International Business Environment (Bersant-edition)

Explain Kantian Ethics

- Immanuel Kant - This approach holds that people should be treated as ends and never purely as means to the ends of people - People are not instruments like a machine - People should be treated with dignity and respect.

The non-discrimination principle (GATT and WTO)

(Equal treatment) If one GATT member offers a benefit or a tariff concession to another GATT member, it must offer the same tariff reduction to all GATT members. Same as for WTO

Stakeholder Theory

(Freeman, 1984) - A stakeholder is "any group or individual who can affect or is affected by the achievement of an organisation's purpose." Argues that it is in the company's strategic interest to respect the interests of all its stakeholders.

Does it make sense to talk of a country's competitiveness?

+: One view is to think of countries, like companies, competing in the global marketplace where countries compete for investments, trade in goods, trade in services, and tourists -: An opposing view states that countries are not companies. While companies generally succeed by taking away from each other (customers, investors, market share), there are always mutual benefits for countries to trade with each other.

Outcomes of globalization

- Growing power of MNEs - Service trade growth (almost every service is tradable now) - E-commerce - Proliferation of Global Value Chains (GVCs)

The two main points about New Trade Theory

- It's impact on economies of scale - The industries in which the output requires to attain economies of scale represents a significant proportion of the total world demand -> thus world trade in certain products may be dominated by first movers country in their production

Explain Utilitarianism

- Jeremy Bentham, John Stuart Mill and David Hume - The approach holds that the moral worth of actions and practices is determined by their consequences. - An action is judged desirable if its good consequences outweighs the bad ones - Committed to the maximization of good and minimization of bad - Cost/benefit analysis and risk assessment are firmly rooted in a utilitarian philosophy

What are the different types of imperfect competition?

- Monopoly, in which there is only one seller of a good. •Oligopoly, in which there is a small number of sellers. •Monopolistic competition, in which there are many sellers producing highly differentiated goods, but each has some power to influence prices. •Monopsony, in which there is only one buyer of a good. •Oligopsony, in which there is a small number of buyers.

Name the different types of tariffs

- Specific tariffs: levied as a fixed charge for each unit of goof imported ($3 per barrel of oil) - Ad valorem tariffs: as a proportion of the value of an imported good - Export tariff: a tax placed on the export of a good (relatively rare) ▪ The goal behind this is to ensure there is sufficient supply of a good within the country.

Name the 7 trade policy instruments

- Tariffs - Subsides - Import quotas - Voluntary export restraints - Local content requirements - Administrative policies - Antidumping duties

What are the problems with the Hecksher-Ohlin Theory?

- The Hecksher-Ohlin theory is preferred on theoretical grounds but it's a relatively poor predicator of real word international trade patterns. - The theory is considered too limited and Ricardo's theory of comparative advantages actually have a higher accuracy. - A key assumption in the theory is that the technology is the same everywhere which is far from the truth. Differences in technology may lead to differences in productivity. - NB: Empirical studies show that the theory may be correct and gain predictive power if there has been controlled for differences in technology.

Why is government intervention needed?

- Typically concerned with boosting the overall wealth of a nation, to benefit of all both producers and consumers - The necessary for protecting jobs and industries from unfair foreign competition. - National security - Intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play the rules of the game" - Protect consumers from unsafe products - American beef bc of cow disease. - Protecting human rights

Downsides of Globalization

- worker security has declined everywhere - skilled workers are threatened by the unfair competition of low cost sweatshops, of cheaper labor to be found in other nations - high paying jobs migrated to other countries, in a process characterized as the "race to the bottom"

What are the specific risks to a multinational firm from foreign exchange exposure?

-Cash inflows and outflows, as measured in home currency equivalents, associated with foreign operations can be adversely affected •Revenues (profits) and costs -Settlement value of foreign currency denominated contracts, in home currency equivalents, can be adversely affected •Loans in foreign currencies. -The global competitive position of the firm can be affected by adverse changes in exchange rates •Influence on required return -End Result: The value (market price) of the firm can be adversely affected.

What is not included in GDP?

-Intermediate goods -Non-production Transactions -Non-Market (Illegal) Activities - Financial transactions - Leisure - Household production

Types of Foreign Exchange Exposure

-Transaction exposure • Any MNE engaged in current transactions involving foreign currencies -Economic exposure • Results for future and unknown transactions in foreign currencies resulting from an MNE's long term involvement in a particular market -Translation exposure (sometimes called "accounting" exposure). • Important for MNEs with a physical presence and owns assets in a foreign country

Global Institutions

-help manage, regulate, and police the global marketplace -promote the establishment of multinational treaties to govern the global business system

Name the purposes of the international financial markets

1) Access to funds for borrowers 2) Reducing the cost of financing for borrowers 3) Reducing risk for lenders

Financing of government deficits can be done through:

1) Borrowing (in competition with private borrowers, could drive up the interest rates) and 2) Money creation (Central Banks buy bonds from government)

What are the advantages of fixed exchange rate?

