Global Business Module 1

foreign direct investment

a firm invests assets directly into a foreign country: buildings, equipment, or organizations -may look like parent firm or customized to local market

six sigma

a method that provides tools for organizations to increase performance and decrease process variation

Modern Theory

all countries follow one way of developing to an industrialized and therefore, developed countries can help traditional economies become more developed

National NGOs

any nonprofit, voluntary citizens' groups that are organized on a local, national, or international level -many problems could not be solved in a single nation -formed to emphasize humanitarian issues, developmental aid, and sustainable development

Globalization 4.0 Anil Gupta

characterized by digital technologies, investment, data; no longer trade in goods; exportation in technology

First Stage of going global: Market Entry

companies enter new countries using business models similar to the ones deployed in their home markets to increase revenue -need to establish a production presence to gain access

Second Stage of going global: Production Specialization

companies transfer the full production process of a particular product to a single, low cost location and export the goods to various consumer markets -different locations begin to specialize in different products or components and trade in finished goods

History of Communism

concept was developed by Karl Marx in 1848. He wrote "the Communist Manifesto" to promote communism. -wanted the workers to own the means of production -established during the industrial revolution -put the workers in control, no difference in economic classes, wanted class struggle to be eliminated -main goal: abolish capitalism due to workers being mistreated and exploited -most interpretations or attempts to establish communism have created state-driven authoritarian economies and regimes, which benefit the single-party elite, who are not accountable to the people

Governmental bodies

embassies and consulates

What is the globalization debate?

more an opinion on how the internationalization of businesses is affecting countries 1. surrounds whether cultural, consumer, and national identity changes are desirable and how fast markets are actually merging together

importer

sells products and services that are sourced from other countries

exporter

sells products and services that are sourced in the home country and then sent to foreign countries -subject to transport costs and tariffs

transformationalist global perspective

-a new world order design is happening

stakeholder analysis

-a technique to identify and assess the importance of key people, groups of people, or institutions that may significantly influence the success of an organization's activity, project, or business

Stakeholders

-an individual or organization who is impacted by business activities of an organization or its employees -in any countries, the government is responsible for protecting the environment -other stakeholder groups include: industry associations, trade groups, suppliers, and labor (employed and/or contracted

Fifth stage of going global: Creation of New Markets

-focus is on market expansion -by reducing costs, the company can reduce their price and increase demand -McKinsey Global Institute: an organization whose mission is to "help leaders in the commercial, public, and social sectors develop an understanding of the evolution of the global economy" -McKinsey Global Study indicate that the 3rd and 4th stages together have the potential to reduce costs y more than 50% -all stages aren't followed exactly by all companies -all five stages make the business more efficient

4 industry global drivers

-market -cost -competitive -governmental identified by Yip (1992)

debates over globalization: those for it

-proponents of economic growth -increased well being -increased trade and investment -increased awareness of an international community -potential to sell to broader markets and increase wealth 1. corporate businesses specifically finance see globalization as a good thing -spread of liberty and capitalism -create jobs, make companies more competitive, and lower prices for consumers -creation of a less compartmentalized world power structure -increased access to information may increase tolerance and encourage everyone to be open to the ideas of others

Economic impact from globalization

-trade -investment -information technology

International Monetary Fund identified four fundamental aspects of globalization

-trade (the action of buying and selling goods and services) and transactions -capital (financial assets such as funds but also equipment, facilities, and other means of production) and investment movements -the migration and movement of people -the spread of knowledge

The Challenges of Globalization

1. Ethical business practices -labor, product safety, environmental stewardship, corruption, and regulatory compliance 2. organizational structure -the ability to efficiently and effectively incorporate new regions into the value chain and corporate structure -enormous capital investments -development of a specific strategic business unit (SBU) 3. public relations -building this public relation potential in a new geographic region is a challenge 4. Challenge to find a high intercultural competent leader 5. legal and regulatory structure -MNCs need access to legal expertise that will help them to understand in country laws and compliance -unique laws and regulations that govern business 6. less developed countries -infrastructure: basic physical and organizational structures needed for a society to operate and for an economy to function--the set of interconnected structural elements that provide a framework supporting an entire developmental construction -organizational form like a stable government, property rights, judicial system, banking, and financial systems, and essential social services -will help determine ease of doing business in that location 7. Technology challenges -training workers on unfamiliar equipment, inadequate transportation system, poor communication, facilities and infrastructure, challenges with technology literacy and lack of reliable internet.

