International Business Exam 1

South America today

1980s - South American countries began to liberalize their markets ^ How? ---reducing trade barriers, privatized industry, and promoted trade with free trade agreements increase in demand for raw materials and food

Tiananmen Square Massacre

1989 Chinese gov cracked down on protestors iconic symbol of China's opposition to democracy and free speech due to internet censorship, the Tiananmen Square Massacre is not widely known about in China today

NAFTA - North American Free Trade Agreement

1994 created a unified North American market ---US ---Mexico ---Canada

The WTO was created in

1995 and added intellectual property and dispute-settlement mechanisms

China's official currency

2 NAMES 1) renminbi 2) yuan

sanction

LIMIT on commerce with a country could be on countries or individuals ---tend to be limited ---EX: sanction on banking with Iran, but not on farming in Iran

the Lexus and the Olive Tree - Thomas Friedman metaphor

Lexus - homogeneity of aspirations and points of view resulting from globalization Olive Tree - the nation-state there will continue be an antagonistic relationship between the global economy and the nation-state addressing the downsides of globalization will be a major challenge for the nations of the world for years to come

largest Spanish speaking country

Mexico

flout then follow

Samuel Slater method ignore parent laws to gain technological know-how, then fight for enforcement one critical mass knowledge has been gathered

corruption perceptions index (CPI)

0-100 0 = super corrupt US = #18

percent VS percentage point

1 percentage point = 100 basis points EX: 1.75 percentage point increase is a 175 basis point increase EX: 40% to 30% decrease ---10 percentage point descrease ---25% decrease (10/40) change in percentage point = percent - percent change in percent = x1-x2/x1

India is poised to continue to grow rapidly, but it does face some significant challenges:

1) corruption ---bribes are considered necessary in business 2) poor infrastructure ---in 2012, 700 million people lost power for hours 3) GOVERNMENT RED TAPE ---you have to jump through a lot of hoops to do business in India, which makes FDI less attractive ---though, India's FDI inflows have increased particularly drastically since the early 2000s

the World Bank places countries into 4 groups based on their avg. per-capita incomes:

1) high-income nations ---$12,476 or more ---oil rich countries, OECD, SMICS 2) upper-middle-income nations ---$4,036-$12,475 ---emerging market countries 3) lower-middle-income nations ---$1,026-$4,035 ---Vietnam, Nigeria, Gautemala 4) lower-income nations ---$1,025 or less ---Haiti, Somalia, Nepal

the US dollar plays an important role in the global marketplace b/c:

1) it is the world's invoicing currency ---even when the US is not part oft he transaction (about 1/2 of all international transactions use the dollar) 2) investors often "flee to safety" by buying dollars ---investing in US real estate b/c it is a "SAFE HAVEN INVESTMENT" ---FLIGHT CAPITAL 3) the US is a huge recipient of long-term FDI ---ranked #1 in the world in terms of attractiveness for FDI

2 more political risk categories

1) macro-political risk ---after very firm in a country ---EX: civil war, tax reform 2) micro-political risk ---affects a single firm or group of firms in an INDUSTRY ---EX: nationalization

3 categories of political risk

1) ownership risk 2) operating risk 3) transfer risk

environmental changes

1) political changes ---the General Agreement on Tariffs and Trade (GATT) ---the World Trade Organization (WTO) ---regional trade blocs 2) technological changes ---transportation, communication, info technology ---TOURISM IS THE LARGEST CONTRIBUTED TO INTERNATIONAL TRADE IN SERVICES

countries in Central American and the Caribbean face structural challenges, including:

1) political instability 2) US military intervention 3) poor infrastructure, education, and economic policies 4) high poverty and a weak middle class ---without a strong middle class, domestic firms cannot sell their goods and services domestically 5) import limitations ---EU and US have imposed a number of trade restrictions (sugar and textile industries) ---EXCEPTIONS 1) several island countries have thriving tourism industries and offshore-banking industries 2) several countries are now considered upper-middle-income nations (Belize, Panama, Jamaica,

Many companies have embraced CSR because

1) social media allows the public to pressure them to do so 2) many find that it is good for business

the trend towards increasing globalization is driven by:

1) strategic imperatives ---*MOTIVATE* globalization 2) environmental changes ---*FACILITATE* globalization

2 ways a country can change/shape its technological environment:

1) strategic investments 2) technology transfer

6 aspects of globalization

1) technological ---R&D is increasingly being off-shored due to companies' desires for lower costs and closer proximity to customers around the world 2) economic ---EU, WTO, NAFTA 3) social ---immigration, international education, social media 4) spatial ---US economy has become more manufacturing- and info-based; moved from rural communities to urban communities; layouts of our homes and cities have changed; our homes are much more open; our cities are designed in way for people to move around/get to airports/access internet 5) cultural ---proliferation of foods, languages, and entertainment 6) biological ---pollution and disease ---pollution and acid rain do not recognize global boundaries, so many countries participate in collective efforts to reduce pollution ---EX: spread of ZIKA, invasive species

strategic imperatives

1) they want to leverage their core competencies ---if a company is successful at home, it is likely they will be successful abroad 2) they want to acquire scarce resources 3) they want to find new markets ---the desire to find new markets is driven primarily by a company's interest in achieving ECONOMIES OF SCALE (benefits of mass production) & DIVERSIFIED REVENUE STREAMS 4) they want to better compete with their rivals ---"me too" strategy ---especially important in oligopoly situations

the CAGE model can be used for 4 reasons:

1) to understand differences between domestic and foreign markets 2) to avoid mistakes when doing IB 3) to choose the best markets to do business in 4) to create a competitive advantage

South America

13 countries with a common social, political, and economic history colonized by Spanish and Portuguese income inequality, poverty, political instability once they achieved independence

In China, there is about a _____ percent chance that IP laws will be enforced properly.

