MBA 610 - Ch. 2
Globalization
1. The integration and interdependence of economic, social, cultural, and ecological facets of life, enabled by rapid advances in information technology 2. Advocated by leading economists and politicians post-World War II 3. Movement led to the creation of several international trade agreements, e.g., World Bank, IMF, GATA WTO, etc.
Regional Trade Agreements
Agreements among nations to reduce tariffs and develop similar technical and economic standards
Business Environment - Task Environment
Includes entities that directly affect a firm on a constant basis and include competitors, suppliers, and customers. • Competitors - Any organization that creates goods or services targeted at a similar group of customers • Suppliers - A company that provides resources or services for a firm to help in its creation of products and services • Customers - The people or other organizations that buy a firm's products and services
Business Environment - General Environment
Includes the technological, economic, political/ legal, and socio-cultural dimensions that affect a firm's external environment
Universal Social Dimensions - Individualism Vs. Collectivism
Individualism refers to a focus on individual goals and achievements while collectivism refers to a focus on group goals and relationships. The United States is mostly individualistic, while Latin America is strongly collectivistic
Universal Social Dimensions - Cooperative Vs. Competitive
Individuals who gravitate to cooperative relationships prefer collaboration and group participation while those who gravitate to competitive relationships prefer individual achievement, competition, and assertiveness. Previous research referred to these dimensions as feminine (cooperative) and masculine (competitive). The United States and Germany tend to be more competitive and Sweden tends to focus on more cooperative aspects of relationships.
Universal Social Dimensions - Low Vs. High Power Distance
Individuals who gravitate toward low power distance prefer shared decision making and consensus while those who favor high power distance prefer deference to authority. Low power distance refers to more democratic societies such as Austria and Denmark. High Power Distance refers to autocratic societies such as China and parts of Latin America.
Business Environment
Represents all of the external forces that affect the firm's business. 3 Types - General environment, task environment, internal environment
WTO (World Trade Organization)
The WTO was formed to deal with the rules of trade between nations and is responsible for negotiating and implementing new trade agreements as well as policing member countries' adherence to them.
Social Valuealues
The deeply rooted system of principles that guide individuals in their everyday choices and interactions
Universal Social Dimensions - Low vs High Uncertainty Avoidance
The extent to which members of a society cope with anxiety by minimizing uncertainty. Countries with high uncertainty avoidance, such as the majority of Latin American countries, prefer more rules, planning, and structure. Countries with low uncertainty avoidance are more comfortable with ambiguity and include Ireland, Sweden, Denmark, and Singapore.
Universal Social Dimensions -Long vs Short Term Orientation
The importance attached to the future and the criteria that should be considered when making business decisions. Asian countries usually have a long-term orientation; Western nations, short term
Trans-Pacific Partnership (TPP)
• A trade agreement among 12 Pacific Rim countries • It aims to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories' countries; and promote transparency, good governance, and enhanced labor and environmental protections." • It contains measures to lower both non-tariff and tariff barriers to trade, and establish an investor-state dispute settlement mechanism. • The finalized proposal was signed on February 4, 2016 in New Zealand, concluding seven years of negotiations. But in January 2017, the United States withdrew from the agreement. Thus TPP never entered into force. • The remaining 11 TPP signatories agreed to replace TPP with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, or TPP-11) and formally signed it on March 8, 2018. The CPTPP incorporates most of the TPP provisions by reference, but suspended 22 provisions the US favored that other countries opposed, and lowered the threshold for enactment so the participation of the US is not required. • UK formally applied to join CPTPP on February 1, 2021.
Comparative Advantage
• Countries should specialize in producing goods for which they have the lowest opportunity cost of production - Specialization in a particular product, helps become an efficient producer • Free trade leads to a more efficient allocation of resources - Results in all countries that are involved in trade benefiting from access to cheaper goods
Business Environment - Internal Environment
• Owners The people or institutions that maintain legal control of an organization • Board of directors A group of individuals elected by shareholders and charged with overseeing the general direction of the firm • Employees The people who make the products and provide the services that allow a firm to exist • Culture Pattern of basic assumptions about the way in which an organization and individuals in it should work and interact with each other
Regional Comprehensive Economic Partnership (RCEP)
• The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between 15 Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam signed on 15 November 2020 that unifies the preexisting bilateral agreements between the 10-member ASEAN and five of its major trade partners. • The 15 member countries account for about 30% of the world's population (2.2 billion people) and 30% of global GDP ($26.2 trillion) as of 2020, making it the biggest trade bloc in history. • The trade pact is expected to eliminate about 90% of the tariffs on imports between its signatories within 20 years of coming into force, and establish common rules for e-commerce, trade, and intellectual property. The unified rules of origin will help facilitate international supply chains and reduce export costs throughout the bloc. • The RCEP is the first free trade agreement between China, Indonesia, Japan, and South Korea, four of the five largest economies in Asia. At the time it was signed, analysts predicted that it would help stimulate the economy amid the COVID-19 pandemic, as well as "pull the economic center of gravity back towards Asia," and amplify the
Brexit
• The United Kingdom (UK) withdrew from the European Union (EU), a process commonly known as Brexit (British + exit), as a result of a June 23, 2016 referendum in which 51.9% (48.1%) voted for (against) leaving the EU. • On January 31, 2020 at 11 p.m. GMT, the UK officially left the EU. This began a transition period that ended on December 31, 2020, during which the UK and EU negotiated their future relationship. • Economists believe that Brexit will likely harm the UK's economy and reduce its real per capita income in the long term. Brexit is also likely to reduce immigration from European Economic Area (EEA) countries to the UK, and poses challenges for British higher education, academic research and security... Following Brexit, EU law and the EU Court of Justice no longer have supremacy over British laws or its Supreme Court.
NAFTA to USMCA
• United States-Mexico-Canada Agreement (USMCA) is the result of a 2017-2018 renegotiation of the North American Free Trade Agreement (NAFTA) by its member states. • It was proposed by President Donald Trump and signed by all three countries' heads on November 30, 2018. • Compared to NAFTA, USMCA increases environmental and labor regulations, and incentivizes more domestic production of cars and trucks. It also provides updated intellectual property protections, gives the U.S. more access to Canada's dairy market, imposes a quota for Canadian and Mexican automotive production, and increases the duty-free limit for Canadians who buy U.S. goods online from $20 to $150, etc. USMCA officially took effect on July 1, 2020.