International Business Chapters 1-3

1. common law 2. civic law 3. theocratic law

3 types of legal systems

1. market economies 2. command economies 3. mixed economies

3 types of economic systems

Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private sector debt

Benefits, Costs, Risks, and Overall Attractiveness of Doing Business Internationally

-World Trade Organization -international Monetary Fund -The World Bank -The United Nations

General Agreement of Tariffs and Trade

-finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the EU and the European Central Bank -represents 90% of global GDP and 80% of international global trade

Group of Twenty (G20)

makes it illegal for US companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority

The Foreign Corrupt Practices Act

facilitating or expediting or "grease" payments to secure or expedite routine government action

The Foreign Corrupt Practices Act permits

-established to maintain order in the international monetary system -lender of last resort -requires nation-states to adopt specific economic policies aimed at returning their economies to stability and growth

The International Monetary Fund

-peace through international cooperation and collective security -193 countries

The United Nations

establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between buyers and sellers who have their places of business in different nations

The United Nations Convention on Contracts for the International Sale of Goods

-promotes economic development -focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments

The World Bank

-policies the world trading system -ensures nation-states adhere to the rules -facilitates multinational agreements among members -164 nations account for 98% of world trade

The World Trade Organization

also called shadow economy transactions--these are unrecorded cash transactions or barter agreements

black economy transactions

-economic development should be assessed by the capabilities and opportunities people enjoy -economic progress requires the democratization of political communities to give citizens a voice

broader conceptions of economic development

based on detailed set of laws organized into codes

civic law

stresses the primacy of collective goals over individual goals (traced back to Plato)

collectivism

government plans the goods and services that a country produces, the quantity that is produced, and the prices at which they are sold (all businesses are state-owned, and governments allocate resources for "the good of society;" because there is little incentive to control costs and be efficient, command economies tend to stagnate)

command economies

based on tradition, precedent, and custom

common law

socialism can only be achieved through violent revolution and totalitarian dictatorship

communism

found in states where the communist party monopolizes power

communist totalitarianism

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

contract

the body of law that governs contract enforcement (under a common law system, contracts tend to be very detailed with all contingencies spelled out; under civil law system, contracts tend to be much shorter and less specific because many issues are already covered in the civil code)

contract law

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

copyrights

-democratic regimes -market based economic policies -strong property rights protection

countries are more likely to have higher sustained rates of economic growth when they have... (benefits)

have higher growth rates because the workforce is more productive

countries that invest in education...

more likely to engage in trade, more open to market-based systems

countries with favorable geography are...

-1920s-30s: barriers to international trade and foreign direct investment (high tariffs resulted in retaliatory trade policies) -GATT lowered barriers (Uruguay Round, established world trade organization)

declining trade and investment barriers

a political system in which government is by the people, exercised either directly or through elected representatives; usually associated with individualism; pure democracy is based on the belief that citizens should be directly involved in decision making; most modern democratic states practice representative democracy where citizens periodically elect individuals to represent them

democracy

are probably more conductive to long-term economic growth (property rights are only secure in well-functioning, mature democracies)

democratic regimes

the removal of government restrictions concerning the conduct of a business

deregulation

-institutions -declining trade barriers -technology -political change in the world -free stock trade (foreign portfolio investment)

drivers of globalization

-south korea -taiwan

economic growth leads to establishment of democratic regimes

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

economic risk

-first to commercialize innovative products and processes -provides much of the dynamism in an economy

entrepreneurs

refer to advantages accruing to the first to enter a market

first-mover advantages

1. communist totalitarianism 2. theocratic totalitarianism 3. tribal totalitarianism 4. right-wing totalitarianism

four major forms of totalitarianism

1. patents 2. copyrights 3. trademarks

intellectual property can be protected by...

process of international integration arising from the interchange of world views, products, ideas and other aspects of culture

globalization

measures the total annual income received by residents of a nation

gross national income

reduces foreign direct investment, the level of international trade, and the economic growth rate in a country

high level of corruption...

an attempt by the UN to assess the impact of a number of factors on the quality of human life in a country (base on life expectancy at birth, educational attainment, whether average incomes are sufficient to meet the basic needs of life in a country)

human development index

greater individual freedoms, and a democracy

if china adopts a free market system, belief is that the country will have...