30

currency fluctuations impose at least 3 costs on IB:

administrative costs time costs hedging costs ---ALL IMPACT THE BOTTOM LINE (people, profit, plant) (social, economic, environmental)

political risks

any adverse changes in the political environment that hurt the value of the firm's business activities

common law

based on PRECEDENTS set by prior judicial decisions relies on the collective wisdom of judges who have heard cased throughout history often supplemented with STATUTORY LAWS judge acts like a referee EX: US, UK, Australia, India, Canada

civil law

based on Roman and French law dates back to Code of Justinian CODIFICATION - extensive codes that detail what is ok and what is not ok judges take a more active role as fact-finders or advocates EX: continental Europe and its former colonies ONLY STATE IN US THAT USED THIS: LOUISIANA

non-tariff barriers

block imports from the rest of the world

Australia and New Zealand

close to Asia, but more akin to Western Europe, the UK, and the US (culture, economy, policies) Australia ---23 million people ---40% are in Sydney and Melbourne ---exports amount to 41% of $1.49 trillion GDP ---natural resources: gold, coal, iron ore, wool, wheat, beef NZ ---several islands ---80% of its 4.4 million live on 2 islands ---major exports: meat, wool, dairy ---merchandise trade accounts for 24% of its $168 billion GDP

Central America and the Caribbean

collectively, the counties that comprise Central America and the Caribbean have a relatively small population and a small share of world GDP per-capital GDPs vary widely (Haiti VS Cayman Islands)

Convergence of lifestyles worldwide makes it ______ for companies to _______.

easier; treat certain countries as a single market

impacts of MNCs on host countries

economic impact political impact cultural impact

euro

first adopted in 1999 for use in computer and transactions and digital trades paper currency and hard coins were not used until 2002

diversified revenue streams

if a company operates in only ONE market and something bad happens in that market, its entire revenue stream may be shut down the negative impact ^^^ will be less pronounced if the company operates in several countries

the World Trade Organization (WTO)

in 1995, WTO replaced GATT goes above and beyond GATT unlike GATT: ---has a dispute settlement mechanism that allows one country to present evidence of unfair trade practices conducted by another country ---protects intellectual property rights ---monitors the trade of services

strategic investments

in infrastructure ---facilitate the production and distribution of goods in human capital ---improve efficiency, productivity, and competitiveness

home country VS host country

in internation investments: home country ---where the company is headquartered host country ---where the company is doing business

values

what a person feels is important in life

eurozone

the 19/28 countries in the EU that use the euro every member of the eurozone is a member of the EU, but not every EU member is a member of the eurozone

measures of globalization

the Internet has played a major role in globalization the Internet PENETRATION RATE is an important indicator of how connected a country or region is to the rest of the world

resources curse

the fact that many countries that are rich in natural resources are also poor because they fail to diversify their economies in other sectors EX: Iran/Iraq/Saudi Arabia (oil producers) have suffered a lot b/c global oil prices have been low

operating risk

threat of change in laws, tax codes, environmental standards, insurrections, or terrorism impact operations and safety

PwC's biggest concerns

uncertain economic growth over-regulation availability of key skills

Modern Russia

largest in terms of landmass 9th largest population natural resources: oil, gas, diamonds, gold, minerals LARGEST OIL PRODUCER 2nd largest oil exporter (Saudi Arabia #1) Russia benefitted from the increase prices of oil and RM in the 2000s, leading its economy to grow rapidly (approx. 4.8% per year since 2003) the benefits of Russia's transition from communism to the free market and its economic growth have not been equally shared among the Russian people ---1st Russian president after the fall of the USSR: Boris Yeltsin ---oligarchs ---privatization of government-owned industries ---little taxes ---devaluation of Russian currency (the RUBLE)

arbitration

litigation is COSTLY, expensive, and time consuming b/c of this many companies opt for arbitration: ---a process in which the parties agree to abide by the decision of a private, non-judicial body faster, cheaper, more private, more informal many companies require their customers to agree to arbitration clauses before using their products/services ---some ppl think this is unethical b/c can't take full advantage of legal system

income inequality in South America

major lingering problem Gini Coefficient: measure of income inequality ---range from 0 to 1 ---0 = perfectly distributed income ---1 = income concentrated in just one person often results in POLITICAL INSTABILITY reasons: 1) eduction ---unequal access to education 2) birth rates ---higher birth rates for poorer people ---child born into a poor family has fewer resources to work with 3) ineffective public spending data show that income inequality in South America has been slowing decreasing, and the middle class has been growing

post-WWII in South America

many countries attempted to grow through IMPORT SUBSTITUTION other side of this policy was EXPORT PROMOTION

National legal systems typically vary for all of the following reasons EXCEPT ________.

markets --- history, culture, background

South Africa

most economically successful country in Africa Africa's "economic powerhouse" - Dr. Phalin has grown rapidly since the end of APARTHEID & the democratic election of Nelson Mandela as president in 1994 modest growth (3.3% per year), but that number is higher now NOW PART OF BRIC(S) 63% of GDP is based on MINERAL EXPORTS political unrest, corruption, and global economic crisis, have led SA's economic growth rate to falter

India remains unusually rural

nearly half of the population relies on agriculture to make a living cities are growing and education is improving urban areas already have a large number of people living in slums and serious pollution problems

multinational enterprise (MNEs)

not all international businesses are corporations, so some use the broader term "MNE" MNE describes corporations, as well as firms that are not corporations

multinational organization (MNOs)

not all international businesses are profit-seeking, so some use the EVEN BROADER term "MNO" MNO describes for-profit and not-for-profit organizations

former communist countries

now considered high-income: ---Estonia ---Latvia ---Lithuania ---Slovenia (Yugoslavia) ---Czech Republic ---Hungary ---Poland ---Slovakia NOT considered high-income: ---Romania ---Bulgaria

