GATT negotiations. - Primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in the trade treaties signed by WTO member states.

Outflow vs. Inflow of FDI

Outflow: Flow of foreign direct investment out of a country. Inflow: Flow of foreign direct investment into a country.

Host-Country Policies: Restricting Inward FDI

Ownership restraints: 1) Foreign firms are often excluded from certain sectors on the grounds of national security or competition. 2) ownership restraints seem to be based on a belief that local owners can help maximize the resource-transfer and employment benefits of FDI for the host country. Performance Requirements: controls over the behavior of the MNE's local subsidiary. The most common performance requirements are related to local content, exports, technology transfer, etc. The logic underlying performance requirements is that such rules help maximize the benefits and minimize the costs of FDI for the hose country.

______ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management. - Ownership restraints - Tax concessions - Performance requirements - Subsidies

Performance requirements. These are performance requirements that are meant to help maximize the benefits and minimize the costs of FDI for the host country.

LO7-2: Understand why governments sometimes intervene in international trade.

Political arguments for intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers), or with achieving some political objective that lies outside the sphere of economic relationships, such as protecting the environment or human rights. Economic arguments for intervention are typically concerned with boosting the overall wealth of a nation.

LO2-1: Understand how the political systems of countries differ.

Political systems can be assessed according to two dimensions. 1) degree to which they emphasize collectivism as opposed to individualism. 2) degree to which they are democratic or totalitarian.

Host-Country Costs:

Possible adverse effects on competition within the host nation: - Host governments sometimes worry that the subsidiaries of foreign MNEs may have greater economic power than indigenous competitors. This could allow the firm to monopolize the market and raise prices above those that would prevail in competitive markets, with harmful effects on the economic welfare of the host nation. Adverse effects on the balance of payments: 1) set against the initial capital inflow that comes with FDI must be the subsequent outflow of earnings form the foreign subsidiary to its parent company. 2) when a foreign subsidiary imports a substantial number of its input from abroad, which results in a debit on the current account of the host country's balance of payments. Perceived loss of national sovereignty and autonomy: - FDI is accompanied by some loss of economic independence.

LO4-4: Recognize how differences in social culture influence values in business Hofstede's law

Power distance: High power distance cultures are found in countries that let inequalities grow over time into inequalities of power and wealth; low power distance cultures are found in societies that try to play down such inequalities as much as possible. Individualism vs. Collectivism: In individualistic societies, the ties between individuals are loose and individual achievement is highly valued; in societies where collectivism is emphasized, ties between individuals are tight, people are born into collectives, such as extended families, and everyone is supposed to look after the interests of his or her collective. Uncertainty Avoidance: Extent to which cultures socialize members to accept ambiguous situations and to tolerate uncertainty. Masculinity vs. Femininity: Theory of the relationship between gender and work roles. Long-term vs. Short-term Orientation: Theory of the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs.

Private vs. Public Action

Private: Violation of property rights through theft, piracy, blackmail, and the like by private individuals or groups. Public: The extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats.

LO1-4: Explain the main arguments in the debate over the impact of globalization.

Pro: Globalization stimulates economic growth, raises the incomes of consumers, and helps create jobs in all countries that participate in the global trading system. Against: General sense of loss at the passing of a world in which barriers of time and distance, and significant differences in economic institutions, political institutions. D

Arguments For Globalization: Producers The Environment Consumers Workers

Producers: More markets to sell in The Environment: Tougher laws lead to lower pollution rates Consumers: More products to choose from Workers: Development of better skills

LO4-2/3: determinants of culture

Religion: A system of shared beliefs and rituals concerned with the realm of the sacred. Social Structure: The basic social organization of a society. 1) degree to which the basic unit of social organization is the individual, as opposed to the group (Western vs. Non-Western societies). 2) degree to which a society is stratified into classes or castes (India) (social strata). Language: can direct the attention of its members to certain features of the world rather than others. - Unspoken language: nonverbal communication. Personal space. Education: schools generally teach basic facts about the social and political nature of a society and fundamental obligations of citizenship. Political Philosophy Economic Philosophy

Deregulation

Removal of government restrictions concerning the conduct of a business.

