BUSA4200 - EXAM 1

impediments to globalization

-Formal and informal trade barriers -Barriers to foreign direct investment -Transportation costs -Economic and political risk -Managerial challenge

Pro-Globalization

-Increases prosperity -lower prices for goods and services -stimulates economic growth -raises income of consumers -helps create jobs supporters say benefits outweigh costs reduces cost structure and prices

implications for globalization of production

-Lower transportation costs -Geographically dispersed production system more economical -Allow firms to better respond to customer demands

pseudo democracies

-Many nations lie between pure democracy and complete totalitarianism --Authoritarian elements capture much of the machinery of state and use this in an attempt to deny basic political and civil liberties --Russia under Vladimir Putin

globalization in todays world

-declining barriers to cross-border trade and investment -advances in transportation and telecommunications -material culture similar over all world -national economies merging into integrated global economic system

how countries differ

-different political, economic and legal systems -vary in level of economic development and future economic growth trajectory -cultures, education, and skill levels

two central tenets of individualism

-emphasis on the importance of guaranteeing individual freedom and self expression -the welfare of society is best served by letting people pursue their own economic self interest (adam smith reiterates)

world economy today

-few self contained national economies with high barriers to cross border trade and investment -more integrated global economic system with lower barriers to trade and investment -establishment of international institutions

social stratification principles

-it is a trait of societ, not a reflection of individual differences -it carries over a generation to the next generation -generally universal but variable -involves not just inequality but also beliefs

implications for globalization of markets

-low cost communication networks help create electronic global market place -low cost transportation makes it economical to ship products around the world -reduction in cultural distance -convergence of consumer tastes and preferences

rise of mini-multinationals

-more small and medium sized businesses involved in international trade and investment -internet lowers barriers that small and medium firms face in building international sales

The Changing Foreign Direct Investment Picture

-share of world output generated by developing countries steadily increasing -stock of FDI by rich instill countries is declining -cross-border flows of FDI are rising -largest recipient of FDI is china, brazil, mexico, and india

changing foreign direct investment picture

-share of world output generated by developing countries steadily increasing -stock of fdi generated by rich industrial countries is declining -cross-border flows of fdi are rising -largest recipient of FDI is china, brazil, mexico and india

degree to which society is stratified into classes or castes

-some categorized as high degree of social stratification and low mobility between strata (india) -low degree of social stratification and high mobility between strata (american)

declining trade and investment barriers

-we produce more goods and services than ever before but a greater proportion being traded across nat'l borders -consumers are more knowledgable and drive demand -volume of world trade growing faster than GDP

Managing an international business is different from managing a purely domestic business because:

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

safeguards for democracy

1. individual's right to freedom of expression, opinion and organization 2. free media 3. regular elections in which all eligible citizens are allowed to vote 4. universal adult suffrage 5. limited terms for elected representatives 6. fair court system independent of political system 7. nonpolitical state bureaucracy 8. nonpolitical police force and armed service 9. free access to state information

two features of foreign exchange market

1. never sleeps 2. integration of various trading centers

international business use of foreign exchange market

1. payments received for exports, foreign investments, or licensing agreements is in foreign currencies and must be converted to use in home country 2. when company must pay foreign company for its products or services in that country currency 3. when company has spare cash to invest for short terms in money markets 4. currency speculation

trends in MNE

1. rise of non-us multinationals 2. growth of mini-multinationals

foreign exchange market

A market for converting the currency of one country into that of another country

efficient market

A market where prices reflect all available information.

islamic fundamentalism

A movement among many Muslims to return to the fundamentals of Islamic Faith, Life, and Society. media associates with millitants, terrorists, and violent upheavals modernization has offered little economic progress while threatening traditional value system

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. overt hostility to socialist or communist ideas; backed by military

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. has degree of flexibility other systems lack evolved in england and GB former colonies judge have power to interpret law so it applies to unique circumstances of individual case. as new precedents arise laws may be altered

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. usually carries a certain occupation and is passed down through family to succeeding generations

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.