China today

president - Xi Jinping paradoxical policies; the Chinese Communist Party has: ---opened up the economy and given citizens significant free-market freedoms ---still restricts personal freedoms (right to speak against the gov; human rights violations) paradox reflects a tacit deal between the gov and its people: ---citizens can enjoy the benefits of free-market capitalism if they agree to give up personal freedoms ---^^^if the economic growth continues to slow and the gov cannot provide for its citizens, there may be political unrest gov is interested in making sure the world sees the political and economic situation as stable territorial disputes: ---in the East China Sea, Japan owns the Diaoyu (Senkaku) Islands, but China claims they should own them ---when Japan bought these islands, China increased military presence in the area in response ---China and Japan also disagree about where to draw the line between their EXCLUSIVE ECONOMIC ZONES (EEZ) ---China and India disagree about the control of the Himilayas ---China is scared Taiwan will make a formal bid for independence ---China has competing claims to natural resources in the South China sea China claims its economy has grown 10.8% between 2003 and 2011 - DR. PHALIN SAYS TO TAKE THIS WITH A GRAIN OF SALT B/C CHINA RELEASED THIS INFO ---most analysts believe the true growth rate is several percentage points lower growth has been slowing in recent years; estimates for 2017 are 6.7% hard-working, low-cost labor force ---attractive for production outsourcing ---HOWEVER, recently cost of labor has gone up, so many firms are no longer offshoring in China (moving back to US, or to Vietnam/Thailand/Bangladesh) rapid economic growth in the past years has increased FDI economic disparity between China's rural and urban populations ---approx. 750 million have not benefited from China's economic boom ---RURAL UNREST economic prosperity in coastal cities has drawn an estimated 160 million people from rural areas since 1978 ---LARGEST INTERNAL MIGRATION IN HUMAN HISTORY ---migration has accounted for 20% of economic growth since 2001 NOTE: some manufacturing plants have moved into the rural areas of China and are promoting growth there ---may less the disparity (assuming Chinese economic growth can continue) DR. PHALIN SAYS ---urbanization in China has strong impacts on the global markets for commodities ---SLOW economic growth in China, LOWERS demand for energy (leads to low oil prices) Internet has become important ---authoritarian gov can benefit economically from the Internet while maintaining their power through censorship ---more expansive than in uncensored countries ---Alibaba, Chinese Amazon ---China's online market is about to exceed the US's ---the "Great Firewall of China" (blocks FB, YouTube, Twitter, etc.) ---Baidu, Chinese Google ---internet is monitored to censor content that opposed the CCP ---HOWEVER, "adaptive authoritarianism" in the past year, Xi Jinping has consolidated power with the Communist part; he has a lot power over the party and the country China = THE WORLD'S LARGEST TRADING NATION Dr. Phalin says that she expects China to suffer from an economic downturn in the near future China's population is less urbanized and average citzens are much poorer than those in the US

Bolsa Familia

program in Brazil cash to families, families must promise to send kids to school

"Benelux" nations

Belgium, the Netherlands, Luxemburg

the General Agreement on Tariffs and Trade (GATT)

DEFINITION: a multilateral agreement intended to reverse restrictions on foreign investment and international trade ---GATT was successful in decreasing tariff rates the Smoot-Hawley Tariff Act of 1930 brought international trade to a screeching half between WWI and WWII dozens of countries agrees to GATT after WWII

Trump likes to think he has increased the stock market and decreased unemployment rates

Dr. Phalin thinks that is not easy to attribute these trends to any single political administration

Anna Politkovskaya

Dr. Phalin worked for a nonprofit called COMMITTEE TO PROTECT JOURNALIST as an editor Anna received an award from this nonprofit a few years later, Anna was mysteriously killed at the same time she was investigating and writing about Putin's corrupt government

Central Asian Republics

AKA "the -stans" include: ---Kazakhstan ---Uzbekistan ---Tajikistan ---Azerbaijan (not a stan, but still included) share characteristics that contribute to a common heritage 1) heavily influenced by Russia 2) common languages and religions (ISLAM) 3) scarce amounts of arable land (good farmland) 4) low per capita incomes 5) significant fossil fuel reserves ---OIL INDUSTRY IS A SUBSTANTIAL PART OF THESE ECONOMIES --- GDPs of these nations has remained stagnant with minimal growth Russia has been able to double its GDP in the same amount of time

the People's Republic of China

AKA mainland China

non-high-income countries

AKA the world's least developed countries (LDC) tend to be concentrated in Sub-Saharan Africa, with some in Asia and the Pacific Haiti is the only LDC in the western hemisphere today, almost 66% of the world's extremely poor people live in just 5 countries: ---India, China, Nigeria, Bangladesh, the Democratic Republic of Congo INDIA HOUSES THE LARGEST NUMBER OF POOR PEOPLE Good News: extreme poverty is on the decline ---the proportion of the world population living on less than $1.25 per day dropped from 36% in 1990 to 18% in 2010 ---most of the decline is coming from Asia (China and India) ---middle class is rapidly expanding at the global level (3.2 billion people) (expected to grow by 160 million per year for the next 5 years) for the first time in history, in about 3 years, the global middle class will make up the MAJORITY of the population ---88% of the middle class being added will be from Asia ---Asia could represent 2/3 of the global middle-class population by 2030 on the other hand, the middle-class market in advanced countries is growing slowly (.5% per year in US, Eurozone, & Japan) ---6% in China and India