Friedman Globalization

1. Globalization 1.0 -Christopher Columbus's discovery of the New World 1492-1800 -nations dominated -nationalism and religion; how much industrial power countries could produce and apply 2. Globalization 2.0 -emerging power of huge MNCs 1800-2000s -grew with the European mercantile stock companies as they expanded in advances in sea and rail transport -modern communication and cheaper shipping costs drivers 3. Globalization 3.0 -2000s- -characterized by advances in global electronic interconnectivity that allowed individuals to communicate in a new way -significant software advances

Five stages of going global

1. Market Entry 2. Product Specialization 3. Value Chain disaggregation 4. Value Chain Re-engineering 5. Creation of New Markets

Monarchy

1. a single person rules until he or she dies or abdicates the throne -claims the rights to the throne/title by way of hereditary succession or as a result of a religious, or divine appointment or calling -often aristocratic figureheads -some are "absolute" monarchs: monarch has absolute or unmitigated power; may have oppressive or unfair policies (ex. Middle East and Africa) -"constitutional" monarchies: rulers aide by the laws of a greater constitution (ex. Great Britain and Canada)

theoretical benefits of capitalism

1. best product for best price 2. low prices because of competition 3. consumers pay the most for what they want the most 4. rewards innovation 5. individual freedoms 6. variety in goods and services 7. it is focused on customer satisfaction

commodity industries and government

1. businesses in commodities have found more authoritarian governments to be predictable partners for long-term access and investment in these commodities -governments come to aid their largest businesses' interest

5 key characteristics of a traditional economy

1. centered around a family or tribe and guided by tradition 2. found in hunt-gatherer and nomadic societies; everyone consumes and produces the same goods 3. relies on bartering 4. members produce what they need with no surplus 5. eventually the economy evolves to some form of currency

Five distinguishing characteristics of a command economy

1. collective sate ownership of capital--the states owns capital resources such as money, property, and other physical assets. There is no (or very little) private ownership 2. the state determines inputs and outputs through extensive planning that goes through the government to the companies, etc 3. labor is allocated according to state plans--in a command planning system, there is no choice of profession. When a child is in primary school, a streaming system allocates people into designated industries 4. private ownership is not possible: an individual cannot own shares, real estate, or any other form of physical or nonphysical asset. The state allocates people's residence 5. prices and paying for goods--prices are regulated by the state without consideration of the cost of production. -often a currency doesn't exist; when it does the purpose is for accounting. You are allocated goods and services. This allocation process is often called rationing

Theoretical drawbacks of capitalism

1. doesn't provide for those who cannot compete well 2. opportunities aren't equal 3. inequality limits diversity and innovation 4. It ignores external costs such as pollution and climate change that can deplete natural resources overtime 5. workers and businesses face uncertainty due to competition 6. there can be insufficient public goods such as education and healthcare for everyone 7. unemployment occurs 8. must guard against market failure 9. class distinctions between the rich and poor 10. firms can create monopolies

Capitalism

1. free enterprise is a business governed by the laws of supply and demand where the government has no involvement in its decisions or actions 2. based solely on private ownership and on the creation of goods or services for profit by privately owned business enterprises 3. synonym for competitive markets, wage labor, capital accumulation, voluntary exchange , and personal finance 4. variants: laissez-faire, mixed economy, and state capitalism 5. economists usually emphasize the degree to which the government does not have control over markets (laissez faire), as well as the importance of property rights 6. most political economists emphasize private property, power relations, wage labor, class, and the uniqueness of capitalism collectively as a historical formation 7. the extent to which different markets are free as well as the roles defining private property, are a matter of politics and policy

Advantages of a traditional economy

1. little or no friction between members since each member depend on each other for support 2. custom and tradition dictate resource allocation 3. all members understand their position in society and what they are expected to contribute 4. it is more sustainable

advantages of command economy

1. organizations can mobilize large amounts of resources without fear of lawsuits or environmental regulatory issues. Therefore, large projects can more easily be undertaken 2. an entire economy can be transformed based on a leader's vision

Dictatorship

1. power is held by a single person (or very small group) who wields complete and absolute authority over a government and population -wield authority through economic and military might, intimidation and brutality -individuals are less likely to rebel when they are starving and fearful; means to preserve the authority of the dictatorship -most dictators start as military leaders and are conditioned to use violence against the opposition -totalitarian dictatorship: more strict and attempts to control all aspects of its subjects' lives, including occupation, religious beliefs, and the number of children permitted in each family

Disadvantages of a command economy

1. rapid change can lead to the neglect of society's needs 2. the production of goods and services are not tied to demand, and, if too little is produced, rationing is necessary 3. following the rules, not innovation, is rewarded 4. black markets or shadow economies are common 5. the economy is less flexible and slower to react to change -ex. Venezuela: government said to be authoritarian and you have absolutely no control

authoritarian

A government in which one leader or group of people holds absolute power.

culture

Beliefs, customs, and traditions of a specific group of people.

