International Business 301
World Bank
The World Bank provides financial and technical assistance to developing countries. It is made up of two institutions owned by 185 member countries - the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). 1. IBRD (International Bank for Reconstruction and Development): Lends to governments of middle-income and creditworthy low-income countries 2. IDA (International development association): Lends interest-free loans and grants to governments of the poorest countries
WTO (World Trade Organization)
The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world's trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible
IMF vs World Bank
Both 189 Members (Countries). The main difference between the International Monetary Fund (IMF) and the World Bank lies in their respective purposes and functions. The IMF oversees the world's monetary system's stability, while the World Bank's goal is to reduce poverty by offering assistance to middle-income and low-income countries.
Comparative advantage
The ability of a country to produce a good at a lower cost than another country can. If you're comparing two different options, each of which has a trade-off (some benefits as well as some disadvantages), the one with the best overall package is the one with the comparative advantage.
Global Regulation (Three Main Events)
Bretton Woods Conference (1944) In 1944, at the height of WWII, representatives from 44 countries met at Bretton Woods, New Hampshire to design a new international monetary system. The International Monetary Fund (IMF) was established to maintain order in international monetary system The World Bank was established to promote general economic development. United Nations Conference on Trade and Employment (1947) General Agreement on Tariffs and Trade (GATT) was established in 1947 to liberalize trade barriers. GATT was transformed into the World Trade Organization
Information Strategy
Businesses seek to provide government policymakers with information to influence their actions
Arguments against Capital Controls
Capital inflows spur growth Borrowing can finance infrastructure They keep money from going where it's needed most Controls lead to corruption Controls can be evaded Excuse to postpone reforms Lost of credibility in the international community
Global Financial & Regulatory Institutions
Central Banks International Monetary Fund World Bank World Trade Organization
Opportunity cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another. The potential benefit that someone loses out on when selecting a particular option over another
North American Free Trade Agreement (NAFTA)
Created to allow the free movement of goods between Canada, Mexico, and the U.S. by lessening and eliminating tariffs
Broadening
The extension of economic and geographic linkages to encompass virtually all major societies and states.
The Three D's of Global Digitalization
Dis-intermediation - process of loosing distribution channels when they are no longer needed (Cut the middle man) De-materialization - Physical items can be divided and consumed in parts; digitally or autonomously. Books and music vs digital music Construction vs 3D printing Vehicles vs Autonomous vehicles Dis aggregation - Taking a larger operation and breaking it into smaller parts to then share it...and match supply and demand (monetize unused space). AirBnB (rend a part of your house), Uber (rent part of your car)
Why do people oppose free trade?
Domestic industries often oppose free trade on the grounds that it would lower prices for imported goods would reduce their profits and market share. ... More generally, producers often favor domestic subsidies and tariffs on imports in their home countries while objecting to subsidies and tariffs in their export markets.
IMF (International Monetary Fund) Activities
Economic Surveillance: Oversees the international monetary system and monitors the economic and financial policies of its member countries. The IMF highlights possible risks to stability and advises on needed policy adjustments. Lending: Provides loans to member countries experiencing actual or potential balance of payments problems to help them rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while correcting underlying problems. Capacity Development: Works with governments to modernize their economic policies and institutions, and train their people. This helps countries strengthen their economy, improve growth and create jobs.
IMF General obligations of members (Regarding Exchange Arrangements)
Endeavor to direct economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. Seek to promote stability using economic and financial conditions and a monetary system that does not tend to produce erratic disruptions. Avoid manipulating exchange rates in order to prevent an unfair competitive advantage over other members. Follow exchange policies compatible with the undertakings under this Section
fair trade
Fairtrade is an alternative approach to conventional trade and is based on a partnership between producers and consumers. When farmers can sell on Fairtrade terms, it provides them with a better deal and improved terms of trade. This allows them the opportunity to improve their lives and plan for their future. Fairtrade offers consumers a powerful way to reduce poverty through their every day shopping
The Central Bank
Financial Services: controlling the liquidity in the financial system Lender: Serves as the bank for private banks and the nation's government. They process checks and lend money to their members. Note: Acts as Lender of Last Resort Manage Reserves: store currency in their foreign exchange reserves. They use these reserves to change exchange rates. Analysis and Reports: Produce regular economic statistics to guide fiscal policy decisions. Regulate Banks: For instance: Split up large banks, so they don't become "too big to fail.
fiscal policy
Government policy that attempts to manage the economy by controlling taxing and spending.