1) Encourage trade <= lower exchange risk 2) Encourage investment 3) Provide nominal anchor for monetary policy. But which anchor? Exchange rate target vs. alternatives (inflation rates, inflation expectations, asset prices, etc.) 4) Avoid competitive depreciation, i.e., currency wars 5) Avoid speculative bubbles that can afflict floating

What are three important aspects of business ethics?

1) Human rights, 2) Environmental pollution and 3) Corruption

Which forces help expand the financial market?

1) Information and communication technology 2) Deregulation 3) Increased competition, which lowers cost of financial transactions, and opens many national markets to global investing and borrowing. 4) New financial instruments. Increased competition is creating the need to develop innovative financial instruments. Securitization is the unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments, or securities.

What are the four classic trade theories?

1) Mercantilism Encouraging exports and discourage imports Adam Smith's Absolute Advantage David Ricardo's Comparative Advantage Eli Heckscher's and Bertil Ohlin's Refined Comparative Advantage

What are the advantages of floating exchange rate?

1) Monetary independence 2) Automatic adjustment to trade shocks 3) Central bank retains lender of last resort capability, for rescuing banks 4) Avoiding crashes that hit pegged rates

Describe the four components of moral behaviour

1) Moral sensitivity = the ability to see an ethical dilemma 2) Moral judgement = the ability to reason correctly what ought to be have done in that specific situation 3) Moral motivation = a personal commitment to moral action = accepting responsibility for the outcome 4) Moral character = courageous persistence to act morally correct despite fatigue and temptations to act immorally

The six determinant of unethical behaviour

1) Personal ethics Expatriate managers are more likely to not follow their personal ethics because they are away from their normal culture and home 2) Decision-making processes Simply forget to ask ethical questions, thinking about the economic and logic reasoning behind decisions 3) Organizational culture Doesn't encourage ethical behaviour 4) Unrealistic performance goals Turns a blind eye to unethical behaviour to reach target 5) Leadership 6) Societal culture Can use Hofstede's cultural dimensions

What are the different level of regional economic integration?

1) Preferential agreements 2) Free trade agreements 3) Custom union eliminates trade barriers between members and adopts a common external trade policy 4) Common market no trade barriers between members, a common external trade policy, and the free movement of the factors of production 5) Economic union 6) Economic and monetary union 7) Political union involves a central political apparatus that coordinates the economic, social, fiscal, and foreign policy of member states

What are the two MNE responses to the COVID-19 crisis? And explain them

1) Resilient strategy is to adjust the crisis and return in full force when the crisis is over e.g. working remotely, sourcing from new suppliers, developing new products and so on 2) Non-resilient strategy Laying off employees, selling assets and filing for bankruptcy

What are the six determinants of culture?

1) Social Structure 2) Religion 3) Political Philosophy 4) Language 5) Education 6) Economic Philosophy

Which two notable trends in the demographic of MNEs has been seen in the last 50 years?

1) The rise of non US-multinationals and 2) growth of mini-multinationals (small- and mediumsized)

Differences in managing an international business than a domestic one

1) different countries 2) the range of problems confronted by manager in IB is wider and more complex 3) IB must find ways to work within the limits by government intervention in the international trade and investment system 4) international transaction involve converting money into different currencies

When were the three waves of globalization?

1. 1870 2. 1945 3. Now

Types of Financial Markets

1. Debt Markets Short-term (maturity < 1 year) Money Market Long-term (maturity > 1 year) Capital Market 2. Equity Markets Common stocks 1. Primary Market New security issues sold to initial buyers 2. Secondary MarketSecurities previously issued are bought and sold 1. Exchanges Trades conducted in central locations (e.g., New York Stock Exchange, Chicago Commodity) 2. Over-the-Counter Markets Dealers at different locations buy and sell

Goals of Monetary Policy

1. price stability 2. high employment 3. stability of financial markets, foreign exchange market and in interest rates 4. economic growth

society

A community of people who share a common culture

speed money/grease payments (facilitary payments)

A bribe or extorted money, usually relatively small in amount, provided to a low-level government official or business person, in order to expedite a business decision, shipment, or other transaction, especially in a country where such payments are not unusual.

comparative advantage

A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. A country's comparative advantage is dynamic. It might change due to the changes in both domestic and international markets.

FTAs (free trade agreements)

A free trade agreement (FTA) is an international treaty between two or more economies that reduces or eliminates certain barriers to trade in goods and services, as well as investment

Inflation

A general and progressive increase in prices which devalues money

What characterizes the International Economy today?

A high degree of economic interdependence 1) No nation exist in economic isolation 2) All aspects of a nations economy is linked to its trading partners 3) Reflects the historical evolution of the world's economic and political order 4) Complex 5) Steps toward international cooperation 6) Protectionist pressures

Civil Law

A law that governs relationships between individuals and defines their legal rights.

What is a MNE?

A multinational enterprise (MNE) is any business that has productive activities in two or more countries

Deregulation

A policy promoting cutbacks in the amount of Federal regulation in specific areas of economic activity to free the market

Voluntary Export Restraint (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.