opportunities in Africa

Africa remains a source of opportunity for global firms (particularly if wages rise in Southeast Asia as they did in China) currently 300 million members of the middle class in Sub-Saharan African (number expected to increase) from 2016 to 2030, most African countries are predicted to have positive or even accelerated growth Sub-Saharan Africa saw its slowest growth in 2016 ---EY forecasts a gradual recovery reaching about 4% by 2022

subsistance farmers

Africans that have to work in the fields to have enough food to survive IT IS DIFFICULT TO ACHIEVE MEANINGFUL ECONOMIC GROWTH IF A LARGE PORTION OF THE POPULATION IS STRUGGLING TO GET ENOUGH FOOD TO SURVIVE

culture plays a role in the accounting standards

EX: France ---STATIST TRADITION ---highly detailed procedures Germany ---strong aversion to inflation ---procedures designed to keep inflation under control

intermediate inputs

EX: buying labor-intensive inputs from countries where labor is cheap turning national differences into comparative advantages

embargo & export control

SUPER INTENSE sanction a comprehensive prohibition against all commerce with a country EX: US has had total economic embargo against Cuba since 1962 Obama made it easier to travel to Cuba Trump is making it a little harder ----- export controls on high technology goods are another kind of sanction tightly control the export of DUAL-USE PRODUCTS, which can be used for civilian and military uses

Mohammad bin Salman

Saudi Arabia's Crown Prince aggressive about modernizing the economy and diversifying away from oil pushed forward an effort to allow Saudi women to drive for the first time focused on eliminating corruption he rounded up the richest members of the royal family and the government and imprisoned them in a Ritz Carlton hotel ---in an attempt to crack down on corruption time will tell if these are anticorruption efforts or simply a move to consolidate power

Turkey and Macedonia want to enter the EU, but they pose problems for the following reasons:

Turkey ---has more authoritarian gov (the EU is comprised of democratic govs) Macedonia ---Greece says no way b/c they think they should own Macedonia ---can only enter the EU if name gets changed to the "Former Yugoslav Republic of Macedonia"

six strokes of unemployment rates

U1 - U6 U1 ---most strict U6 ---most relaxed ---includes discouraged workers U-3 is what makes the headline NOTE: these are NATIONAL averages (not separated by groups or industries)

rule of law index

US #18 ranks countries on a scale that measures the extent to which they enforce regulations based on laws in the country, transparency, public's ability to change laws, whether a country enforces laws fairly ROUGH ESTIMATE OF STABILITY AND EFFECTIVENESS

ARTICLE #3

US GDP grew by 2.6% in the 4th quarter of 2017 ---decrease from 3.2% growth rate in the 3rd Dr. Phalin says this is due to a DECREASE IN BUSINESS INVESTMENT & INVENTORY INVESTMENT GDP (Y) is a measure of the value of all final goods and services produced within a country during a year 4 components: 1) consumption (C) 2) investment (I) 3) government spending (G) 4) net exports (NX) Y = C + I + G + NX NX = exports (X) - imports (I)

The largest bilateral trade relationship in the world is between

US and China

North American marketplaces

US, Canada, Mexico, *Caribbean*, *Central America* of these, US has the highest population (321 trillion), highest GDP, & highest GDP per capita Central America has the 3rd highest population, but the lowest GDP & GDP per capita Canada has the smallest population, but the 3rd highest GDP, and 2nd highest GDP per capita numbers are adjusted for PURCHASING POWER PARITY (differences in price levels among countries) responsible for 26% of the world's output

international licensing

a contract in which a firm in one country allows a firm in a foreign country to *use its intellectual property* in exchange for royalties intellectual property includes: trademarks, patents, copyrights

cross-border trade is most difficult in:

a lot of places in Africa and the Middle East emphasizes the relationship between ease of trade and level of economic development ---MAKING IT EASIER TO TRADE ACROSS BORDERS PROMOTES ECONOMIC GROWTH reducing the costs of transportation causes a RIGHTWARD SHIFT of the SUPPLY CURVE, which LOWERS equilibrium price NOTE: supply curve starts at (0,0)

import substitution

a policy under which a government restricts imports by placing tariffs and non-tariff barriers in order to help domestic industries

country that has pushed to expand the EU's power and scope

France

According to Fred Hassan, former chairperson and CEO of Schering-Plough, all of the following are components of implementing a successful cross-cultural management strategy EXCEPT

Hire more locals in foreign subsidiaries ^^^ PHALIN SAID THIS

Company X's products have become so popular that almost 90% of people in its country use them. It decides to move abroad most likely because

Its domestic markets have become saturated

keiretsu

Japanese firms often arranged in a large family of companies consists of a diverse group of firms and almost always a major bank these companies control Japanese industry ALMOST ALWAYS RELY ON "sogo shosha" TO HELP THEM EXPORT GOODS key suppliers and financers for each other EX: Mitsubishi cross-ownership is common

KOF index of globalization

KOF (Swiss Economic Institute) created an overall globalization index; 3 sub-indices: 1) economic globalization ---looks at trade flows, foreign investment, tariff rates 2) social globalization ---looks at the amount of international phone and Internet activity, levels of tourism, immigration ---looks at # of McDonald's and IKEA's in a country (shows that a nation is open to IB) 3) political globalization ---looks at the number of embassies in a country, number of treaties signed, number of international organizations a country is a part of the KOF index shows a steady increase in globalization since 1980

EU

Masstricht Treaty converted the European Economic Community to the EU in 2004, expanded to include 8 former communist countries the addition of countries benefited both new entrants and existing members ---accession of countries between 2000 and 2008 increased new members' GDPs by 1.75 percentage points &&& offered existing members an enlarged export market unlikely to let Ukraine join b/c it is large, poor, unstable, highly corrupt ---Russian aggression toward them arose b/c they wanted to join EU, but Russia does NOT want to lose its sphere of influence

most globalized countries (according to KOF)