GATT (General Agreement on Tariffs and Trade)

-General Agreement on Tariffs and Trade (GATT): gave birth to the WTO and provided a framework for negotiation and formalizing trade agreements and dispute resolution process -facilitates developed economies integrating with developing countries through foreign direct investment, lowering the costs of doing business, reducing trade barriers, and cross-border migration -initiatives completed: 1. promotion of free trade and elimination of tariffs 2. creation of FT zones with small or no tariffs 3. reduction of transportation costs, primarily resulting from containerization for ocean shipping 4. reduction or removal of capital controls 5. reduction, elimination, or harmonization of subsidies (a sum of money granted by the government to assist an industry or business) for local businesses 6. creation of subsidies for global corporations 7. harmonization of intellectual property (a work or invention that is a result of creativity) laws across the majority of nation-states, with more restriction put in place 8. supranational recognition of IP restrictions

Globalization 3.0

-companies can outsource any service or business that can be simplified to its key components and converted to computerized operations -political allegiances are shifting -corporate nationality is also blurring

skeptical globalization perspective

-critical of globalization -today's international processes as being more regionalized rather than globalized -skeptics don't believe the current economy is leading to a global capital economy

Subdivisions of globalization

-economic globalization -cultural globalization -political globalization

Government globalization drivers

-favorable trade policies -support for industry -technical standards, policies, and regulations -government-operated or subsidized competitors or customers crucial to shaping the global competitive environment of an industry

how have firms benefitted from globalization

-focus on research and development -larger market access -access to cheap labor

other factors linked to globalization

-global warming, cross boundary water and air pollution, and overfishing in the ocean -affect and affected by business and work organizations, economics, sociocultural resources, and the natural environment

Competitive globalization drivers

-high levels of trade -new markets -competitive diversity -interdependence (as well as the above) increase the potential for industry globalization -industry characteristics: degree to which total industry sales comprise export or import volume, the national diversity of competitors, and the extent to which major players have globalized their operations and created interdependence between their competitive strategies -competitors have to adapt to change in the industry in order to remain competitive--sometimes this causes industry globalization to accelerate or the globalization process may be reversed

The benefits of global expansion

-increased volume of sales and exchange -significant growth rates in GDP -empowerment of individuals and political systems through the acquisition of additional resources and capital FOR MULTINATIONAL CORPORATIONS (MNCs) -larger market -low cost -advanced technology -unsaturated demand for new products, lower labor costs, less expensive natural resources, and other inputs to products -selling goods in multiple countries -sourcing production in areas that can produce goods more profitably -- can achieve either higher revenue or lower costs -look for opportunities to realize economies of scale by mass producing goods in markets that have substantially cheaper costs for labor or other inputs, or they may look for economies of scope

globalization

-international integration arising from exchange of world views, products, ideas, and other aspects of culture -key elements: interconnectedness and integration -driving by technology, transportation, and international cooperation -can result in blurred boundaries between nations, organizations, and investors -telecommunication and transportation infrastructure have been major factors as it generates further interdependence

Political globalization

-may reduce the importance of nation-states -the EU, WTO, G8, and the international criminal court, serve to replace or extend national functions to facilitate international agreement -increase of nongovernmental organizations (NGOs)-nonprofit organizations that are independent of the government and are active in humanitarian causes -in response to globalization, some countries have embraced isolationist policies, like North Korea

challenges for firms due to globalization

-need to understand and conform to foreign legal and political policies

Market globalization drivers

-opportunities for scale: cost advantages due to an increase in the amount of output and a decrease in the cost per unit ($ goes down/unit) -opportunities for scope: average cost of production for a variety of goods -convergence of needs -everyday needs, tastes, and preferences may vary significantly by product and depend on such factors as the importance of cultural variables, disposable income, and homogeneity of conditions in which the product is consumed or used -the key to opportunities for scale lie in the elements where standardization can take place without losing responsiveness to local preferences and conditions -as consumption patterns become more homogenous than before, global branding and marketing become increasingly important

Political impact from globalization

-reduce the importance of nation-states -some countries don't like global integration -NGOs

Economic Globalization

-refers to the widespread, international movement of goods, capital, services, technology, and information -the increasing economic integration and interdependence of national, regional, and local economies across the world through an intensification fo the cross-border movement of goods, services, technologies, and capital -comprises of the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labor -grown due to improvements in the efficiency of long-distance transportation, advances in telecommunication, the importance of info over physical capital in the modern economy, and developments in science and technology