What is meant by a firm's risk profile?

A risk profile is an evaluation of a firm's willingness and ability to take risks. Also accounts for the risk faced by the organization

PPP (Purchasing Power Parity)

A statistical tool that estimates the buying power of income across different countries by using prices in the United States as a benchmark

Ethics

A system of moral principles.

Stability and Growth Pact (SGP)

An agreement by members of the EU about the way in which fiscal policy should be conducted to support Europe's single currency. It requires those countries adopting Europe's single currency (the eurozone states) to abide by the following rules: a) budget deficit of 3% GDP or less, and b) government debt of 6% GDP or less.

Mercantilism

An economic policy under which nations sought to increase their wealth and power by obtaining large amounts of gold and silver and by selling more goods than they bought (more export, less import)

United Nations

An international organization formed after WWII to promote international peace, security, and cooperation.

OCA (optimal currency area)

An optimum currency area is a region (not necessarily coinciding with one country's borders) that should have its own currency & own monetary policy

Smith's Absolute Advantage

Argues against the fact that trade is a zero sum game - and actually states that trade is a positive-sum game for both countries involved. Argues that both countries benefit from the absolute advantage by specializing in the production of goods. Countries would be able to produce more if they were to focus their production possibility frontier (PPF) on the product, they have an absolute advantage in Downsides: Smith's argues that the only factor of production is labor and labor cost. -> cost advantage.

John Rawls' Theory of Justice

Argues that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage. According to Rawls, valid principles of justice are those with which everyone would agree under the veil of ignorance.

The overall attractiveness of a country as potential market depends on the following three things:

Balancing the benefits, costs and risks

What is culture?

Based on values and practices. There are different layers of culture: National, professional and corporate culture

Why is inflation good for debt?

Because the real value decreases -> debitor pays less than expected

Benefits and risks in regards to RTAs

Benefits: •Improve market efficiency; •Share the costs of public goods or large infrastructure projects; •Decide policy cooperatively and have an anchor to reform; •Have a building block for global integration; •Reap other non-economic benefits, such as peace and security. Risks: •Countries may have different preferences on priorities for regional integration, depending on their connectivity gaps, economic geography, or preferences for sovereignty in specific areas. •Regional integration's impact on trade and investment flows, allocation of economic activity, growth, income distribution are often difficult to assess. •Lack of adequate complementary policies and institutions may lead to inefficient outcomes. For instance, policy barriers at the border may offset the gains transport infrastructure cooperation. •Regional integration creates winners and losers, notably within countries. Policies and institutions are needed to ensure that regionalism is inclusive and social, environmental, governance risks are managed.

What can firms do to assess political risks?

Build proprietary models (country risk index')

drivers of productivity growth

Business and government investments, competition -> think of the supply balance-formula

Theory of National Competitive Advantage

By Michael Porter (an extension of Krugmanns New Trade Theory) states that success in international trade is based on the interaction of factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry

New Trade Theory

By Paul Krugmann. The observed pattern of trade in the world economy may be due in part to the ability of firms in a given market to capture lasting first-mover advantages. This gives them first-movers lasting advantages, which makes a difficult living for subsequent firms from other countries with equally favourable factor endowments.

The largest recipient of FDI inflows

China with $250 billion in 2019

CPI inflation

Consumer Price Index The CPI measures price changes over time, and inflation is an increase in prices. We can compare the CPI across time to measure inflation.

What are important laws for IB?

Contract law, anti corruption laws, protection of property rights (especially intangible property rights), investor protection laws, criminal/civil liability laws, environmental practices

Which big laws are MNEs involved in when establishing FDIs or outsourcing?

Contract with suppliers, customers, subcontractors Liability under employment law and health and safety laws Liability under environmental protection law Liability for dangerous products Liability for industrial elements

CSR

Corporate Social Responsibility. The European Commission defines corporate social responsibility as companies following the law and integrating social, environmental, ethical, consumer, and human rights concerns into their business strategy and operations

spaghetti bowl phenomenon

Countries are part of so many regional agreements that make up a global web of agreements

Ricardo's comparative advantage

David Ricardo took Adam Smith's theory one step further by exploring what might happen when one country has an absolute advantage in the production of many more goods. According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces relatively most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself. Two cornerstones in this concept: Comparative advantage and opportunity costs

power distance

Degree to which societies accept the idea that inequalities in the power and well-being of their citizens are due to differences in individuals' physical and intellectual capabilities and heritage

Contributions to inflation

Demand-driven inflation (consumers drive up the prices) Supply-driven inflation (Just In Time delivery)

The importance of demography when talking about the economy

Demographic change can influence the underlying growth rate of the economy, structural productivity growth, living standards, savings rates, consumption, and investment; it can influence the long-run unemployment rate and equilibrium interest rate, housing market trends, and the demand for financial assets.

How can managers decrease their exchange risks?