Horizontal Integration MULTI-DOMESTIC
Horizontal expansion occurs when the firm sets up a plant or service delivery facility in a foreign location with the goal of selling in that market without necessarily changing its global production system.
IMF (International Monetary Fund) Resources
IMF Resources: Most resources for IMF loans are provided by member countries, primarily through their payment of quotas, based broadly on its relative position in the world economy. Quotas: Quota subscriptions are a central component of the IMF's financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. Borrowing Arrangements: While quota subscriptions of member countries are the IMF's main source of financing, the Fund can supplement its quota resources through borrowing if it believes that they might fall short of members' needs.
GATT vs WTO
The rules of GATT are only for trade in goods. The rules of WTO includes services and aspects of intellectual property along with the goods.
The Security Dilemma
The security dilemma arises because trade generates many outcomes that conflict with the power, sovereignty, and security considerations of the state. Free Trade can lead to national boded security. What comes through our borders, may be a factor in limiting free Trade. "The most important conflicts of the future will occur among the cultural fault lines separating these civilizations from one another."
Why The Dilemma?
The values dilemma arises because trade generates many outcomes that citizens evaluate on the basis of ethical principles and social values Liberal theorists advocate free trade because they believe that it maximizes economic efficiency, competitiveness and standards of living Opponents point out that allowing markets to operate freely may allow economic considerations to dominate ethical considerations such as human rights and labor standards
Fairtrade Minimum Prices
This price aims to ensure that producers can cover their average costs of sustainable production.
International Monetary Fund (IMF)
(United Nations) primary mission is 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. International institution set up to maintain order in the international monetary system acts as a lender of last resort, providing loans to troubled nations, and also works to promote trade through financial cooperation
Five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries
1. IBRD (International Bank for Reconstruction and Development): Lends to governments of middle-income and creditworthy low-income countries 2. IDA (International development association): Lends interest-free loans and grants to governments of the poorest countries 3. IFC (International Finance Corporation): Lends to companies in developing countries. Focus on for-profit projects 4. MIGA (The Multilateral Investment Guarantee Agency): Offers political risk insurance (guarantees) to investors and lenders in Developing Countries 5. ICSID (International center for the settlement of investment disputes): Provides international facilities for conciliation and arbitration of investment disputes
Positionality
A person's uniquely situated social position, which reflects his or her gender, nationality, political views, previous experiences, and so on. sees truth and reality as being relative and multi-faceted
Trans-Pacific Partnership
A trade agreement among 12 Pacific Rim countries
Horizontal Integration domestic
Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level.
What happens if one country has an absolute advantage in both products?:
According to a theory of absolute advantage, no trade should occur
Fair Tarde Organic Differential
Additional premium in case of Organic coffee.
The Distributional Dilemma
All trade policy involves trade-offs A tariff protects the steel industry but raises costs for the auto industry and consumers Free trade means lower prices and more choice for consumers but devastates specific regions The benefits of free trade are broad and small; the costs are narrow and highly visible" Example: Flint Michigan Foreign imports stress General Motors General Motors responds by laying off workers and moving some production to Mexico Free trade makes production more mobile Economic base of Flint collapses in 10 years Two Main Forces Driving Dilemma: If the Distributional dilemma arises because trade tends to alter the distribution of income and wealth within a country Then, we have two important forces driving jobs "away": Offshoring Immigration
The Fairtrade Premium:
Investments into the local community This money goes into a communal fund for workers and farmers to use to improve their social, economic and environmental conditions.
WTO: Roles
It operates a global system of trade rules It acts as a forum for negotiating trade agreements It settles trade disputes between its members It supports the needs of developing countries.
Offshoring
Moving operations from the country where a company is headquartered to a country where pay rates are lower but the necessary skills are available. Offshoring Driven By: Improved modularization and quality control Efficient containerized trade Free trade agreements Rise of large-scale overseas manufacturers Low cost labor
De-materialization
Physical items can be divided and consumed in parts; digitally or autonomously. Books and music vs digital music Construction vs 3D printing Vehicles vs Autonomous vehicles
Vertical Integration domestic
Practice where a single entity controls the entire process of a product, from the raw materials to distribution
Democratic Organization
Producers must belong to cooperatives or associations that are transparent and democratically controlled by their members (cooperatives)
deepening
An increase in the frequency and intensity of state and societal interactions.
multinational national corporation (MNC)
An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management
globally integrated enterprise (GIE)
An organizational structure in which work process and executive functions are distributed around the world through global centers rather than developed in a home country and replicated in satellite countries or regions Example: International Business Machines (IBM) Corporation is an American multinational information technology company headquartered in Armonk, New York, with operations in over 170 countries.
