IB Test #1

United Nations Convention on 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. Establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations.

Ethical Dilemma

A situation in which there is no ethically acceptable solution.

Civil Law System

A system of law based on a very detailed set of written laws and codes.

Theocratic Law System

A system of law based on religious teachings.

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.

Religion

A system of shared beliefs and rituals concerned with the realm of the sacred.

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.

Culture

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

Class Consciousness

A tendency for individuals to perceive themselves in terms of their class background.

Values

Abstract ideas about what a society believes to be good, right, and desirable.

First-Mover Advantages

Advantages accruing to the first to enter a market.

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

An OECD convention that establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective.

Purchasing Power Parity (PPP)

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

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.

Human Development Index (HDI)

An attempt by the United Nations to assess the impact of a number of factors on the quality of human life in a country.

Market Economy

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

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.

Individualism

An emphasis on the importance of guaranteeing individual freedom and self-expression. A philosophy that an individual should have freedom in his or her economic and political pursuits.

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Differences in Culture

Foreign Direct Investment (FDI)

Direct investment in business operations in a foreign country. Total cumulative value of foreign investments as a percentage of the country's GDP.

A macro factor underlying the trend toward greater globalization is the:

Dramatic developments in information processing and other technologies.

In 2017, if the GNI per capita of India was $1,820 and its PPP per capita was $7,060, this means that the cost of living in India was lower than the cost of living in:

The United States

United Nations (UN)

Established October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. An international organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, and cooperation. Nearly every nation in the world belongs to the United Nations.

Group of Twenty (G20)

Established in 1999, the G20 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.

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Ethics, Corporate Social Responsibility, and Sustainability

Uncertainty Avoidance

Extent to which cultures socialize members to accept ambiguous situations and to tolerate uncertainty.

According to Hofstede's research, in feminine cultures, sex roles are sharply distinguished and there is vast differentiation between men and women in the same job.

False

As a result of globalization, we have been moving toward a world in which national economies are relatively self-contained entities.

False

Gross national income is a measure of the monthly income received by residents of a nation.

False

In a common law system, judges base decisions on detailed legal codes.

False

In a planned economy, there is a great deal of freedom for entrepreneurial activity and reward.

False

In a pure command economy, the goods and services that a country produces, the quality in which they are produced, and the prices at which they are sold are all dictated by the interaction of demand and supply.

False

The United Nations created the Millennium Development Goals to increase the number of entrepreneurial activities around the world.

False

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

False

The least rigid system of social stratification is a caste system.

False

The term political economy is used to stress the fact that the political, economic, and legal systems of a country are independent of each other and do not influence one another.

False

While folkways are routine conventions, they represent deep moral significance in society.

False

While well-known to many, Islam has one of the smallest followings of all religions.

False

Totalitarianism

Form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.

Mixed Economy

Found between market and command economies. Certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning.

A nation based on individualism would agree that:

Free market ideologies should be followed for achieving better standards of living.

What is the shift toward a more integrated and interdependent world economy called?

Globalization

Patent

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

A country's ___________ measures the total annual income received by residents of a country and is regarded as a yardstick for the economic activity of a country.

Gross National Income

Society

Group of people who share a common set of values and norms.

Late-Mover Disadvantages

Handicaps experienced by being a late entrant in a market.

Social Strata

Hierarchical social categories often based on family background, occupation, and income.

Paris Convention for the Protection of Industrial Property

International agreement to protect intellectual property. Dates to 1883 and has been signed by more than 170 nations.

International Monetary Fund (IMF)

International institution set up to maintain order in the international monetary system.

World Bank

International institution set up to promote general economic development in the world's poorer nations. Both created in 1944 by 44 nations that met at Bretton Woods, New Hampshire.

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.

Product Liability

Involves holding a firm and its officers responsible when a product causes injury, death, or damage.

A country's ____________ system is a part of the political economy.

Legal

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

Market

Gross National Income (GNI)

Measures the total annual income received by residents of a nation.

Which statement is true about culture?

Multinational enterprises can themselves be engines of cultural change.

Bryan has been asked by his managers to directly contact the CEO of the foreign company they are trying to do business. However, Bryan knows that this is not a socially acceptable practice there, and it is better to wait for the company to contact him. Which aspect of culture is guiding Bryan's decision?

Norms

Mores

Norms seen as central to the functioning of a society and to its social life.

International Trade

Occurs when a firm exports goods or services to consumers in another country.

Foreign Direct Investment (FDI)

Occurs when a firm invests resources in business activities outside its home country.