Dont exposure yourself to one currency. Diversify portfolio and currencies. Exposure yourself to different currencies that dont tend to move in the same way

Antidumping Policies and what is dumping?

Dumping: selling goods in a foreign market for less than their cost of production or below their "fair" (profit margin) market value. Antidumping policies are designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition

"Beggar thy neighbour" - retaliatory trade policies

During the 1920's and 30s many of the world's nation-states erected barriers to international trade and FDI resulting in countries progressively raising trade barriers against each other -> contributed to the Great Depression

Explain dynamic gains and its impact on a country's PPF

Dynamic gains occur when free trade might increase the efficiency with which a country uses its resources Dynamic gains in both stock of a country's resources and the efficiency with which resources are utilized will cause a country's PPF to shift outward

Justice Theories

Ethical approaches that focus on the attainment of a just distribution of economic goods and services

What are the different types of globalization?

Financial (financial markets have become interconnected -> world cities, not nations) Economic Technological (containerization and microprocessors) Political (uniform policies) Cultural (Western standardization) Ecological (e.g. Copenhagen Accord, ozon layer)

What does the globalization of production imply?

Firms are basing individual productive activities at the optimal world location for their particular activities -> it is now irrelevant to talk about "made in US" or "made in Germany" as products are now global or simply replaced by specific companies such as "Apple"

According to new trade theory, is it first or late mover advantages that subsequently lets firms dominate global trade in that product?

First-mover advantages. The idea is to preempt the available demand, gain cost advantages related to volume, build an enduring brand ahead of later movers and finally establish long-term sustainable competitive advantages

What are the different exchange rate regimes?

Flexible: Free float Managed float Intermediate regimes: Basket peg Target zone/band Crawling peg Adjustable peg Fixed corner: Currency board Dollarization Monetary union

Problems with Hofstede's cultural dimensions

Focus on national culture Single company data (IBM) Non-exhaustive Partial geographic Western bias Attitudinal rather than behavioural Nation level data is generalized into individual behaviour

FCPA

Foreign Corrupt Practices Act For US companies doing business outside of USA Anti-bribery and internal controls tying transactions to assets

Explain Fukuyama and Huntington's views on the new world order and global terrorism

Francis Fukuyama: argued that the world wars, was wars of ideas and that is was the end, and that liberal democracy has triumphed. Samuel Huntington: On the contrary to Fukuyama Huntington theorized that modernization in non-Western societies can result in a retreat toward the traditional, fx the resurgence of Islam in many traditionally Muslim societies. • He saw a world split into different civilizations each og which has its own value systems and ideologies. • Saw terrorism as a product of the tension between civilization/clash and ideology and system.

Name the different global institutions

GATT, WTO, G20, World Bank, IMF and UN

Alternatives for GDP

GNP = GDP + net property income from abroad GNI (the most inclusive) -> positive income from FDI will be included

GATT

General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions

Which two kind of globalization are there?

Globalization of markets and production

Define subsidies

Government financial assistance to a domestic producer, fx cash grants, low-interest loans, tax breaks. Helps domestic producers in 2 ways: 1. Competing against foreign imports 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

fiscal policy

Government policy that attempts to manage the economy by controlling government spending and income

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

What are the risks in the global capital market? (Feldstein)

Harvard economist, Martin Feldstein, argues that most capital that moves internationally is pursing temporary gains and move in and out of countries as conditions change According to Feldstein patient money (long-term cross-border capital flows) are rare as investors like to keep their money close to home in contrast to "hot money" "When the dust settles, most of the savings done in the each country stays in the country" - Feldstein. He argued that the lack of patience money is due to the relative paucity of information of foreign investments

The value of FDI

Has grown significantly over the years due to reduction in trade barriers. In 1990, $244 billion was made in foreign investment by enterprises. In 2018, that number had increased to $1.3 trillion

Typical barriers to international trade

High tariffs on import of manufactured goods

Measures for standard of living

Human Development Index (score from 0-1) Ecological Footprint Calvert-Henderson Quality of Life Indicators Genuine Progress Indicator

What does the globalization of markets imply?

Implies that national markets are merging into one, huge marketplace. However, this view must not be pushed so far.

Define perfect competition

In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Price is set on supply and demand

The theory about diminishing return predicts...

In reality, most countries do not specialize, but produces a range of goods. However, the theory predicts that it is worthwhile to specialize until that point where the resulting gains from trade are outweighed by diminishing returns.

Benefits of the global capital market for borrowers

Increases the funds available Lowers the cost of capital

Indulgence vs. Restraint

Indulgent cultures freely allow gratification of desires that allow individuals to enjoy life and have fun. Restrained cultures have strict social norms and discourage acting simply out of want.

IMF

International Monetary Fund//a United Nations agency to promote trade by increasing the exchange stability of the major currencies Also lends out capital to countries in need in return for conditions -> economic policies aimed at returning their troubled economies to stability and growth.

What is the purpose of the international monetary system and what does it consist of?