Cost globalization drivers

-scope: to develop efficiencies in terms of variety not volume -economies of scale and scope -exploitation of differences in costs for product development, manufacturing, and sourcing in different parts of the world will assume greater importance as determinants of global strategy -economies of scale advantage: lower price/ unit due to increase in production -a single market won't be large enough to support a competitive strategy on a worldwide scale in many industries -barriers to entry in such industries will get higher -rivalry likely to increase within the industry

Third Stage of going global: Value Chain disaggregation

-supply chain: the sequence of processes involved in the production and distribution of a commodity -companies disaggregate the production process and focus on completing each activity in the most advantageous location -individual components of a single product might be manufactured in several different places and assembled into final products elsewhere

debates over globalization: against

-those opposing view one or more globalizing process as detrimental to social welfare on a global or local scale -many people question the social or natural sustainability of long-term, continuous economic expansion -benefits the rich at the expense of the poor -job loss in developed countries -unethical practices of labor -environmental damage: climate change, cross border water and air pollution, and overfishing in the ocean -loss of power of the local governments -competition between countries has not driven prices down as expected, but instead allowed countries to get a price advantage -free trade has not reduced the barriers to trade due to the use of tariffs and subsidies -critique of the GDP measurement; look at Gini Coefficient (measures the inequality among values of a frequently distribution such as levels of income) or the Happy Planet Index (measures how well nations are doing at achieving long, happy, sustainable lives) --shows: social disintegration, spread of diseases, environmental damage, breakdowns in democracy, and increasing poverty -see globalization as the promotion of corporate interest 1. believe this strength shapes political policies 2. may lead to weakening of local governments -need more advocates addressing the moral claims of the poor and working class -sweatshops, decrease food safety, increase consumerism and the weakening of traditional, cultural values

Cultural impact from globalization

-transmission of ideas, meanings, and values around the world -the consumption of cultures has been aided by the internet, popular media, and international travel -commodity exchange and colonization

Impacts of Globalization

-widespread sharing and access to information -exchange of cultural trends through music, art, industries, clothing style, and technology -communicate and connect across nations and borders -advances in transportation -positive trends: increase life expectance and infant mortality decrease in developed countries, adult literacy in developing countries rose -corporations outsource (to obtain goods or services from an outside or foreign supplier) manufacturing and service jobs from high-cost locations to lower cost locations; can pay lower wages with few (or no) benefits -negative: increase in income disparity

(China) State Capitalism

1. China is seen as the primary example of a successful state capitalist system 2. the government is able to maximize state's profits 3. political growth 4. state acts as the dominant economic player and uses markets primarily for political gain

Pankaj Ghemawat: CAGE analysis

1. Culture: -cultural differences between two countries reduce their economic exchange -cultural distance: people's differences based on language, norms, national or ethnic identity, levels of trust, tolerance, respect for entrepreneurship and social networks, or other country-specific qualities -for example, products with high national identity make those products harder to sell 2. Administration: -bilateral trade flows show that administratively similar countries trade much more with each other than dissimilar countries -administrative distance refers to historical government ties (ex. India and the UK) -having the same format for laws, regulations, institutions, and policies -membership in the same trading bloc is a fundamental similarity -the greater the administrative differences between nations, the more difficult the trading relationship 3. Geography -as distance goes up, trade goes down, since distance usually increases the cost of transportation -geographic differences also include time zones, access to ocean ports, shared borders, topography, and climate 4. Economics -economic distance refers to differences in demographic and socioeconomic conditions -most apparent is country size when comparing GDP (a measure of the goods and services produced In one year by a country), per capita income--most significant effect when the nature of demand varies with income levels; economies of scale are limited, cost differences are significant, the distribution or business system is different, organizations have to be highly responsive to their customers' concerns -labor costs, capital costs, human capital (workers), land value, cheap natural resources, transportation networks, communication infrastructure, and access to capital -each CAGE factor shares the notion of distance -greater distance, greater differences -when CAGE differences are small, there will likely be a greater opportunity to see business being conducted across borders

Forms of international business

1. Import/Export 2. Franchising/Licensing 3. Joint Ventures/Strategic Alliances 4. Foreign Direct Investment 5. Governmental bodies 6. International treaties 7. National NGOs

advantages of a market economy

1. consumers pay for things they want the most, and businesses produce the goods and services that will earn them a profit 2. production methods are efficient in increasing both productivity and profitability 3. innovation is encouraged and rewards 4. investments by individuals and organizations in other successful organizations drive innovation and quality improvement