Host-Country Benefits:

Resource-transfer effects: - FDI can make a positive contribution to a hose economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate. Employment effects: - It brings jobs to a host country that would otherwise not be created there. Balance-of-payments effect: Two ways to achieve a current account surplus... 1) if the FDI is a substitute for imports of goods or services, the effect can be to improve the current account of the host country's balance of payments. 2) MNE uses a foreign subsidiary to export goods and services to other countries. Effects on competition and economic growth: When FDI takes the form of a greenfield investment, the result is to establish a new enterprise, increasing the number of players in a market and thus consumer choice. Increased competition tends to stimulate capital investments by firms in plant, equipment, and R&D as they struggle to gain an edge over their rivals. The long-term results may include increased productivity growth, product and process innovations, and greater economic growth.

Social mobility Caste system Class system Class consciousness

Social mobility: The extent to which individuals can move out of the social strata into which they are born. Caste system: A system of social stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime. Class system: A system of social stratification in which social status is determined by the family into which a person is born and by subsequent socioeconomic achievements; mobility between classes is possible. Class consciousness: Tendency for individuals to perceive themselves in terms of their class background.

LO7-3: Summarize and explain the arguments against strategic trade policy.

Strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries. Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them.

LO4-1: Explain what is meant by the culture of a society.

System of values and norms that are shared among a group of people and that when taken together constitute a design for living.

LO7-1: Identify the policy instruments used by governments to influence international trade flows.

Tariffs, bans, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping dutires.

Doha

The Doha agenda includes cutting tariffs on industrial goods and services, phasing out subsidies to agricultural producers, reducing barriers to cross-boarder investment, and limiting the use of antidumping laws.

LO8-6: identify the implications for managers of the theory and government policies associated with FDI.

The Theory of FDI Government Policy

LO8-1: Recognize current trends regarding foreign direct investment (FDI) in the world economy.

The past 30 years have seen an increase in both the flow and stock of FDI in the world economy. FDI has grown rapidly for several reasons. 1) despite the general decline in trade barriers over the past 30 years, firms still fear protectionist pressures. 2) much of the increase in FDI has been driven by the political and economic changes that have been occurring in many of the world's developing nations. Free market economies. 3) The globalization of the world economy has also had an impact on the volume of FDI.

LO8-3: Understand how political ideology shapes a government's attitudes toward FDI.

The radical view (Marx): Argue that the multinational enterprise is an instrument of imperialist domination. They see the MNE as a tool for exploiting the hose countries to the exclusive benefit of their capitalist-imperialist home countries. They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. The Free Market View: Argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the product of those goods and services that they can product most efficiently. Pragmatic Nationalism: allows FDI so long as the benefits outweighs the costs.

Eclectic Paradigm

The theory that combining location specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located.

Which statement pertaining to innovation and entrepreneurship is true? A) They require state ownership of means of production. B) They are the engines of growth. C) They require strong legal systems. D) They require a mixed economy.

They are the engines of growth

Socialists

Those who believe in public ownership of the means of production for the common good of society.

Multipoint Competition

When two or more enterprises encounter each other in different regional markets, national markets, or industries. - The idea is to ensure that a rival does not gain a commanding position in one market and then use the profits generated there to subsidize competitive attacks in other markets.

The workforce at The Emirates Group is comprised of people with 160 different nationalities. This diverse workforce should highlight differences between each culture. increases the chance for class stratification. eliminates the need to adapt. should increase cross-cultural literacy in the company. discourages common values and norms.

should increase cross-cultural literacy in the company.

Containerization

simplifies transshipment from one mode of transport to another. significantly lowering the costs of shipping goods over long distances.

LO1-1: Understand what is meant by the term globalization.

To the shift toward a more integrated and interdependent world economy. Globalization has several facets, including the globalization of markets and the globalization of production.

Outward stock of foreign direct investment (FDI)

Total accumulated value of assets owned by firms domiciled in a nation outside of that nation's borders at a given time.

Stock of FDI

Total accumulated value of assets owned by firms domiciled in a nation outside of that nation's borders at a given time.

Privatization

Transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.