Netherlands Ireland Belgium Austria Switzerland ---NOTE: the majority of the world's most globalized countries are European b/c they are typically small and in close proximity to one another (most Europeans communicate in various language) ---^^^ in the US, for example, you could be driving for hours and NOT leave your own state (most Americans only speak English well) 15 most globalized are among the richest countries Interestingly though, the world's major economies all fall relatively low on the Index of Globalization (US 27th, China 71st, etc.) ---the major economies are more inward-looking because their markets are so big that they don't have to look outward ***

non-EU members

Norway Iceland Switzerland Monaco

OPIC

Overseas Private Investment Corporation in the US provides insurance against foreign-exchange inconvertibility, insurrections, revolutions, nationalization only possible in countries that have bilateral agreements with US majority of commitments have been in Sub-Saharan Africa (1.08 billion), Asia, Latin America, Europe, Eurasia, Middle East, North Africa

international business

any transactions among parties in more than one country DEFINITION: any organization that engages in cross-border commercial transactions with individuals, private firms, and/or public-sector organizations can be used to describe the company's AND the transactions themselves can include: private individuals, individual companies, governments/government agencies, NGO's, or CONSORTIA

US GDP

approx. $19 trillion CONSUMPTION accounts for 70%

The United States comprises _____ of the world's GDP.

approx. 1/4

religious law

banks cannot charge interest & profits must be earned on tangible assets profits and losses are shared by the business and lender Dr. Phalin questioned if some of the differences between how Islamic banks and conventional banks operate are mainly a matter of semantics lacks independent judiciary, due process, appeals process

repatriate

bring profits earned elsewhere back to your home country

Why should we take IB?

business skills future competitors business techniques ---EX: JIT inventory management originated in Japan and later caught on in the US cultural literacy money ---the premium for international experience is highest for jobs that require innovation and value creation (marketing & managerial jobs)

sovereign immunity

businesses have limited resources to challenge the actions of a foreign government in US courts Foreign Sovereign Immunities Act (1976) ---provides that the actions of foreign governments against US firms are generally beyond the jurisdiction of US courts ---EXCEPTION: commercial transactions

PPP-adjusted measure of GDP

calculates the value of GDP based on the cost of living

Middle East

centrally located on the globe "cradle of civilization" ---earliest components of human societies evolved here close to Central Asia, Europe, North Africa, India, China history of conflict/political unrest ---greatly impacted the business environment Arab Spring economies dominated by OIL EXPORTS ^^^ EX: Saudi Arabia has the *largest* *economy* in the Middle East ---oil accounts for 45% of its GDP ---oil accounts for 90% of its exports Israel has the *largest* PER CAPITA INCOME plummeting oil prices in recent year ---hurt major oil exporters OPEC has responded to low oil prices by restricting output and increasing oil prices ---back fired!!! ---US JUST BECAME THE WORLD'S LARGEST OIL PRODUCER oil-rich countries are realizing that oil is FINITE and there will have to be "LIFE AFTER OIL" ---steps to diversify economies ---investing oil revenues for the future by expanding their foreign investments with government-run funds (sovereign wealth funds)

the accounting eviroment

common law countries are often more flexible than civil law countries enforcement of accounting standards is likely to be done by PRIVATE LITIGATION in US ---gov plays a more active role in civil law countries

patent flooding

company files for patent after a small modification to existing invention, prohibiting the company that originally made the invention from making improvements

countries NOT part of the EU

considered high-income: ---Iceland, Switzerland, Norway, Andorra, Monaco, Liechtenstein considered middle-income: ---Albania, Bosnia-Herzegovina, Kosovo, Montenegro, Serbia, Macedonia ----- NOTE Andorra, Monaco, & Liechtenstein are considered POSTAGE STAMP COUNTRIES development in many of the middle-income countries was hindered by a decade of warfare and genocide in Yugoslavia in the 90s ---this region is now politically stable, but has not yet economically recovered

Hinduism stresses all of the following except ________.

consumption --- frugality, purity, spirituality

Africa Attractiveness Index

created by EY ranks: -Morocco -Kenya -South Africa -Ghana -Tanzania ^^^ most attractive countries for investment in 2017 US, France, China = 1st, 2nd, 3rd largest FDI investors top FDI destination: South Africa ---purpose: manufacturing top sector: ---coal, oil, natural gas

According to the Chapter 3 lecture, all of the following are positive effects that a multinational corporation may have in a host country EXCEPT

creating local competition --- technology transfer - yes increased employment - yes taxes toward infrastructure - yes

invoicing currency

currency in which the sale of goods and services is commonly denominated "DOLLAR-DENOMINATED GOOD" ---oil prices are commonly quoted in dollars

history of IB

dates back to before 2000 BC, when tribes in North Africa began to trade clothing, spices, and olive oil

Norte Dame GAIN Index

depicts 192 counties' vulnerability to AND readiness to deal with climate change aims to assist governments and private companies in prioritizing their environmentally-minded investments inverse relationship between vulnerability to climate change and readiness to deal with climate change ---world's most vulnerable are least ready to deal with it