Central Banks Goals
Stabilize the nation's currency Keep unemployment low and growth up and Manage Inflation
States regulation Role
States must regulate markets as they do not function without state intervention: Markets are the creation of human organizations Markets, if let alone, will not serve the interest of state security and power Regulation will ensure the "correct" direction of market activity
Dis aggregation
Taking a larger operation and breaking it into smaller parts to then share it...and match supply and demand (monetize unused space). AirBnB (rend a part of your house), Uber (rent part of your car)
The Three Dilemmas of International Trade
The Universal or Human Values Dilemma What is Fair in Fair Trade? Is there a trade off between the efficiency of global trade and social values (e.g., human rights and labor standards)? The National Security Dilemma Who Protects Borders? Is there a trade off between the efficiency of global trade and national security? Is there a trade off between the efficiency of global trade and national sovereignty? The Distributional Dilemma Who wins and who loses? Is there a trade off between the efficiency of global trade and national jobs and income?
Dealing With And Managing The Dilemmas
We can talk of three important instruments the global community uses to deals with and to manage these dilemmas Global Financial & Regulatory Institutions - National & Transnational Organizations Regional Trade Blocks - Regional Trade Agreements
Vertical Integration MULTI-DOMESTIC
When a firm locates assets or employees in a foreign country with the purpose of securing the production of a raw material or input (backward vertical expansion) or the distribution and sale of a good or service
non-market strategy
a firm's plan on how to increase its social and political effectiveness in a particular environment
GATT (General Agreement on Tariffs and Trade)
an international trade treaty designed to encourage worldwide trade among its members.
monetary policy
controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency (controlling the liquidity in the financial system).
transnationally
going beyond national boundaries or interests: a transnational economy.
global segmentation
identifies a group of consumers with common needs and wants that spans the entire globe
future exchanges
is an auction market in which participants buy and sell commodity and futures contracts for delivery on a specified future date.
Emerging Market
is one in which the country is becoming a developed nation and is determined through many socio-economic factors. An emerging market economy is a nation's economy that is progressing toward becoming advanced
Multi-Domestic Strategy
is when a firm engages in Foreign Direct Investment in at least one working facility in another country; investment over which it has (partial or total) effective control.
TRANSNATIONAL strategy
is when a firm engages production activities in various countries with the objective to sell their products in specific markets, attempting to globally integrate the value chain but adapting to local conditions.
Global Strategy
is when a firm engages production activities in various countries with the objective to sell their products or services globally.
capital controls
limits on the flow of foreign exchange and financial investment across countries.
Outsourcing
obtain (goods or a service) from an outside or foreign supplier, especially in place of an internal source. Decide on "core competencies" Invest heavily in these Modularize all other activities Find a specialist to perform them Ford Motor company used to do EVERYTHING itself. This is too expensive so Ford decided on "core competency" (making cars). We can even see this in the university. If you go to universities in many countries, the school will have cafeterias, bookstores, and even hotels - all employing university staff.
Dis-intermediation
process of loosing distribution channels when they are no longer needed (Cut the middle man)
Protectionism/Tariffs
protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations. a system of using tariffs to raise the price of imported goods in order to protect domestic producers.
Manage reserves
store currency in their foreign exchange reserves. They use these reserves to change exchange rates.
Absolute advantage
the ability to produce a good using fewer inputs than another producer Example: India has an absolute advantage in operating call centers compared to the Philippines because of its low cost of labor and abundant labor force.
Reserve Requirement
the amount of cash that member banks must have on hand each night. The central bank uses it to control how much banks can lend.
Traceability
the degree to which we can directly relate a cost or revenue to a decision option. Example: Importers must purchase coffee directly from Fair Trade certified producers and agree to establish long-term and stable relationships.
Race to the bottom
the idea that free trade gives states the incentive to lower regulations and standards in order to beat out the competition in producing goods cheaply.
Modularization
the process of breaking down a program into modules. Modularization also works in consumer products such as furniture. The famous IKEA bookcase "Billy" is another example for modularization. It is assembled from very standardized basic parts or modules, but can be put together or expanded in many different ways customized to different tastes. Define specific task Define requirements and standards for that task Maintain close contact or Quality of Service (QoS) agreement with "client"
Central American Free Trade Agreement (CAFTA)
trade agreement designed to reduce tariff barriers between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States