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. government allocate resources for good of society; all businesses are state owned

United Nations (UN)

An international organization made up of 193 countries headquartered in New York City formed in 1945 to promote peace, security, and cooperation 193 member countries -develops friendly relations among nations -promotes respect for human rights -center for harmonizing the actions of nations

World Intellectual Property Organization (WIPO)

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

trademarks

Designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products

Foreign Direct Investment (FDI)

Direct investment in business operations in a foreign country during 20s and 30s many nations put up barriers to international trade to protect domestic industries after wwii advanced western countries reduced barriers -gatt, uruguay round, and wto

uncertainty avoidance

Extent to which cultures socialize members to accept ambiguous situations and to tolerate uncertainty lower uncertainty - readiness to take risks and less emotional resistance to change higher - premium placed on job security, strong need for rules and regulations, clear instructions

International Fisher Effect

For any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between countries

patent

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

factors of production

Inputs into the productive process of a firm, including labor, management, land, capital, and technological know-how. lowers overall cost structure or improve quality or functionality

International Monetary Fund (IMF)

International institution set up to maintain order in the international monetary system lender of last resort

World Bank

International institution set up to promote general economic development in the world's poorer nations promotes economic development using low-interest loans

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

currency speculation

Involves short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates. very risky

economic implications of islam

Koran is pro-free enterprise and earning legitimate profit through trade and commerce protection of right to private property good to earn profit as long as it is earned justly and not based on exploitation of others prohibits payment or receipt of interest

Microprocessors and Telecommunications

Major advances in communications and information processing have lowered the cost of global communication and therefore the cost of coordinating and controlling a global organization.

global institutions

Manage, regulate, and police the global market place Promote the establishment of multinational treaties to govern the global business system

globalization of markets

Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture, and toward a system in which national markets are merging into one global market. ex: coca cola, mcdonalds, ikea, starbucks, and apple

Fisher effect

Nominal interest rates (i) in each country equal the required real rate of interest (r) and the expected rate of inflation over the period of time for which the funds are to be lent (I). That is, i = r + I.

investor psychology

Predicts short-run movements of exchange rates can be affected by political factors and microeconomic events

buddhism

Siddhartha Gautama "Buddha" achieved nirvana but remained on earth to teach followers central and southeast asia, china, korea, and japan suffering originates in desires for suffering. suffering ceases when following path of transformation stress afterlife and spiritual achievement

changing world order

The collapse of communism in Eastern Europe Economic development in India and China Free market reforms and democracy in Latin America

forward exchange rate

The exchange rates governing forward exchange transactions 30/90/180 day contracts

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. policing world trading system and making sure nation states adhere to rules laid down by ____ 162 nations accounted for 98% of world trade

Moore's Law

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

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.

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.

socialists

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

globalization of production

Trend by individual firms to disperse parts of their productive processes to different locations around the globe to take advantage of differences in cost and quality of factors of production. -lowers overall cost structure -improve quality or functionality of product to compete more effectively -for production or services

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. illegal to bribe foreign government official to maintain business and requires publicly traded companies to keep detailed records that would reveal a violation

private action

Violation of property rights through theft, piracy, blackmail, and the like by private individuals or groups. weak legal system allows much higher level criminal action

forward exchange

When two parties agree to exchange currency and execute a deal at some specific date in the future. taking out insurance against possibility that future exchange rate movements will make a transaction unprofitable

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 or any business that has productive activities (owns business operations) in two or more countries

society

a group of people who share a common set of values and norms

convergence hypothesis

a hypothesis holding that cultural differences among places are being reduced by improved transportation and communications systems, leading to a homogenization of popular culture.

carry trade

a kind of speculation that involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high based on belief there will be no adverse movement in exchange rate or interest rate

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 ex: african countries

representative democracy

a political system in which citizens periodically elect individuals to represent them in government these individuals form government whose function is to make decisions on behalf of electorate; voted out if fail

theocratic totalitarianism

a political system in which political power is monopolized by a party, group, or individual that governs according to religious principles; limit freedom of political and religious expression ex: islam in saudi arabia and Iran

collectivism

a political system that emphasizes collective goals as opposed to individual goals -needs of a society greater than individual freedoms

ethical system

a set of moral principles, or values, that are used to guide and shape behavior; product of religion but not grounded in religion

theocratic law system

a system of law based on religious teachings ex Islam

religion

a system of shared beliefs and rituals that are concerned with the realm of the sacred