Naive Immoralist

One who asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either.

Righteous Moralist

One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries.

Stakeholders

The individuals or groups that have an interest, stake, or claim in the actions and overall performance of a company.

Legal Risk

The likelihood that a trading partner will opportunistically break a contract or expropriate intellectual property rights.

Economic Risk

The likelihood that events, including economic mismanagement, will cause drastic changes in a country's business environment that adversely affect the profit and other goals of a particular business enterprise.

Political Risk

The likelihood that political forces will cause drastic changes in a country's business environment that will adversely affect the profit and other goals of a particular business enterprise.

Globalization of Markets

The merging of historically distinct and separate national markets into one huge global marketplace.

World Trade Organization (WTO)

The organization that succeeded the General Agreement on Tariffs and Trade (GATT) as a result of the successful completion of the Uruguay Round of GATT negotiations.

Political Economy

The political, economic, and legal systems of a country. Stresses that the political, economic, and legal systems of a country are interdependent; they interact with and influence each other, and in doing so, they affect the level of economic well-being.

Moore's Law

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

Privatization

The sale of state-owned enterprises to private investors. Transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.

Globalization

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

Globalization of Production

The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of *Factors of Production* (such as labor, energy, land, and capital).

Long-Term versus Short-Term Orientation

The theory of the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs. It captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.

Organizational Culture

The values and norms shared among an organization's employees.

Individualism Versus Collectivism

Theory focusing on the relationship between the individual and his or her fellows; 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.

Power Distance

Theory of how a society deals with the fact that people are unequal in physical and intellectual capabilities. 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.

Masculinity versus Femininity

Theory of the relationship between gender and work roles. In masculine cultures, sex roles are sharply differentiated and traditional "masculine values" such as achievement and the effective exercise of power determine cultural ideals; in feminine cultures, sex roles are less sharply distinguished, and little differentiation is made between men and women in the same job.

Utilitarian Approaches to Ethics

These hold that the moral worth of actions or practices is determined by their consequences.

Chapter 5 Summary

This chapter discussed the source and nature of ethical issues in international businesses, the different philosophical approaches to business ethics, the steps managers can take to ensure that ethical issues are respected in international business decisions, and the roles of corporate social responsibility and sustainability in practice. The chapter made the following points: *1.* The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople. An ethical strategy is one that does not violate these accepted principles. *2.* Ethical issues and dilemmas in international business are rooted in the variations among political systems, law, economic development, and culture from country to country. *3.* The most common ethical issues in international business involve employment practices, human rights, environmental regulations, corruption, and social responsibility of multinational corporations. *4.* Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable. *5.* Unethical behavior is rooted in personal ethics, societal culture, psychological and geographic distances of a foreign subsidiary from the home office, a failure to incorporate ethical issues into strategic and operational decision making, a dysfunctional culture, and failure of leaders to act in an ethical manner. *6.* Moral philosophers contend that approaches to business ethics such as the Friedman doctrine, cultural relativism, the righteous moralist, and the naive immoralist are unsatisfactory in important ways. *7.* The Friedman doctrine states that the only social responsibility of business is to increase profits, as long as the company stays within the rules of law. Cultural relativism contends that one should adopt the ethics of the culture in which one is doing business. The righteous moralist monolithically applies home-country ethics to a foreign situation, while the naive immoralist believes that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either. *8.* Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences, and the best decisions are those that produce the greatest good for the greatest number of people. *9.* Kantian ethics state that people should be treated as ends and never purely as means to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such. *10.* Rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. These rights establish a minimum level of morally acceptable behavior. *11.* The concept of justice developed by John Rawls suggests that a decision is just and ethical if people would allow it when designing a social system under a veil of ignorance. *12.* To make sure that ethical issues are considered in international business decisions, managers should (a) favor hiring and promoting people with a well-grounded sense of personal ethics, (b) build an organizational culture and exemplify leadership behaviors that place a high value on ethical behavior, (c) put decision-making processes in place that require people to consider the ethical dimension of business decisions, (d) establish ethics officers in the organization with responsibility for ethical decision making, (e) be morally courageous and encourage others to do the same, (f) make corporate social responsibility a cornerstone of enterprise policy, and (g) pursue strategies that are sustainable. *13.* Multinational corporations that are practicing business-focused sustainability integrate a focus on market orientation, addressing the needs of multiple stakeholders, and adhering to corporate social responsibility principles.