Theoretical drawbacks of socialism

1. creates distorted or absent price signals, resulting in reduced incentives, low prosperity, low feasibility, has adverse social and political effects 2. the national economy develops slowly 3. inability to obtain the most profit from the use of resources, labors, and land 4. places with a geographical advantage lose their chances to develop better, and people who have intelligence and wealth lose chances to make their businesses bigger and more powerful 5. people lose the initiative to work and the enthusiasm to study because doing more is not rewarded

democracy

1. derives their power from the people of the country; direct referendum (direct democracy) or through elected representatives (representative democracy) 2. strives to provide all citizens an equal voice, or vote, in determining state policy, regardless of their socioeconomic status 3. laws and regulations established; the establishment and governance of a just, comprehensive constitution is present that delineates the roles and responsibilities of leaders and citizens alike 4. most also encourage freedom of individual speech, the press, and assembly, and they prohibit unlawful imprisonment 5. leaders, once elected, must abide by the terms of the nation's constitution and they're limited in the powers they can exercise, as well as in the length of the terms 6. ensure certain fundamental rights for their citizens -citizens can organize political parties and hold elections

Theoretical Disadvantages of Communism

1. direct control over the means of production 2. it places strict rules as to how businesses operate so a classless society is born 3. it allocates the same amount of money to each worker no matter the field the worker specializes in 4. it discourages the entrepreneurial spirit, which is key to a country's economic growth and development 5. no freedom of speech 6. increase diversity in large or geographically broad populations make it difficult to maintain a common goal 7. central planning is challenging to achieve 8. consumers' needs are not considered 9. productivity and efficiency are difficult to achieve without a profit motive for workers 10. it is challenging to achieve internal balances between supply and demand without a price mechanism

command economy

1. economic effort is devoted to goals passed down from a ruler or a ruling class -example: Egyptians building pyramids, medieval manor in which the lord provided the land and protection and servants provided labor and soldiers to do the work, and communist countries 2. resources and businesses are owned by the government -the government decided which goods and services will be produced and what prices will be charged for them -the government choose what methods of production will be used and how much works will be paid -necessities like healthcare and education are provided for free as long as the government deems them essential 3. currently on Cuba and N. Korea have command economies 4. economies with access to valuable natural resources are more likely to have a command economy. The government regulates the access to and usage of the raw materials

Political Environments and Businesses

1. firms must abide by the local rules and regulations of the countries in which they operate -ex. Google had to work with the Chinese government's restrictions on freedom of speech 2. global businesses monitor and evaluate the political and legal climate in the countries in which they currently operate or want to operate in the future 3. political system: they system of politics and government in a country - oversees a complete set of rules, regulations, institutions and attitudes -primary difference in political systems is their philosophies on the rights of the individual and the group as well as the role of government -impacts the policies that govern the local economy and business environment 4. extremes: -anarchy: no central government -totalitarianism: complete government control -pluralism: asserts that both public and private groups are essential in a well functioning political system

Government intervention in trade

1. for a combination of political, economic, social, and cultural reasons 2. politically, a country's government may seek to protect jobs or specific industries -some industries may be considered essential for national security purposes, such as defense, telecommunications, and infrastructure -national security issues can impact both the imports and the exports of a country 3. some governments use trade as retaliatory measure if another country is politically or economically unfair and on the other hand, may reward based on support. 4. governments are motivated to intervene in trade by economic factors -may want to protect young industries or preserve access to local consumer markets for domestic firms 5. cultural and social factors might also impact a government's intervention in trade -ex. some country's government have tried to limit the influence of American culture on local markets by restricting or denying the entry of American companies' ability to operate in media, food, and music industries

economic growth

1. globalization creates opportunities for many countries to experience economic growth 2. economic growth is the increase in the amount of the goods and services produced by an economy over time 3. economic growth is measured as a percentage change in the gross domestic product (GDP) or gross national product (GNP) -measures: total the amounts paid for the goods and services a country produce -ex. the US creates $9,000,000 in goods and services in 2018, in 2019 the US creates $9,090,000 In goods and services and therefore, experiences an economic growth of 1%

Advantages of a mixed economy

1. goods and services are distributed where they are most needed 2. prices are set by supply and demand 3. innovation encouraged 4. capital is allocated to the businesses that are the most innovative and efficient 5. mixed economy minimizes the disadvantages of a market economy by having a more significant role for government intervention in the market

Baldwin 2 states

1. goods from 1820-1990 -- industrial revolution 2. post 1990; revolution in information and communication technology--the cross-border movement of ideas -pre-fabrication, fabrication, and post-fabrication