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 mobility varies from society to society

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 conscientiousness

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

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

a uniform 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 only 83 nations have ratified convention - countries that do not accept opt for arbitration by court to settle contract disputes

communist totalitarianism

a version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship most have collapsed since 1989 exceptions: china, laos, north korea, and Cuba communist in name only - market based economic reforms but totalitarian that deny basic civil liberties

values

abstract ideas about what a society believes to be good, right, and desirable shared assumptions about how things ought to be attitude towards freedom, democracy, truth, justice, honesty, loyalty, etc

service industries

advances in technology, lower transportation costs and the rise of skilled workers in developing countries imply that many services no longer need to be performed where they are delivered

totalitarian countries

all constitutional guarantees on which representative democracies are built are denied to citizens politcal repression is widespread, free and fair elections lacking, media heavily censored, basic civil liberties are denied, and those who question right of rulers imprisoned

indulgence

allows relatively free gratification of basic and natural human drives related to enjoying life and having fun

market economy

an economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced all productive activities are privately owned

individualism

an emphasis on the importance of guaranteeing individual freedom and self-expression; freedom in economic and political pursuits interests of individuals > interests of the state

culture and business

an international business with operations in two countries should vary its management process and practices to account for dfferences

International Business

any firm that engages in international trade or investment exports or imports products from other countries

shift to globalization

barriers to cross border trade and investment are declining perceived distance is shrinking due to advances in transportation and telecommunication technology material culture starting to look the similar the world over national economies are merging into interdependent integrated global economic system

the individual

basic building block of social organization western societies emphasize individual - individual performance in work "independent contractor" -high level of entrepreneurial activity in US - creates many new products and ways of doing business -managerial mobility - lack of loyalty and commitment and knowledge, experience, and network of contacts from working for same company for years

mixed economies

between market and command economies certain sectors ledt to private ownership and free market mechanisms while others have significant state ownership and government planning takes in state ownership troubled firms whose continued operation is thought to be vital in national interests

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 countries differ in how their legal systems define and protect these rights can be violated through private action or public action

purchasing power parity

by comparing prices of identical products in different currencies its possible to determine real PPP exchange rate E $/Y = P$/PY

culture is not static

can and does evolve as behaviors of people become ingrained in values and norms

precedent

cases that have come before the courts in the past

four dominant religions

christianity islam hinduism buddhism

mid 1990s

communism was in retreat worldwide collapse of the soviet union and replaced with 15 republics structured democratically

major forms of totalitarianism

communist totalitarianism theocratic totalitarianism tribal totalitarianism right-wing totalitarianism

inefficient market school

companies can improve the foreign exchange market's estimate of future exchange rates by investing in forecasting services forward spot exchange rates are not best possible predictors

economic implications of confusianism

confucian ethics, by lowering costs of doing business in country, may explain economic success loyalty, reciprical obligations, and honesty in dealing with others lowers costs of business

contracts under civil law

contract are much shorter and less specific because many issue already covered in a civil code

foreign exchange market functions

convert currency of one country into currency of another provide insurance against foreign exchange risk

tradition

countries legal history

price inflation

countries with high inflation will depreciate against countries with lower depreciation quantity of money in circulation increases faster than stock of goods and services

Geert Hofstede

culture relating to values in the workplace power distance, uncertainty avoidance, individualism vs collectivism, and masculinity vs. femininity (long term vs short term added later)

two factors driving globalization

decline in barriers to free flow of goods, services, and capital technological change

macro factors of globalization

decline in barriers to the free flow of goods, services, and capital technological change - communication, information processing, and transportation technologies

role of government in market economy

encourage vigorous free and fair competition between private producers banning restrictive business practices

private ownership

encourages vigorous competition and economic efficiency entrepreneurs have rights to profits generated by their own efforts introduces new products, developing more efficient production processes, better marketing and after sale service managing businesses more efficiently than competitiors