International monetary system's essential purpose is to facilitate the exchange of goods, services and movement of capital among countries. It generally consists of four elements: • exchange arrangements and exchange rates • international payments and transfers relating to current international transactions • international capital movements • international reserves

Who are the main players in a generic capital market?

Investors (companies, individuals and institutions) Market makers (commercial and investment banks) Borrowers (Individuals, government and companies)

Inflation's Impact on Purchasing Power

It erodes the PPP

How does engagement in IB effect a firm's risk profile?

It magnifies the threats (risks) the firm is exposed to due to PESTLE distance

How does national culture relate to the different stages in the internationalization process of MNEs?

Location choice, entry mode decisions, choice of ownership form, degree of ownership, integration of foreign operation and performance

The different market systems

Market based (LME) (Such as USA, UK and so on), Collaborative (CME; a higher degree of state involvement but a relatively liberal labour market) (such as Denmark), State-Led (such as Pakistan, China, Venezuela)

Kogut and Singh cultural distance index and the criticism of this index

Mathematical approach on culture (formula) Critic: distance in considered symmetric Does not take psychic distance into the equation (the sum of the factors preventing the flow of information e.g. language, education and so on)

Explain multilaterism and regionalism

Multi: Multiple (close to all) countries working in concert on a givenissue under certain international relation agreements. Examples are WTO, IMF, the World Bank, the UN. Regionalism: Any agreement that involves two or more countries but much fewer than all possible members. Examples are the EU, G7, G20, NATO.

Difference between nation states and cultures

Nation states are political creations and many cultures can co-exist in a nation (subcultures)

An economic argument for intervention is the infant industry argument. Explain this 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.

Does EU have OCA?

Not entirely. Some factors aren't working as they supposed to eg. Labour mobility. People move more from Canada and Usa and vice versa than within EU because of language and cultural barriers.

"Crowding out"-effect

Occur with government deficit spending A rise in interest rates and reduce private spending

pestle

Political, Economic, Social, Technological, Legal, Environmental

Types of risks

Political, economic, regulatory, cultural and social

What are the firm implications of RTAs? (O's and T's)

Opportunities: •Opens new markets •Allows firms to realize cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal Threats: •Business environment becomes competitive •There is a risk of being shut out of the single market by the creation of a "trade fortress" •Growing opposition to free trade areas and agreements

patient money versus hot money

Patient money are long-term cross-border capital flows Hot money are short-term....

Disposing of government surpluses can be done through:

Paying back debt (lower interest rates -> increase spending -> higher inflation) and letting the surplus funds remain idle (cannot be spent -> anti-inflationary)

What are the two main type of competition?

Perfect and imperfect competition

What are the three ways to define MNEs?

Performance (amount of foreign investments) Structural (organizational structure) Behavioral (does the management think internationally about strategic decisions?)

Trade tensions (tariffs) are outcome of...

Political tensions

Porter's Diamond of National Competitive Advantage

Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage 1. factor conditions 2. demand conditions 3. competitive intensity in focal industry 4. related and supporting industries/complementors

Examples on primary and secondary stakeholders

Primary (direct stake): suppliers, employees Secondary (indirect stake): lenders, government

Explain the Product Life Cycle Theory

Products initially get launched on one market and when it matures and the domestic competition gets too intensive it moves to another market. As the U.S. market and other markets mature, the products becomes more standardized and price becomes the main competitive weapon. NB: The consequence of this international trade pattern is that the U.S. goes from being the exporter to the importer as production becomes concentrated in lower-cost foreign locations.

Pros and cons of GDP

Pros: The best measure of economic health because it's the most inclusive. (Indicates if people are better from year to year). Cons: GDP does not take inflation into account, correlates to standard of living but does not measure it, does not measure income distribution, does not measure social well-being

What are the pros and cons of doing business in countries such China, Latin America and Russia?

Pros: untapped market, high potential Cons: A greater risk due to greater state involvement and limited democracy Lesson: substantial opportunities come with substantial risks

Benefits of the global capital markets for investors

Provides a wider range of investment opportunities Opportunity to build portfolios of international investments to diversify their risks (works both for stock holdings as well as for bond holdings)

OECD's guidelines for MNEs (CSR)

Recommendations addressed by governments to MNEs operating in and from adhering countries Non-binding principles and standards for responsible business conduct with applicable laws and internationally recognised standards Bonus: the only multilaterally agreed and comprehensive code of business conduct

BRIC countries

Refers to Brazil, Russia, India, and China, the largest and fastest growing of the developing countries with over 40 percent of the world's population.

Tools of Monetary Policy

Reserve Ratio (limitations on how much the bank can lend because the reserve requirement goes down or up) , Discount Rate (interest rate set by Central Banks on short-term loans) , Open Market Operations (Central Banks selling and buying of government securities/bonds) -> manipulates the supply of base money and short-term interest rates or nr. 4 ) Print money

Schwartz Cultural Values Approach

Schwartz identified 56 universally accepted personal values across cultures The values are put on a scale Dimensions: - Embeddedness versus Autonomy - Egalitarianism versus Hierachy - Harmony versus Mastery

Just-in-time delivery (value chains)

Shipment of parts and materials to arrive at a factory moments before they are needed

What are the difference and similarities between the Hecksher-Ohlin Theory and Ricardos theory?