Theoretical benefits of socialism

1. has the greatest goal of commonwealth 2. government can make better use of resources, labors, and lands since the government controls almost all of society's functions 3. socialism will decrease the gap in wealth, rank, and classes. Those who are ill, too old for work are still provided for and valued by the government 4. excess or insufficient production can be avoided 5. prices can be controlled in a proper extent 6. socialism can tackle unemployment to a great extent

Free market/capitalist economy

1. individuals own the factors of production -businesses produce products, and consumers choose the products they prefer -government sill has to regulate industries, maintain law, and create public goods and services

classifying the economic growth

1. industrialized, developing, and less-developed nations -industrialized: healthy climate for private enterprise (business) and by a consumer orientation (focuses on meeting consumer's long-term wants and needs --> high literacy rates, more modern technology and higher per capita income --> US, UK, Canada, Japan -developing nations: make the transition from economies based on agricultural and raw materials production to industrialized economies -rising levels of education, technology, and per capita income -governments in these nations have often made steady progress in improving the climate for business (many countries in Latin America and Asia) less-developed nations (least-developed countries) LDCs: -extensive poverty, low per capita income and standards of living, low literacy rates, and minimal technology -often lack strong government, financial, and economic systems needed to support a healthy business community -economies are often focused on agriculture and production of raw materials such as the mining and timber industries -mainly in Africa and Asia -wealth from industrialized nations present a lot of the business opportunities. However, the market can be saturated. -longer term growth potential exists in developing countries

Disadvantages of a traditional economy

1. it is at the mercy of the climate 2. there is a lower standard of living 3. it is vulnerable to a more efficient market or to command economies examples: Haiti-subsistence farming is widespread, and they rely on woods; Bhutan-a traditional economy where the land locked location makes international trade difficult

impact of political systems on business

1. local policies, rules, and regulations can have a significant effect on the success rate of a business 2. need to assess risks by asking certain question, like: how stable is the government? democracy or dictatorship? how involved is the government? 3. political stability is a key part of government efforts to attract foreign investment to their country 4. businesses need to assess whether a country believes in free markets, government control, or heavy intervention in industries 5. the country's view on capitalism is also a factor for business consideration -capitalism: an economic system in which the means of production is owned and controlled privately -a planned economy: the government or state directs and controls the economy, including the means and decision-making for production 6. established democracies offer a high level of political stability -within reason, businesses understand that in democracies, most rules survive changes in government -any changes are usually a reflection of a changing economic environment and not a change in the government players -authoritarian governments are not as stable

economic systems and international business

1. macroeconomics: a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole 2. the volatility of a country's macroeconomic performance and the country's ability to meet its financial obligations directly affects performance 3. a nation's currency competitiveness and fluctuations are essential indicators of a country's stability both financially and politically and its willingness to embrace changes and innovations 4. a financial risk assessment should consider factors such as how well the economy is being managed; the level of the country's economic development; the working conditions, infrastructure, technological innovation; and the availability of natural and human resources

Market economy

1. minimum government control 2. leaders make decisions based on consumer demands 3. goods and services are produced and distributed according to the rules of supply and demand 4. consumers influence how much product and services are made available through their purchasing and usage patterns 5. consumers and businesses are self-interested but they benefit from one another 6. enterprises focus on selling their products at the highest price consumers are willing to pay, while consumers look for the lowest available price 7. individuals earn income based on their ability to provide a good or service that is of value to society 8. creates competition between businesses and fosters innovation 9. market economies evolved from traditional economies 10. capitalism requires a market economy so goods and services can be distributed and prices can be set 11. decentralized -- buyers and sellers trade together 12. means of production (land, labor, materials, etc) are all privately owned 13. users prices to regulate the balance between supply and demand 14. motivated by profit (businesses) and motivated by utility--level of satisfaction (consumers)

Socialism

1. most are socially democratic experimented because they universally retain a wage-based economy, private ownership, and control of the decisive means of production 2. characteristics: social ownership, central control of the means of production, and a cooperative approach toward management of the economy 3. a socialist economic system would direct the production of goods and services to directly satisfying economic demands and human needs so goods and services would be produced to be used instead of for private profit driven by capital 4. accounting would be based on physical quantities, a common physical magnitude, or a direct measure of labor time 5. Distribution of output would be based on the principle of individual contribution

Mixed economies

1. most countries have a mixed economy; US closest to market economy; China and Russia are closer to command 2. partial government control 3. from a market economy: it protects private property, the laws of supply and demand determine prices in a free market, and it is driven by self-interest 4. from a command economy: it uses the federal government to protect the people and the market as well as oversee the military and international trade and national transportations