Chapter 4 Summary

This chapter has looked at the nature of culture and discussed a number of implications for business practice. The chapter made the following points: *1.* Culture is a complex phenomenon that includes knowledge, beliefs, art, morals, law, customs, and other capabilities acquired by people as members of society. *2.* Values and norms are the central components of a culture. Values are abstract ideals about what a society believes to be good, right, and desirable. Norms are social rules and guidelines that prescribe appropriate behavior in particular situations. *3.* Values and norms are influenced by political forces, economic philosophy, social structure, religion, language, and education. And, the value systems and norms of a country can affect the costs of doing business in that country. *4.* The social structure of a society refers to its basic social organization. Two main dimensions along which social structures differ are the individual-group dimension and the stratification dimension. *5.* In some societies, the individual is the basic building block of a social organization. These societies emphasize individual achievements above all else. In other societies, the group is the basic building block of the social organization. These societies emphasize group membership and group achievements above all else. *6.* Virtually all societies are stratified into different classes. Class-conscious societies are characterized by low social mobility and a high degree of stratification. Less class-conscious societies are characterized by high social mobility and a low degree of stratification. *7.* Religion may be defined as a system of shared beliefs and rituals that is concerned with the realm of the sacred. Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. The world's major religions are Christianity, Islam, Hinduism, and Buddhism. The value systems of different religious and ethical systems have different implications for business practice. *8.* Language is one defining characteristic of a culture. It has both spoken and unspoken dimensions. In countries with more than one spoken language, we tend to find more than one culture. *9.* Formal education is the medium through which individuals learn knowledge and skills as well as become socialized into the values and norms of a society. Education plays an important role in the determination of national competitive advantage. *10.* Geert Hofstede studied how culture relates to values in the workplace. He isolated five dimensions that summarized different cultures: power distance, uncertainty avoidance, individualism versus collectivism, masculinity versus femininity, and long-term versus short-term orientation. *11.* Culture is not a constant; it evolves. Economic progress and globalization are two important engines of cultural change. *12.* One danger confronting a company that goes abroad is being ill-informed. To develop cross-cultural literacy, companies operating globally should consider employing host-country nationals, build a cadre of cosmopolitan executives, and guard against the dangers of ethnocentric behavior.

In a totalitarian country, all the constitutional guarantees on which representative democracies are built--an individual's right to freedom of expression and organization, a free media, and regular elections--are denied to the citizens.

True

In general, command and mixed economies failed to deliver the kind of sustainable economic performance that was achieved by countries adopting market-based systems.

True

In the United States, individuals who are born into a class system and are at the bottom of the social hierarchy can work their way up.

True

It is more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.

True

Privatization occurs when state-owned property is transferred into the hands of individuals.

True

Rights Theories

Twentieth-century theories that recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures.

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.

Cross-Cultural Literacy

Understanding how the culture of a country affects the way business is practiced.

Private Action

Violation of property rights through theft, piracy, blackmail, and the like by private individuals or groups.

The country of Marita ensures strong legal protection of property rights. It is likely that the businesses and individuals in Marita will:

Want to invest more in innovation.

Universal Declaration of Human Rights

A United Nations document that lays down the basic principles of human rights that should be adhered to.

Code of Ethics

A business's formal statement of ethical priorities.

Ethical Strategy

A course of action that does not violate a company's business ethics.

Just Distribution

A distribution of goods and services that is considered fair and equitable.

Contract

A document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.

Multinational Enterprise (MNE)

A firm that owns business operations in more than one country. Any business that has productive activities in two or more countries. *2 Notable Trends:* *1:* The rise of non-U.S. multinationals. *2:* The growth of mini-multinationals.

Tribal Totalitarianism

A political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power.

Representative Democracy

A political system in which citizens periodically elect individuals to represent them in government.

Right-Wing Totalitarianism

A political system in which political power is monopolized by a party, group, or individual that 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.

Theocratic Totalitarianism

A political system in which political power is monopolized by a party, group, or individual that governs according to religious principles.

Collectivism

A political system that emphasizes collective goals as opposed to individual goals. The needs of society as a whole are generally viewed as being more important than individual freedoms.

Ethical System

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

Innovation

Development of new products, processes, organizations, management practices, and strategies.

2 Drivers of Globalization

*1st:* The decline in barriers to the free flow of goods, services, and capital that has occurred in recent decades. *2nd:* Technological change, particularly the dramatic developments in communication, information processing, and transportation technologies.