China

due to China's immense population and economy, it has a huge impact on the global economy 1.37 billion people ---THE WORLD'S MOST POPULOUS COUNTRY THE WORLD'S OLDEST CONTINUOUS CIVILIZATION up until 1900, ruled by emperors in 1912, the Republic of China was established communism eventually let to a civil war, and communist leader Mao Tse-tung took control in 1949 (created "the People's Republic of China") ---this is when 2 million people fled to Taiwan

establishment survey

employment and wage data from 150,000 firms and gov agencies how we know that US firms added 200k jobs in January revealed hourly wage increase/decrease ---increased recently; Dr. Phalin thinks it is too early too tell if this will continue

population density in India

especially in the North 382 people per square kilometer intense competition for land and resources

international management contracts

establishes an arrangement in which a firm in one country agrees to *manage the assets of a firm in another country* for a fee EX: Mariott and Hilton operate many hotels around the world on behald of their owners

political risk assessment

experienced international managers must engage in systematic analysis of political risks

evergreening

extending patents right before they expire by making a slight modification and getting a new patent not really ethical ---continued patent protection prevents people from buying less-expensive generics

oligarchs

extremely wealthy businessmen who run the country's largest companies Putin's "cronies"

raptors

fake partnerships Enron shifted its unsuccessful ventures to raptors

Mexico

federal gov like US (central/national gov & state govs) Mexican pres. serves 6 year term Mexico has moved to open-market policies during the last 2 decades ---led to economic growth and rising standards of living NAFTA

European Economic Community

formed by signing the ***Treaty of Rome*** 1957 it was not until 1973 that UK, Ireland, and Denmark joined first Europe-wide elections to the European Parliament took place in 1979 converted in to the EU in 1993

concerns regarding litigation in foreign countries:

forum shopping comity arbitration sovereign immunity

technological environment

foundation for a country's economy a country's resources determine what kind of technological environment will prevail and what kind of products and services it will export EX: countries with less-skilled labor are likely to export labor-intensive goods

franchisor VS frnachisee

franchisor - McDonald's franchisee - me if I open a McDonald's

international human development indicator

gives you an idea of how educated various regions of the world are though correlation does not imply causation, the strong correlation between education and per capita income still has important implications for international business

USSR under Gorbachev

glasnost - openness perestroika - economic restructuring

ARTICLE #2 - government shutdowns

gov shutdown of 2018 began on January 19th the federal gov begins its new fiscal year on 10/1 if congress has not passed a spending authorization bill by that time, they normally pass short-term continuing resolutions to keep the government funded ---this has happened 3 times since last 10/1 Republicans control both the house and the senate, but they do not have the 60 votes needed to avoid Democratic filibuster and pass a spending bill shutting down the government is costly implications of the shutdown: ---national parks and monuments will remain open but unstaffed ---essential services (airport security, law enforcement, veterans' hospitals, UPS) will CONTINUE to work as normal ---the pay of active duty members of the military may be delayed ---state dept. will limit all travel to essential travel ---locally employed staff of US consulates abroad will be FURLOUGHED (temporarily laid off) ---gov deems the E-verify system (helps US employers verify employment eligibility) to not be essential, so it will NOT operate during the shutdown there have be ***12*** gov shutdowns since 1981 (shortest - 1 day ... longest - 3 weeks) the last shutdown in 2013 lasted 16 days and cost $20 billion 2018 outcome - after the shutdown, the senate passed a vote that would fund the gov until mid-Feb (republicans and democrats need to work together until then)

import substitution

government restricts imports with tariffs and non-tariff barriers in order to develop STRONG DOMESTIC INDUSTRIES in theory - blocks domestic firms from foreign competition FAILED IN PRACTICE ---small domestic markets were not large enough to allow domestic firms to take advantage of economies of scale ---had to charge very high prices for goods they produced

consortia

groups of companies working together to produce a product or service

European Union - WESTERN EUROPE

has a GDP that is only slightly less than that of the US 28 MEMBER COUNTRIES 1/2 billion people $16.2 trillion annual GDP most are free-market oriented, have parliamentary democracies international trade accounts for 83% of EU GDP ---a lot is between member countries ---UK just voted to leave, but has not formally left 19/28 countries use the euro ---EUROZONE = 19 COUNTRIES

after WWII, many South American countries attempted to grow through:

import substitution

Eastern Europe and Central Asia

important to understand the history of the Soviet Union, which controlled these regions for decades the Berlin Wall fell in 1989 the USSR collapsed in 1991 ^^^ left 15 Soviet Republics to declare their independence ---Newly Independent States (NIS) in 1992, 12/15 NIS formed the Commonwealth of Independent States (CIS)

the Arctic region

important, emerging market source of natural resources and fish global warming is opening up trade routes growing tensions between people wanting to claim it tensions involve ---trade ---security ---sovereignty ---energy ---transit ---fisheries ---indigenous people ---environment ---NOT POLAR BEARS "arctic five" real test will come if large reserves of oil are discovered outside of the areas currently controlled by sovereign powers ---increase tensions

simplest form of IB

importing & exporting

Southeast Asia

includes smaller nations: ---Indonesia ---Malaysia ---Thailand ---Vietnam many European firms use Southeast Asia as major sites of production for goods that require low-skill labor, such as textiles ---cost of labor is even lower than in China FDI-generated exports have caused these economies to grow pretty fast in the recent years SOLID MIDDLE-INCOME NATIONS *** companies are now building high-tech operations here ---Intel opened a plant in Vietname many of these emerging economies' growth rates were quite high relative to traditional markets

evolving areas of law after the Interest

intellectual property consumer privacy cybersquatters country-specific restrictions

sovereign wealth funds

investing oil revenues for the future by expanding their foreign investments with government-run funds EX: Saudi Arabia created a $2 trillion fund to help it transition away from reliance on oil revenues

Which is currently most important for least-developed nations to improve their economies?

investment in infrastructure and education

chaebol

large families of corporations in South Korea that work together and play a major role in the economy EX: LG, Samsung, Kia

major influences on a country's accounting system

legal system cultural values and attitudes international politcal ties economic system sources of capital

water stress

measure of the difficulty of accessing clean water EX: most are in less developed areas, but there are developed nations that qualify as high stress - Austrailia ---USA: medium to high water stress level