Similarity between Hecksher-Ohlin Theory and Ricardos theory about comparative advantage - Argues that free trade is economical beneficial Difference between Hecksher-Ohlin Theory and Ricardos theory about comparative advantage - Hecksher-Ohlin argues that the pattern of international trade is determined by differences in factor endowments rather than in productivity

Foreign exchange exposure

Simply put, foreign exchange exposure is the risk associated with activities that involve an international firm in currencies other than its home currency

Explain the interessant findings in the VIS-framework

Some countries fall into the same VIS type despite being geographically remote or belonging to different cultural clusters. It offers a frame of reference for better depicting dominant features of the institutional context in which IB takes place and that may give rise to institutional advantages of firms in the global arena It challenges the assumption that institutions change very slowly over time.

How can a firm insure itself against exchange rate risks?

Spot exchange Spot exchange is when two parties agree to change currency and execute the deal immediately. The spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day Or forward exchange rates Forward exchange occurs when two parties agree to exchange currency and execute a deal at some specific date in the future. The forward exchange rate is hereby the exchange rate governing a forward exchange transaction

All classical trade theories predict that free trade leads to static economic gains and dynamic economic gains. Explain these to gains

Static: higher level of domestic consumption and more efficient utilization of resources Dynamic: stimulates economic growth, job creation and wealth accumulation

Downsides of globalization of markets

Substantial impediments (differences) still make it difficult for firms to achieve the optimal dispersion of their productive activities to locations around the globe. These impediments include: (in)formal barriers to trade between countries, to FDI, transportation costs, issues associated with economic and political risks and the sheer managerial challenge of coordinating a globally dispersed supply chain.

Explain the Heckscher Ohlin trade theory

Swedish economists Eli Hecksher and Bertil Ohlin put forward a different explanation of comparative advantage than Ricardo. They stated that comparative advantages arises from differences in national factor endowments. The Hecksher-Ohlin Theory explains the pattern of international trade in the global economy by predicting that countries will export goods that make intensive use of local abundant (available in large quantities) factors, whereas a nation will import goods that make intensive use of locally scarce (restricted quantity) factors.

What is pseudo-democracies?

Systems that lie between totalitarianism and pure democracy e.g. Russia

Hedging Strategies

Techniques used to offset or protect against risk; in the international context, these include borrowing or lending in different currencies; undertaking contracts in the forward, futures, and/or options markets; and swapping assets/liabilities with other parties.

What does critics say about IMF and WTO?

That they are usurping the sovereignty of nation-states

Name some famous RTAs

The European Union •The European Free Trade Association (EFTA) •The United States, Mexico and Canada Agreement (USMCA) •The Southern Common Market (MERCOSUR) •The Association of Southeast Asian Nations (ASEAN) •The Common Market of Eastern and Southern Africa (COMESA)

Explain the four straw men approaches

The Friedman Doctrine - The social responsibility of business is to increase profits, as long as it stays within the rules of law. - Rejects the idea that businesses should undertake social expenditures beyond required by law. - Still the firm must play within the rules of the game and adher to ethical standard such as no fraud Cultural Relativism - When in Rome, do as the Romans do. - At a closer look, this implies that it's right for a firm to use slavery as long as it's okay in that country. - Cultural relativism implicitly rejects the idea that universal notions of morality transcend different cultures. The Righteous Moralist - The MNE's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. The Naive Immoralist - Asserts that if a manager of a MNE sees that firm from other nations aren't following ethical norms in a host nation, that manager shouldn't either. In other words: It's okay to do it, when others are doing.

A country's competitiveness

The World Economic Forum defines it as "the set of institutions, policies and factors that determine the level of productivity of a country" BUT it cannot only be reduce to GDP -> also include other factors and dimensions

WTO

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT

first-mover advantage

The ability of an innovative company to achieve long-term competitive advantages by being the first to offer a certain product in the marketplace

late-mover advantage

The ability of later market entrants to achieve long-term competitive advantages by not being the first to offer a certain product in a marketplace

The straw men approaches in ethics

The approaches offer inappropriate guidelines for ethical decision making in business. The four approaches have some inherent value, but are all unsatisfactory in important ways. Still, some companies adopt the approaches. - The Naive Immoralist - The Righteous Moralist - Cultural Relativism - The Friedman Doctrine

What is the essential about free trade agreements?

The benefits outweigh the costs. Everybody will be better off in the end as the countries will specialize in what they are good at producing (Adam Smiths theory about absolute advantages)

Difference between current and capital account

The current account represents a country's net income over a period of time, while the capital account records the net change of assets and liabilities during a particular year.

Describe the financial market development post COVID-19

The financial market rebounced to pre COVID-19 quickly as the stock market does not equal the economy. This rapid rebounce is due to long-term outlook

What is the relationship between law and ethics?