Group of Twenty (G-20)

established in 1999, 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 represents 90% of global gdp forum for a coordinated policy response to financial crisis of 08-09

hyperinflation

explosive and seemingly uncontrollable price inflation in which money loses value very rapidly

grease payments or speed money

facilitating or expediting payments to secure performance of a routine governmental action

protestors of globalization

fear globalization has detrimental effects on living standards, wages, and the environment -destroys mfg jobs in wealth economies -service activities increasing outsource to nations with lower labor cost -lack of regulations for environmental and labor policies

karl marx

few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted wages earned by individuals in capitalist society forced down to subsistence levels; pay of workers does not reflect full value of labor advocated state ownership of basic means of production, distribution and exchange; state could ensure workers fully compensated for labor and benefit society as a whole

globalization opportunities

firms can expand revenues by selling around the world can reduce costs by producing in nations where key inputs including labor are cheap

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

efficient market school

forward exchange rates do the best possible job of forecasting future spot exchange rates, and, therefore, investing in forecasting services would be a waste of money

aristotle

greek philosopher individual diversity and private ownership are desirable. private property is more highly productive than communal property and will stimulate progress

Plato

greek philosopher that advocated for collectivism The Republic - individual rights sacrificed for good of the majority and property owned in common; society should be stratified into classes

the group

group is primary unit of social organization primacy of group individual belongs to often evolves into deeply emotional attachment in which identification with group becomes all important -creates pressures for mutual self-help and collective action -strong incentive for individual to work together for common good -discourages moving from company to company -lack of dynamism and entrepreneurship

public policy

has swung towards the free market end of the economic spectrum

social strata

hierarchical social categories often based on family background, occupation, and income socioeconomic characteristics: family background, occupation, and income differ in regard to degree of mobility between strata and significance attached to social strata

law of one price

in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency

hinduism

indian subcontinent moral force in society requires acceptance of certain responsibilities called dharma reincarnation, karma, achieving nirvana (spiritual perfection)

central message of individualism

individual economic and political freedoms are the ground rules on which a society should be based

the internet

information backbone of the global economy rolls back constraints of location, scale, and time zones

Global Leadership and Organizational Behavior Effectiveness (GLOBE)

instrument designed to address notion that leaders effectiveness is contextual established nine cultural dimensions

paris convention for protection of industrial property

international agreement to protect intellectual property

product liability

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

monopolists

likely to become increasingly inefficient as producing high priced low quality goods and society suffers as consequence

education

medium through which individuals many of the language, conceptual, and technical skills that are indispensable in modern society; cultural norms taught indirectly determinant of national competitive advantage: indicator of kind of products that might sell, guides locations of international businesses

Islamic law

moral rather than commercial law; governs all aspects of life including certain commercial activities the Koran and Sunnah is foundation of the law

economic implications of buddhism

more fertile ground for entrepreneurial activity than hinduism - doesnt emphasize ascetic or caste system economies are localized - relations between people, culture, nature unmediated

christianity

most widely practiced religion in world (2.2b) grew out of judaism - monotheistic roman catholic church and orthodox church further split to protestantism (baptist,methodist)

bandwagon effect

movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions

currency conversion

must use national currency within borders of a particular country

unspoken language

nonverbal communication; culturally bound raise eyebrows, smiling, personal space

mores

norms seen as central to the functioning of a society and to its social life; have greater moral significance violating brings serious retribution, ill will and collapse of business deal theft, adultery, incest, and cannibalism

international trade

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

confusianism

official ethical system of china; comprehensive ethical code sets guidelines for relationships with others importance of attaining personal salvation through right action deeply embedded in cultures of these countries

pure form of democracy

originally practiced in ancient Greece based on belief that citizens should be directly involved in decision making

democracy

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

political economy

political, economic, and legal systems of a country - interdependent and effect the level of economic well-being

three factors on exchange rate movements in country's currency

price inflation interest rate market psychology

reduced regulatory and administrative barriers

privatizing state-owned enterprises, deregulating markets, increasing competition, and welcoming investment by foreign businesses