GDP

measures the value of all FINAL goods and services produced WITHIN A COUNTRY during a given period of time GDP does NOT include: ---sale of intermediate goods (ie: tires to a care maker) ---sale of used goods the nationality of the firm does NOT matter as long as the manufacturing plant resides in the US

ways to minimize exposure to political risk

monitor balance ---rates of return of operating in a new market must balance the risk of operating there minimizing net investment ---lease capital equipment ---repatriate profits ---lose less if gov confiscates popularizing the firm abroad getting insurance ---Lloy's of London ---OPIC ---MIGA

laws directed against foreign firms

nationalization privatization constraints on foreign ownership

extraterritoriality

occurs when a country tries to regulate activities outside of its borders *anti-boycott* *provisions* ---US law prohibits a US company from complying with a foreign country's boycott of the products of a country that is friendly with the US Helms-Burton Act (1996) ---intended to further isolate Cuba ---punish foreign companies in Cuba that use property that the Castro regime confiscated from the US in the late 1950s

dispute resolution in IB

often, contracts explicitly state the answers on how to respond to disputes, and most counties honor these provisions NOTE: if contracts do not specify, countries must resort to litigation

privatization

opposite of nationalization when government-owned property is converted to private property state-owned businesses are usually inefficient and unprofitable privatization opens up new opportunities for IB

OECD

organisation for economic cooperation and development

Which of the following is NOT a member of the EU or MERCOSUR?

peru members: brazil, agrentina, paraguay, uruguay

export promotion

policy in which the government subsidizes domestic export industries to boost exports PROBLEM: cost of these subsidies and nationalization was passed on to taxpayers other issues: INFLATION & extremely high BUDGET DEFICITS

least globalized countries (according to KOF)

primarily found in Africa, Southeast Asia, and the Pacific many of the countries are isolated

constraints on foreign ownership

prohibits foreign firms from owning a large stake in key industries EX: Mexico restricts foreign ownership in the energy sector EX: US only allows foreigners to earn a certain percentage of tv and radio (EXCEPTION - Fox News owned by an Australian) --- inhibit MNCs from REPATRIATING their earings

comity

provides that a country will usually honor the decisions of foreign courts, as long as: ---the 2 countries extend reciprocity between one another ---the defendant has proper notice ---the foreign judgement does not violate any treaties or domestic statutes

"Doing Business" Report

published by the World Bank Distrance to Frontier (DTF) scores ---size of the gap between a given country's score and a perfect score (100) ---based on how freely companies are allowed to do business in a country

global talent and competitiveness index (GTCI)

ranks countries based on their ability to grow, attract, and retain talent top 5 countries: ---Switzerland ---UK ---Sweden ---USA ---Singapore

re-exporting

receiving goods, repackaging or modifying them slightly, sending them back out

cold war

refers to the period from the end of WWII until the mid-1990s during when there was an ideological battle with the US and Soviet Union NATO - countries that sided with the US; *** North Atlantic Treaty Organization *** Warsaw Pact - countries that sided with the Soviet Union at the time, the world's countries were divided into 3 groups: 1st world countries ---rich western countries; US and its allies (+ Japan) ---most international trade during the Cold War occurred between these nations ---generally bought their RM and commodities from the 3rd world 2nd world countries ---Soviet Union and its allies ---legally powerful, but largely avoided commerce with the 1st world 3rd world countries ---middle- and low-income nations in Latin America, Africa, and most of Asia TODAY, countries are classified into 2 groups: developed countries ---richest countries, emerging markets developing countries ---poorest countries

globalization

refers to the worldwide economic, social, technological, cultural, and political integration among individuals, groups of people, companies, and nations according to Thomas Friedman: "globalization is the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before, in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before" evidenced by the increase in EXPORTS and FDI

regional trade blocs

relax barriers to investment and trade among member countries EX: ---EU ---NAFTA ---Mercosur (trade bloc in Latin America)

official development assistance

rich countries giving money to help poor countries

transer risk

risk that the gov will prevent the firm form bringing money into and out of the country Venezuela, Turkey, Ukraine - countries most likely to freeze funds in 2014 countries freeze funds in times of crisis

history of the EU

roots in the European Coal and Steel Community ^^^formed in 1951 by 6 countries: ---France ---Italy ---WEST Germany ---Belgium ---the Netherlands ---Luxemburg thoughts at the time: by making European countries interdependent, they might avoid another pan-European war (WWII) the industries they chose to unify were INTEGRAL to the production of war tools learned their lesson from WWI (strict restrictions were place on Germany's ability to rebuild and develop a strong economy) European Economic Community was formed by these 6 countries in 1957

northwest passage

route that throughout history has been rumored to connect Europe to Asia through the Arctic Arctic Council ---US, Canada, Russia, Denmark, Normway, Finland, Iceland, Sweden observer status was granted to: ---China, India, Italy, Japan, Singapore, South Korea

laws directly affecting IB

sanction ---embargo ---export control extraterritoriality

apartheid

segregation between whites and blacks

Arab Spring

series of uprising that occurred in TUNISIA, EGYPT, LIBYA, & SYRIA in 2011. note: recently, we continue to see unrest in Yemen and Syria

bureaucratic law

simply whatever the bureaucrats say dictators super risky doing business here b/c unpredictable

structure of the global economy is changing

since 1980, advanced economies share of world GDP decreased share of emerging and developing economies increased global GDP accounted for by Latin America and the Caribbean has remained low but stable EU and US's share shrank China's share increased from 4.3% to 12.1%