The law is an expression of the ethical beliefs of our society

opportunity cost

The opportunity cost of good A in terms of good B is the number of unit of good B that could be produced with the same resources used to produce a given number of units of good A. Opportunity costs is the largest sacrifice made to produce a given good

Economic Integration

The process by which the economies of different countries become more closely linked.

Explain diminishing returns (in regards to trade theory)

The simple comparative advantage model assumes constant returns to specialization (constant PPF). However it is more realistic to assume diminishing returns to specialization - this imply a convex PPF. This is more realistic due to: 1) Not all resources are of the same quality 2) Different goods use resources in different proportions

Problems with the Product Life Cycle Theory

The theory is at limited use when applied today due to globalization and integration of world economy (wide spread introduction markets and rapid internationalization). The theory may be useful for explaining patterns during the period of global American dominance. A much more globally dispersed production today with components from all over the world. Firms plan their production so the mix of factor costs and skills are most favourable.

Which is more statistically and economically significant in RTAs? Trade creation effect or trade diversion effect

The trade creation effect. Actually, the trade diversion effect is non-significant

Masculinity vs. 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.

Define free trade theories

These theories focus on national economy conditions - country advantages - that enable exchanges to happen.

What was/is the typical aim of tarrifs?

To protect domestic industries from foreign competition

Trade Creation

Trade creation occurs when one of the members of the RTA will import from the other member(s) which it formerly did not. Trade creation therefore occurs when production in member countries is replaced by imports from a more efficient producer in member state of RTA.

Regional Trade Agreements (RTAs)

Treaties that reduce trade restrictions and promote common policies among member nations Are against the non-discrimnation principle of GATT but is allowed under certain cirucmstances: FTAs and CUs

Name the four types of trade governance

Unilateral Bilateral Minilateral (Regional) Multilateral

CISG

United Nations Convention on Contracts for the International Sale of Goods

Political risks in international environment

Unstable political system Corruption and poor leadership War, both civil and international Civil disorder (economic conditions and human rights violation)

The VIS-framework

Varieties of institutional systems - Is a combination (and furthermore an extension) of NBS (National Business Systems) and VOC (Varieties of Capitalism) - Captures the unique features that are associated with institutional context around the world - Includes role of state, role of financial markets, role of human capital and the role of corporate governance

The Leontief Paradox

Wassily Leontief published a famous study in 1953 which raised questions about the validity of the Hecksher-Ohlin Theory. The paradox postulates that because the United States is relatively abundant in capital, the U.S. would be exporter of capital-intensive goods and importer of labor-intensive goods. In reality, U.S. exports were less capital intensive than U.S. imports. This difference between theory and practice became known as the Leontief paradox.

Legal risks

When a company needs to launch legal action or defend itself against legal action

Trade Diversion

When one of the members will start to import from the other member at the expense of imports from the rest of the world because of discriminatory tariff reduction then trade diversion occurs. Trade diversion therefore occurs when imports from a more efficient producer from the outside of the RTA are replaced by imports from a less efficient RTA member because of discriminatory trade barriers.

long term orientation vs short term orientation

Where cultures favor a dynamic, future-oriented mentality, long term, over traditions and values, which are short term

What are the cons about mercantilism?

Will result in inflation in ones country, making foreign products cheaper but ones own more expensive for foreign countries Also a fatal flaw: it is viewed as a zero-sum game where one country will win at the expense of another country's loss

PPF (Production Possibilities Frontier)

a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced

trade policy

a government policy that directly influences the quantity of goods and services that a country imports or exports

Custom unions (CUs)

a group of free trade member countries that have adopted a common external tariff with nonmember countries

Expatriate Manager

a manager who works in a country other than his or her home country

Globalization

a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.

Local Content Requirement (LCR)

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

code of conduct

a statement that guides the ethical behavior of a company and its employees

Ethical Strategy

a strategy, or course of action, that does not violate these accepted principles

Common Law

a system of law based on precedent and customs

Rights theories

a twentieth-century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures

FDI inflows

aggregate value of investments that flow into a country. Has seen a massive growth since 1990 for developed and developING countries

World Bank

an international bank that offers low-interest loans, advice, and information to developing nations

G20 (or G-20 or Group of Twenty)

an international forum for the governments and central bank governors from 20 major economies. It was founded in 1999 with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability. Represents 90 percent of the global GDP

What is an International Business?

any firm that engages in international trade or investment

Neo-mercantilism

benefit from a balance-of-trade surplus, where countries keep their currency value low towards certain countries to sell more goods to forementioned certain countries, and thus amass a trade-surplus and foreign exchange reserves.

The three main types of legal systems

common law, civil law, theocratic law

Types of Totalitarianism

communist, theocratic, tribal, right-wing

Veil of Ignorance (John Rawls)

conceptual device contributing to the moral compass that managers can use to help them through ethical dilemmas. The device's sets up a system/world where everyone is ignorant about personal characteristics. Rawls then asks people how they would design the system under the veil of ignorance, under which people would agree on two fundamental principles of justice:

What are the two main drivers of globalization?

decline in barriers to the free flow of goods, servives and capital (trade) and technological change (invention of the microprocessor!!)