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*Globalization*

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*National Differences in Economic Development*

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*National Differences in Political, Economic, and Legal Systems*

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*Quiz 1*

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*Quiz 2*

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*Quiz 3*

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*Quiz 4*

World Intellectual Property Organization

An international organization whose members sign treaties to agree to protect intellectual property.

International Business

Any firm that engages in international trade or investment.

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.

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.

Which of these companies is taking advantage of the globalization of production?

Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process.

What is a closed system of 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?

Caste System

On the Belif peninsula, citizens are restricted in how much land they can own if it creates opposition to the rule of the "common good." What is the political system of the Belif peninsula based on?

Collectivism

Which legal system is based on tradition, precedent, and custom?

Common Law

External Stakeholders

Individuals or groups that have some claim on a firm such as customers, suppliers, and unions.

Internal Stakeholders

People who work for or own the business such as employees, directors, and stockholders.

Democracy

Political system in which government is by the people, exercised either directly or through elected representatives.

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.

Corporate Social Responsibility (CSR)

Refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions and that there should be a presumption in favor of decisions that have both good economic and social consequences.

Deregulation

Removal of government restrictions concerning the conduct of a business. Removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

Folkways

Routine conventions of everyday life.

Product Safety Laws

Set certain safety standards to which a product must adhere.

Fast food chain restaurants promote different menu choices in different countries depending on a rage of factors such as demographics, local taste, income levels, and cultural values. This demonstrates that:

Significant differences still exist among national markets.

Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances.

True

Microprocessors

Single most important innovation since World War II has been the development of the microprocessor, which enabled the explosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms.

Norms

Social rules and guidelines that prescribe appropriate behavior in particular situations.

An unfavorable environment for innovation and entrepreneurship is the result of:

State monopoly in production

Sustainable Strategies

Strategies that not only help the multinational firm make good profits but that do so without harming the environment, while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its multiple stakeholders.

Political System

System of government in a nation. *2 Dimensions:* *1.* The degree to which they emphasize collectivism as opposed to individualism. *2.* The degree to which they are democratic or totalitarian.

Legal System

System of rules that regulate behavior and the processes by which the laws of a country are enforced and through which redress of grievances is obtained.

Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

True

Business Ethics

The accepted principles of right and wrong governing the conduct of businesspeople.

What has strongly influenced the development of modern extended social groups?

The advent of social media.

Social Structure

The basic social organization of a society.

Cultural Relativism

The belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate.

Kantian Ethics

The belief that people should be treated as ends and never as means to the ends of others.

Contract Law

The body of law that governs contract enforcement.

In contemporary Japanese society, a group is accosted with:

The company a person works for.

Trademarks

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

Copyrights

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

Social Mobility

The extent to which individuals can move out of the social strata into which they are born.

Public Action

The extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats.

Chapter 2 Summary

This chapter has reviewed how the political, economic, and legal systems of countries vary. The potential benefits, costs, and risks of doing business in a country are a function of its political, economic, and legal systems. The chapter made the following points: *1.* Political systems can be assessed according to two dimensions: the degree to which they emphasize collectivism as opposed to individualism and the degree to which they are democratic or totalitarian. *2.* Collectivism is an ideology that views the needs of society as being more important than the needs of the individual. Collectivism translates into an advocacy for state intervention in economic activity and, in the case of communism, a totalitarian dictatorship. *3.* Individualism is an ideology that is built on an emphasis of the primacy of the individual's freedoms in the political, economic, and cultural realms. Individualism translates into an advocacy for democratic ideals and free market economics. *4.* Democracy and totalitarianism are at different ends of the political spectrum. In a representative democracy, citizens periodically elect individuals to represent them, and political freedoms are guaranteed by a constitution. In a totalitarian state, political power is monopolized by a party, group, or individual, and basic political freedoms are denied to citizens of the state. *5.* There are three broad types of economic systems: a market economy, a command economy, and a mixed economy. In a market economy, prices are free of controls, and private ownership is predominant. In a command economy, prices are set by central planners, productive assets are owned by the state, and private ownership is forbidden. A mixed economy has elements of both a market economy and a command economy. *6.* Differences in the structure of law between countries can have important implications for the practice of international business. The degree to which property rights are protected can vary dramatically from country to country, as can product safety and product liability legislation and the nature of contract law.