Socialism key characteristics

1. nationalizing of key industries like mining, oil, steel, energy, and transportation -allows the state to directly invest in critical industries, distribution state profits from nationalized industries for the overall national good, direct producers to social rather than market goals, and better control the industries both by and for the workers 2. redistribution of wealth through taxes and spending policies that aim to reduce economic inequalities -social democracies typically employ various forms of progressive taxation regarding wage and business income, wealth, inheritance, capital gains, and property -spending: free access to public services such as education health care, and child care -subsidized access to: housing, food, pharmaceutical goods, water supply, waste management and electricity is common 3. social security plans (mandatory public insurance program): retirement pension and survivor benefits, permanent and temporary disabilities, unemployment, and parental leave -government plans are based on public statutes rather than on contracts -may change; dependent on solidarity among participants 4. minimum wage , employee protection, and trade union recognition rights for the benefit of workers -form unions, negotiate benefits, and participate in strikes

Freedoms in a mixed economy

1. own the means of production, participate in managerial decisions, to travel, to buy, to sell, to hire, to fire, to organize, to communicate and to protest peacefully 2. provides tax-funded, subsidized, or state-owned factors of production infrastructure, and services, including: -libraries, schools, roads, hospitals, banks, communication services, electricity, water, subsidies to agriculture and other businesses, government-granted monopoly to otherwise private firms, legal assistance, government-funded or state-run research and development agencies 3. autonomy over personal finances but include involuntary spending and investments: -welfare, social security, government subsidies to businesses, and mandatory insurance 4. impose of regulation laws and restrictions that help society as a whole: -environmental regulation, labor regulation (ex. minimum wage), consumer regulation (ex. product safety), antitrust laws, intellectual property laws, incorporation laws, protectionism, import and export controls, and taxes and fees written or enforced with manipulation of the economy in ind 5. want to prevent underground economies: economic transactions that are deemed illegal 6. government interferes when needed to provide regulations, prevent theft and violence, collect taxes, and enforce legal contracts

disadvantages of a market economy

1. people who cannot compete as such as the disabled and their caretaker may be at a competitive disadvantage 2. not all can reach their full potential due to their inability to access education and obtain means to improve skills 3. significant divide between the privileged and underprivileged

6 characteristics of a market economy

1. privately owned; the owners have the right to buy, sell, or lease their property and make a profit off of their assets 2. people are free to choose to produce, sell, and purchase goods at the price set with the capital they possess 3. every seller aims to make the most profit possible 4. competition keeps prices low. pricing follows supply and demand 5. market economy relies on an efficient market in which all buyers and sellers have equal access to the same information 6. government interference is kept at a minimum that is necessary to ensure the markets are functioning correctly

oligarchy

1. small, elite group holds power -may ascend to power because of military mights, economic power, or similar circumstances -ex. Russia; once communism fell, a group of business owners took control to expand their wealth -can be challenging for middle-class and lower-class citizens to advance their socioeconomic status

Key areas government can create rules and regulations in trade

1. tariffs: taxes -specific tariffs: fixed charges -ad valorem tariffs: calculated as a percentage of the value 2. subsidy: payment to producer -tax breaks, low interest loans, cash grants, and government-equity participation (less common as they require the direct use of government resources 3. import quotas and voluntary export restraints (VERS) -limit the number of goods coming into a country -the importing government directs import quotas, while VER is imposed at the discretion of the exporting and importing nations -government may limit converting a currency into others, often to restrict imports -some governments will manage the exchange rate at a high level to create an import disincentive -many countries continue to require that a certain percentage of a product or item is manufactured or assembled locally -some state a local firm must be used as a domestic partner 4. dumping occurs when a company sells a product below market price, often to win market share and weaken competition -governments provide financing to domestic companies to promote exports -many countries designate certain geographic areas as free trade zones: reduced tariffs, tax breaks, easy customs, easy procedures, or restrictions to promote trade with other countries

planned economy

1. the government controls the factors of production -in a true communist economy, there is no private property; everyone own's everything--command economy

Theoretical benefits of communism

1. the idea of widespread universal social welfare, including improvements in public health and education and the provision of child care, state-directed social services, and social benefits, will help raise labor productivity and advance society in its development 2. universal education with a focus on developing the proletariat with knowledge, class consciousness, and historical understanding 3. the emancipation of women and the ending of their exploitation 4. people are treated equally in the eyes of the government regardless of their education or financial standing 5. people are entitled to jobs since the means of production are owned by the government, they will be able to provide jobs for the majority of people 6. economic stability 7. there are specific laws and goals, which determine resource and responsibility allocation. If the citizens abide by these laws, there is a harmonious spirit; everyone can work harmoniously without interfering with each other 8. work, responsibility, and rewards are shared equally among the citizens 9. the sense of cooperation allows for efficiency in resource distribution