intellectual property

products of the mind, ideas (books, music, computer software, designs) can be protected by patents, copyrights, and trademarks

mudarabah

profit-sharing scheme takes share of the profits that are derived from the investment depositor receives share of in profit of banks investments

individualism reborn

protestant trading nations of england and the netherlands during 16th century refined by david hume, adam smith, and john stuart mill profound influence on american colonies that sought independence

economic implications of christianity

protestantism has most profound economic implications relationship between protestant and modern capitalism hard work, wealth creation, and frugality

high levels of corruption

reduce FDI, level of international trade, and economic growth rate in a country

globalization

refers to the shift toward a more integrated and interdependent world economy trend away from distinct national economic units towards one huge global market -globalization of markets -globalization of production

interest rates

reflect expectations about likely future inflation rates high inflation = high interest rates

world values survey

research project that explores peoples values and norms, how they change over time, and what impact they have in society and business

property

resource over which an individual or business holds a legal title, a resource that it owns

foreign exchange risk

risks that arise from volatile changes in exchange rates risk that changes in exchange rates will hurt the profitability of a business deal

folkways

routine conventions of everyday life little moral significance: dress code, manners, eating with utensils includes rituals and symbolic behavior

islam

second largest of worlds major religions northwest coast of africa thru middle east to china and malaysia monotheistic - one true omnipotent god (allah) forgo worldly treasures to seek favor of allah; honor and respect parents; respecting rights of others; being generous; avoiding killing; not committing adultery all embracing way of life

product safety law

set certain safety standards to which a product must adhere

containerization

simplifies trans shipment from one mode of transport to another

currency swaps

simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

norms

social rules and guidelines that prescribe appropriate behavior in particular situations -folkways and mores (Sumner)

the determinants of culture

social structure religion language education -political philosophy and economic philosophy

restraint

society that suppresses gratification of needs and regulates it by means of strict social norms

spoken language

structures way you see world (directs towards certain features) helps define cultures english is language of international business

supply in market economy

supply cannot be restricted occurs when a single firm monopolizes market

political system

system of government in a nation shapes economic and legal systems assessed by: -collectivism vs. individualism -democratic or totalitarian

civil law system

system of law based on a very detailed set of written laws and codes courts interpret law with regard to these codes; less adversarial than common law - judge does not interpret, relies on legal code judges have less flexibility - only have power to apply law

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 regulates business practices, how business transactions are executed, and sets down rights and obligations of those involved -common law, civil law, and theocratic law

contracts under common law

tend tone very detailed with all contingencies spelled out; more expensive

social structure

the basic social organization of a society emergent and determinant of behaviors of individuals -degree to which basic unit of social organization is individual as opposed to group -degree to which society is stratified into classes or castes

contract law

the body of law that governs contract enforcement

spot exchange rate

the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day reported on real time basis; value determined by S&D

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 -levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating owners

arbitrage

the purchase of securities in one market for immediate resale in another to profit from a price discrepancy

exchange rate

the rate at which one currency is converted into another

privatization

the sale of state-owner enterprises to private investors

protectionism

the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports.

stock of FDI

the total accumulated value of foreign owned assets at a given time

custom

the ways in which laws are applied in certain situations

communists

those who believe that socialism can be achieved only through violent revolution and totalitarian dictatorship reached high point in 70s when majority of worlds population lived in communist states

social democrats

those who committed to achieving socialism by democratic means; turned backs on violent revolution and dictatorship

cross-cultural literacy

understanding how the culture of a country affects the way business is practiced

economic implications of hinduism

weber- ascetic principles do not encourage entrepreneurial activity in pursuit of wealth creation judged on spiritual achievements hardworking entrepreneurs

degree to which basic unit of social organization is individual as opposed to group

western - emphasize individual other societies - groups tend to figure much larger

hedging

when a firm insures itself against foreign exchange risk -spot exchange, forward exchange rates, and currency swaps

murabaha

when firm purchases something using a loan, the firm tells bank after negotiating with the manufacturer bank buys item and company pays back bank at a later date with a markup