Chapter 1 Summary

This chapter has shown how the world economy is becoming more global and reviewed the main drivers of globalization, arguing that they seem to be thrusting nation-states toward a more tightly integrated global economy. It looked at how the nature of international business is changing in response to the changing global economy, discussed concerns raised by rapid globalization, and reviewed implications of rapid globalization for individual managers. The chapter made the following points: *1.* Over the past three decades, we have witnessed the globalization of markets and production. *2.* The globalization of markets implies that national markets are merging into one huge marketplace. However, it is important not to push this view too far. *3.* The globalization of production implies that firms are basing individual productive activities at the optimal world locations for the particular activities. As a Page 32consequence, it is increasingly irrelevant to talk about American products, Japanese products, or German products because these are being replaced by "global" products. Or, in some cases, they are simply replaced by products made by specific companies, such as Apple, Sony, or Microsoft products. *4.* Two factors seem to underlie the trend toward globalization: declining trade barriers and changes in communication, information, and transportation technologies. *5.* Since the end of World War II, barriers to the free flow of goods, services, and capital have been lowered significantly. More than anything else, this has facilitated the trend toward the globalization of production and has enabled firms to view the world as a single market. *6.* As a consequence of the globalization of production and markets, in the last decade, world trade has grown faster than world output, foreign direct investment has surged, imports have penetrated more deeply into the world's industrial nations, and competitive pressures have increased in industry after industry. *7.* The development of the microprocessor and related developments in communication and information processing technology have helped firms link their worldwide operations into sophisticated information networks. Jet air travel, by shrinking travel time, has also helped link the worldwide operations of international businesses. These changes have enabled firms to achieve tight coordination of their worldwide operations and to view the world as a single market. *8.* In the 1960s, the U.S. economy was dominant in the world, U.S. firms accounted for most of the foreign direct investment in the world economy, U.S. firms dominated the list of large multinationals, and roughly half the world—the centrally planned economies of the communist world—was closed to Western businesses. *9.* By the 2020s, the U.S. share of world output will have been cut in half, with major shares now being accounted for by European and Southeast Asian economies. The U.S. share of worldwide foreign direct investment will have fallen by about two-thirds. U.S. multinationals will be facing competition from a large number of multinationals. In addition, the emergence of mini-multinationals was noted. *10.* One of the most dramatic developments of the past 30 years has been the collapse of communism in eastern Europe, which has created enormous opportunities for international businesses. In addition, the move toward free market economies in China and Latin America is creating opportunities (and threats) for Western international businesses. *11.* The benefits and costs of the emerging global economy are being hotly debated among businesspeople, economists, and politicians. The debate focuses on the impact of globalization on jobs, wages, the environment, working conditions, national sovereignty, and extreme poverty in the world's poorest nations. *12.* Managing an international business is different from managing a domestic business for at least four reasons: (a) countries are different, (b) the range of problems confronted by a manager in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business, (c) managers in an international business must find ways to work within the limits imposed by governments' intervention in the international trade and investment system, and (d) international transactions involve converting money into different currencies.

Chapter 3 Summary

This chapter reviewed how the political, economic, and legal systems of countries vary. The potential benefits, costs, and risks of doing business in a country are a function of its political, economic, and legal systems. The chapter made the following points: *1.* The rate of economic progress in a country seems to depend on the extent to which that country has a well-functioning market economy in which property rights are protected. *2.* Many countries are now in a state of transition. There is a marked shift away from totalitarian governments and command or mixed economic systems and toward democratic political institutions and free market economic systems. *3.* The attractiveness of a country as a market and/or investment site depends on balancing the likely long-run benefits of doing business in that country against the likely costs and risks. *4.* The benefits of doing business in a country are a function of the size of the market (population), its present wealth (purchasing power), and its future growth prospects. By investing early in countries that are currently poor but are nevertheless growing rapidly, firms can gain first-mover advantages that will pay back substantial dividends in the future. *5.* The costs of doing business in a country tend to be greater where political payoffs are required to gain market access, where supporting infrastructure is lacking or underdeveloped, and where adhering to local laws and regulations is costly. *6.* The risks of doing business in a country tend to be greater in countries that are politically unstable, subject to economic mismanagement, and lacking a legal system to provide adequate safeguards in the case of contract or property rights violations.

Social Democrats

Those committed to achieving socialism by democratic means.

Socialists

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

Communists

Those who believe socialism can be achieved only through revolution and totalitarian dictatorship.

Entrepreneurs

Those who first commercialize innovations.

Which of these companies is demonstrating a first-mover advantage?

Tide-All Inc. has more than 50% market share in the telecom industry, because no other company has invested in this industry before Tide-All Inc.

Why did many nations impose high tariffs on imports of manufactured goods prior to WW2?

To protect domestic industries from foreign competition.