Evidence suggests that technological change has had a bigger impact than globalization on the declining share of national income enjoyed by labor. True or False

True

Mergers and acquisitions are quicker to execute than greenfield investments True or False

True

One result of the globalization of markets and the resulting growth of world trade, foreign direct investment, and imports is the increasing competition in domestic markets from foreign competitors. True or False

True

Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens.

True Direct effects arise when a foreign MNE employs some host-country citizens. Indirect effects arise when jobs are created in local suppliers because of the investment and when jobs are created because of increased local spending by employees of the MNE.

Deregulation involves the establishment and operation of private enterprises. True or False

True Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

In a market economy, a supply restriction occurs when a single firm monopolizes a market. True or False

True In a market economy, production is determined by the interaction of supply and demand and signaled to producers through the price system. For a market to work in this manner, supply must not be restricted. A supply restriction occurs when a single firm monopolizes a market.

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade. True or False?

True. This economic justification for government intervention in international trade challenges the rationale for unrestricted free trade found in the work of classic trade theorists such as Adam Smith and David Ricardo.

Foreign Corrupt Practices Act (FCPA)

U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.

Values Norms Society Mores Group

Values: Abstract ideas about what a society believes to be good, right, and desirable. Norms: Social rules and guidelines that prescribe appropriate behavior in particular situations. Society: Group of people who share a common set of values and norms. Mores: Norms seen as central to the functioning of a society and to its social life. Group: an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's behavior.

Multinational enterprise (MNE)

business that has productive activities in two or more countries.

In Samuel Huntington's thesis, global terrorism is a product of the - advances in communication technology. - low level of education and literacy. - unequal distribution of income in developing nations. - clash of value systems and ideology.

clash of value systems and ideology.

Innovation and entrepreneurial activity help increase economic activity by - providing more authority to government officials. - creating new products and markets. - eliminating state-run enterprises. - strengthening business infrastructure.

creating new products and markets. Innovation and entrepreneurial activity help increase economic activity by creating new products and markets that did not previously exist. Moreover, innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates.

The system of values and norms that are shared among a group of people and then when taken together constitute a design for living refers to norms folkways society culture values

culture

Boeing's 787 aircraft is produced by 50 suppliers spread around the world, a huge increase in global outsourcing as compared to the past. Boeing's strategy, like that of other multinational companies, suggests that - declining barriers to trade and investment are facilitating global production strategies. - as compared to foreign producers Boeing is more efficient at producing component parts. - time zones and language differences remain significant impediments to global trade. - the manufacturing capabilities of suppliers in other nations is declining. - Boeing's cost structure is higher than it should be.

declining barriers to trade and investment are facilitating global production strategies.

The WTO argues that by removing all tariff barriers and subsidies to agriculture, - there would be overproduction of products that are heavily subsidized. - the overall level of trade would decrease. - prices would rise for consumers. - global economic growth would rise.

global economic growth would rise. The net effect of high tariff barriers and significant subsidies is to raise prices to consumers, reduce the volume of agricultural trade, and encourage the overproduction of products that are heavily subsidized. The WTO argues that removing tariff barriers and subsidies could significantly boost the overall level of trade, lower prices to consumers, and raise global economic growth by freeing consumption and investment resources for more productive uses.

Knickerbocker's theory

in oligopolies (limited competition), firms imitate competitors' FDI behavior (doing FDI in the same places at the same time)

Protectionist

person who would protect domestic producers with tariffs, quotas, and other trade barriers

The total accumulated value of foreign-owned assets at a given time is called the ________blank of FDI. - stock - merger - flow - product

stock

In which situation would FDI deteriorate the current account of the host country's balance of payments? - when a foreign subsidiary imports a substantial number of its inputs from abroad - when the indirect labor creation from the FDI is more than the direct labor creation - when an MNE uses a foreign subsidiary to export goods and services to other countries - when the FDI is a substitute for goods or services imported previously

when a foreign subsidiary imports a substantial number of its inputs from abroad. A concern arises when a foreign subsidiary imports a substantial number of its inputs from abroad, which results in a debit on the current account of the host country's balance of payments.