refers to philosophy that an individual should have freedom in his own economic and political pursuits (can be traced back to Aristotle; individual diversity and private ownership are desirable; individual economic and political freedoms are the ground rules on which a society should be based; implies democratic political systems and free market economies)

individualism

includes new products, new processes, new organizations, new management practices, and new strategies

innovation

property that is the product of intellectual activity

intellectual property

refer to handicaps experienced by being a late entrant in a market

late-mover disadvantage

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

legal risk

the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained (the system in a country is influenced by the prevailing political system)

legal system

-define how business transactions are executed -identify the rights and obligations of parties involved in business transactions

legal systems are important for businesses because they...

political ideology and economic systems are connected (because countries that stress individual goals are likely to have market based economies, and in countries where state-ownership is common, collective goals are dominant)

link between political ideology and economic systems

the state owns all means of production and therefore the gains

little incentive to develop new innovations in planned economies because...

design and names by which merchants or manufacturers designate and differentiate their products

trademarks

all productive activities are privately owned and production is determines by the interaction of supply and demand (government encourages free and fair competition between private producers)

market economies

certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning (governments tend to own firms that are considered important to national security)

mixed economies

communism and social democrats

modern-day socialism

exclusive rights for a defined period to the manufacture, use, or sale of that invention

patents

how the political, economic, and legal systems of a country are interdependent (they interact and influence each other, they affect the level of economic well-being in the nation)

political economy of a nation

1. democratic revolutions 2. a move away from centrally planned and mixed economies toward a more free market approach

political economy of nation states is marked by 2 trends

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

political risk

the system of government in a nation

political system

-the degree to which the country emphasizes collectivism as opposed to individualism -the degree to which the country is democratic to totalitarian

political systems are assessed according to...

theft, piracy, blackmail

private action

transfers the ownership of state property into the hands of private individuals; stimulates economic efficiency

privatization

the 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

property rights

legally (excessive taxation), illegally (bribes or blackmailing)

public action

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

purchasing power parity

form of government in which one person or political party exercises absolute control over all sphered of human life and prohibits opposing political parties

totalitarianism

-democratic -totalitarian

required political systems

permits some individual economic freedom, but restricts individual political freedom

right-wing totalitarianism

-communications -internet -transportation technology -implications for the globalization of production -implications for the globalization of markets

role of technological change

socialism is achieved through democratic means (retreating as many countries move toward free market economies, state-owned enterprises have been privatized)

social democrats

-advocate state ownership of the basic means of production, distribution, and exchange -manage to benefit society as a whole, rather than individual capitalists

socialists

-collectivism is equated to...

socialists

the value of world trade in merchandised goods has grown consistently faster than the growth rate in the world economy since 1950

society and trade agreements

-political system: it is necessary to pay bribes to get market access -economic level: are the necessary supporting business and infrastructure in place -legal system: how do local laws and regulations affect business decisions? Are there well-established contract laws?

the costs of doing business in a country

-falling barriers to cross-border trade and investment -global tastes -benefits small and large companies -significant similarities between national markets -products that serve universal needs are global -competitors may not change among nations

the globalization of markets

-sourcing goods to take advantage of differences in cost and quality of factors of production -early outsourcing was confines to manufacturing (technology is now used for outsourcing)

the globalization of production

-global terrorism is a product of tensions between civilizations and a clash of value systems and ideology (Al-Qaeda and ISIS) -terrorism is one of the major threats to world peace and economic progress

the new world order and global terrorism

-political risk -economic risk -legal risk

the risks of doing business in a country

-deregulation -privatization -a legal system to safeguard property rights

the shift a market-based system involves...

-many totalitarian regimes failed to deliver economic progress to the bulk of their populations -new information and communication technologies -economic advances have led to a prosperous middle class that has pushed for democratic reforms

the spread of democracy

-a shift from centrally planned economies to market-based economies -command and mixed economies failed to deliver the sustained economic growth achieved in market-based countries

the spread of market-based systems

law is based on religious teachings

theocratic law

found in states where political power is monopolized by a party, group, or individual that governs according to religious principles

theocratic totalitarianism

detrimental to progress (they limit freedom, they suppress human development)

totalitarian states

found in states where a political party that represents the interests of a particular tribe monopolizes power

tribal totalitarianism

1. private action 2. public action

violation of property rights