The two types of monetary policy are:

expansionary (increase the supply of money more rapidly than usually) and contractionary (expand the supply slower than usually or even decrease it)

The two types of fiscal policy are

expansionary (increased government spending and lower income) and contractionary (decrease government spending and increase income)

Explain the concept of economies of scale

factors that cause a producer's average cost per unit to fall as output rises. The ability to spread fixed costs over a large volume and the ability of large volume producers to utilize specialized employees and equipment that are more productive than less specialized ones.

What is institutional framework? And explain the different kinds and which pillar they are supported by?

formal and informal institutions governing individual and firm behaviour Formal institutions: laws, regulations and rules (supported by the regulatory pillar) Informal institutions: norms, cultures and ethnics (supported by the normative and cognitive pillar)

Difference Principle (Rawls)

inequalities are justified if they benefit the least-advantaged person

What are the factors of production?

inputs into the production process, such as land, labour, capital, management and technical know-how

product liability

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

Critics of globalization argue that

job losses in industries under attack from foreign competition, downward pressure on the wage rates of unskilled workers, environmental degradation, loss of national sovereignty and the cultural imperialism of global media and MNEs

Theocratic Law

legal system based on religious teachings moral rather than commercial law

Three economic systems

market economy, command economy, mixed economy

Systematic Risk (also called the market risk)

movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy. The systematic risk is the level of nondiversifiable risk in an economy thus the risk inherent to the entire market or market segment

Mores

norms that are widely observed and have great moral significance

Folkways

norms that lack moral significance

Hofstede's Cultural Dimensions

power distance (high or low) individualism versus collectivism masculinity versus femininity uncertainty avoidance, long-term orientation, indulgence versus restraint

Business Ethics

principles and standards that determine acceptable conduct in business

What do institutions do?

reduce uncertainty and signaling conduct as acceptable or not

High level of corruption leads to:

reduction of the foregin direct investment, level of international trade and economic growth rate in a country.

Diminishing returns/diseconomies of scale

refer to the property whereby long-run average total cost rises as the quantity of output increases.

Outward stock of FDI

refers to the total cumulative value of foreign investments by firms domiciled in a nation outside of that nations borders.

Norms

shared rules of conduct that tell people how to act in specific situations

uncertainty avoidance (weak and strong)

the degree to which societies are willing to tolerate uncertainty and risk

social stratification

the division of society into groups arranged in a social hierarchy

Factor Endowments

the extent to which a country is endowed with such resources such as land, capital and labor. Some are mobile factors. The differences in factor endowments explain factor costs differences, thus will a more abundant factor lower the factor cost.

Public actions

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

precautionary principle

the idea that one should not undertake a new action until the ramifications of that action are well understood

Values

the ideas, beliefs, and attitudes about what is important that help guide the way you live (morally)

gains from trade

the improvement in outcomes that occurs when producers specialize and exchange goods and services. Gains from trade leads to universal efficiency and utilisation of resources, which provides econ. benefits for all.

moral agent

the individual who must make an ethical choice in an organization

noblesse oblige

the inferred responsibility of privileged people to act with generosity and nobility toward those less privileged (succesfull MNEs)

Moore's Law

the observation that computing power roughly doubles every two years.

WTO (World Trade Organization)

the only global international organization dealing with the rules of trade between nations

Constant returns to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

homogeneity

the quality of being similar or comparable in kind or nature

liability

the state of being legally responsible for something

Private actions

the theft, piracy, blackmail, and the like by private individuals or groups

exchange rate

the value of a currency in one country compared with the value in another

organizational culture

the values, beliefs, and attitudes shared by organizational members

heterogeneity

the variability of the inputs and outputs of services, which causes services to tend to be less standardized and uniform than goods

Individualism vs. Collectivism

the worth of an individual versus the worth of a group

IMF's primary mission

to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries and their citizens to transact with each other. This includes: •promoting international monetary cooperation •facilitating the expansion and balanced growth of international trade •promoting exchange stability •assisting in the establishment of a multilateral system of payments •making its resources available (under adequate safeguards) to members experiencing balance of payments difficulties

When does FDI occur?

when a firm invests directly in facilities to produce or market a good or service in a foreign country

Explain what is meant by "The tragedy of commons"

when a resource held in common by all but owned by no one is overused by a few, resulting in its degradation

OCA criteria for fixed exchange rate

•Small size and openness because then advantages of fixing are large •Symmetry of shocks because then giving up monetary independence is a small loss •Labor mobility because then it is possible to adjust to shocks even without ability to expand money, cut interest rates or devalue •Fiscal transfers in a federal system because then consumption is cushioned in a downturn

Which tools does IMF use to carry out its mission?

•surveillance (also multilateral) •financial and technical assitance •lending