Disadvantages of a mixed economy

1. too much government interference 2. too much or too little freedom of choice, the government restricting competition, and the country going into debt because of government intervention

traditional economy

1. uses the methods of trade and exchange that are passed through generations -oldest; can still be found in parts of South America, Africa, and Asia -occupations, usually farming, are passed down through generations -people live off of the products of their labor -very little change or growth

Friedman 2005: How the World Got Flat

10 significant events that helped reshape the modern world and make it flat 1. the fall of the Berlin Wall; communism to capitalism 2. when netscape went public in 1995; web browsing and email helped propel the internet by making it commercially viable and user friendly 3. more powerful easier to use software and improved connectivity; more people can share work -complex projects with more interdependent parts can be worked on collaboratively from anywhere 4. providing basic software online for free gives everyone a source code, thus accelerating collaboration and software development 5. the internet lets firms use employees worldwide and send specific work to the most qualified and cheapest labor, wherever it is 6. going offshore 7. walmart demonstrates that improved acquisition and distribution can lower costs and encourage suppliers to boost quality 8. insourcing, a type of service collaboration, happens when firms devise new service combinations to improve service 9. google revolutionized information searching -- transformed information as a commodity 10. technological advances range from wireless communication to processing, resulting in extremely powerful computing capability and transmission -each contributed to making the world smaller -each worked in isolation until the convergence of three powerful forces: new software and increased public familiarity with the internet, the incorporation of that knowledge into business and personal communication, and the market influx of billions of people from Asia and the former Soviet Union who want to become more prosperous quicklys

Pankaj Ghemawat

2001; disagrees with the world is flat and characterizes the world as "semiglobalized" and "multidomestic" -if the world was flat, international business and global strategy would be easy -the process would be domestic strategy applied to a bigger market -in the semiglobalized world, however, global strategy begins with noticing national differences

PEST analysis

Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit.

Hyperglobalist perspective

The perspective that globalization is driven by legitimate forces, that national boundaries/specific nation states are becoming less important, and the world is becoming one unit.

World Systems Theory

Theory developed by Immanuel Wallerstein that explains the emergence of a core, periphery, and semi periphery in terms of economic and political connections first established at the beginning of exploration in the late 15th century and maintained through increased economic access up until the present. -core: industrialized, central government; developed countries -semiperipheral: diversified economy; developing countries -peripheral: low central government, one economic (like agriculture); least developped

dependency theory

a model of economic and social development that explains global inequality in terms of the historical exploitation of poor nations by rich ones

business

a person or organization engaged in commerce to achieve a profit (business profit is gauged in financial and economic terms

Fourth Stage of going global: Value Chain Re-engineering

reengineer their processes to suit local market conditions by substituting lower cost labor for capital

International treaties

related to issues such as trade, the environment, or child labor -NAFTA creates a trade bloc in North America to reduce or eliminate tariffs -The Kyoto Protocol: aimed at combating global warming -European Community (EC)

international business

relates to any situation where the production or distribution of goods or services crosses country borders -opportunities are boosted in globalization as trade and investment barriers are reduced -globalization can take place in markets, trade barriers are falling and buyer preferences are changing -beyond money; -can include international transfers of other resources such as people, -intellectual property, 1. patents: protects inventions for a limited period of time 2. copyrights: exclusive rights to make and sell a product 3. brand trademarks: protect brand symbols, slogans/words, etc -data, - contractual asset (something useful or valuable) or liability (debt or financial obligation) -such assets or liabilities include the right to use some foreign asset, provide some future service to overseas customers, or execute a complex financial instrument--a monetary contract between parties -can include multinational firms with thousands of employees, one person acting as an importer/exporter, for-profit, border crossing transactions and non profit transactions -refers to a broad set of entities and activities

cultural globalization

the transmission of ideas, meanings and values around the world in such a way as to extend and intensify social relations -involves the formation of shared norms and knowledge with which people associate their individual and collective cultural identity -It has also been accompanied by a decrease in the uniqueness of once-isolated communities -some argue that there has been an increase in homogenization of culture mainly from American culture -the internet has allowed the spread of the English language -antiglobalization movements have emerged out of people's concern for losing smaller cultures, as they protest globalization; they want to give new momentum to local uniqueness, individuality, and identity -two kinds of diversity: objective (factually how much diversity) and operative (how can we enjoy that diversity)

Totalitarianism

when one strong leader or a strong small group of leaders have full authority and is motivated by a distinct ideology, such as communism -uses the ideology to influence people