SMICs

small and industrialized island countries

Mittelstand

small- to medium-sized German manufacturing firms that make up the backbone of the German economy account for 1/2 of German output --- in Germany, kids who do not want to attend college are provided vocational training programs that turn them into skilled craftsmen

adaptive authoritarianism

some analysts believe that the gov adapts its policies to respond to popular sentiments posted online EX: Chinese gov responded to public concerns about poor air quality after the topic became increasing popular on microblogs

Gazprom

state-owned oil company in Russia

ARTICLE #4

stock market has been declining recently ---MARKET CORRECTION: analysts believe valuations are too high, so this happens to bring down stock prices before slight growth again UNEMPLOYMENT RATE = (# unemployed / labor force) * 100 federal gov reports job numbers on the 1st Friday of every month BLS conducts survey on 60,000 households ---"household survey" ---"current population survey" ---everyone 16 and older employed, unemployed (actively looking), out of the LF

postage stamp countries

super small countries doesn't matter if they are high-income EX: Andorra, Monaco, Liechtenstein

hedging

take action now to offset or minimize future risks currency hedging is COMMON ---NOTE: companies who work solely in a domestic sphere do NOT need to worry about this

2 groups of exporting and importing activities:

tangible merchandise exports/imports ---"trade in goods" ---AKA "visible trade" in the UK intangible service exports/imports ---"trade in services" ---AKA "invisible trade" in the UK NOTE: when you travel abroad you are IMPORTING tourism services to France and France is EXPORTING tourism services to you

multinational corporations (MNCs)

those that engage in FDI (taking ownership or control over value-adding activities in foreign operations) these firms are extensively involved in IB

CAGE framework

tool that can be used to measure the "distance" between the home country and other places throughout the world framework for understanding the challenges that firms face when conducting business in many countries more difficult to operate in a foreign country if it is a great "distance" away from your home country "distance" does NOT only refer to geographic locations the different dimensions will affect each industry differently --- CAGE - stands for 4 key dimensions associated with globalization ... details the risks and rewards associated with globalization 1) Cultural distance ---deals with language, religion, values ---ATTRIBUTES: lack of connective social networks ---INDUSTRIES AFFECTED: products with high linguistic content (TV) ... products with country-specific quality associations (wine) ... products that vary in preferred size, standards, or packaging ... products associated with national identity 2) Administrative distance ---deals with adapting to government policies, legal environment, CURRENCY, politics, and institutions of a foreign market ---currency included b/c government decides whether to use an independent or common currency ---ATTRIBUTES: absence of COLONIAL TIES, lack of shared monetary or political association, political hostility, differing gov policies, institutuon ---INDUSTRIES AFFECTED: gov are most likely to interfere with the production of staple goods (food); "entitlements" (drugs); mass transportation; "national champions" (aerospace industry); mining; telecommunication; products subject to high sunk costs (infrastructure) 3) Geographic distance ---physical remoteness, transportation & communication infrastructure, country size, common borders/ports ---KEY ATTRIBUTES: ^^^, large diff. in climate or country size ---KEY INDUSTRIES AFFECTED: products with low value-to-weight (bulk) ratio; fragile products; perishable products; products that require high quality communications and connectivity services (financial services); products that require local supervision; products that have high operational requirements 4) Economic distance ---per capita income, human resource base, infrastructure, technology ---^^^ influence how a company produces and markets its products in a country ---KEY ATTRIBUTES: diff. in consumer incomes; diff. costs & quality of natural resources; *intermediate inputs*; information (technology) ---INDUSTRIES AFFECTED: those with income-based demand (cars); those with differing distribution systems (insurance); those which need to responsive and agile (home appliances); those where the cost of labor is important (clothing); those where economies of scale and standardization are important (mobile phones)

ownership risk

treat of confiscation or expropriation of company property

TED Talk: Africa's Next Boom

tremendous potential Africa has for growth over the next several decades expects economy to grow from $2 trillion to $29 trillion in 2050 expects household incomes to increase sevenfold expects life expectancy to increase by 13 years

According to Transparency International's Corruption Perceptions Index, the average country scores below 50.

true

problems with the unemployment rate:

understates the extent to which people are out of work b/c DISCOURAGED WORKERS ---ppl not actively looking for work, so not part of LF rate does not distinguish between high-paying, full-paying, low-paying, and part-time paying jobs ---many people are UNDEREMPLOYED (working part-time, or making very little) black market --- NOTE: therefore, if many discourage workers are coming back to LF and unemployment increases, this is not a bad thing

most notable differences in accounting practice across countries

valuation and re-valuation of assets valuation of inventories dealing with tax authorities use of accounting reserves ---accounts created in a firm's financial reports to record foreseeable future expenses that may affect operations ---SEC and IRS limit the use of these in the US b/c reduce taxable income ---Germany uses these more aggressively (profits fluctuate less; hard to assess performance) capitalization requirements ---capitalization of R&D is forbidden in US ---financial leases must be capitalized goodwill ---the amount that the acquiring firm paid in EXCESS of BV ---UK, France, Netherlands, Japan AMORTIZE GW or write it off immediately

Given what you know about the current situation in Germany, where would you expect to find the country ranked on the World Justice Project's Rule of Law Index?

very high

Lehman Brothers

was a global financial services firm their bankruptcy marked the beginning of the financial crisis largest bankruptcy in history Repo 105 transaction ---temporarily sell off risky assets that it didn't want on BS, in order to hide huge amounts of debt ---buy back at a slight premium high leveraged company with manipulated BS

per-capital measure of income

we typically measure a country's "richness" or "poorness" on a global scale by looking at PER-CAPITAL MEASURES OF INCOME divide aggregate income figures (GDP, GNI) by the population per capita GDP = GDP / population

national income

when a company is considering a new market, prevailing NATIONAL INCOME is one of the most important considerations positively correlated with purchasing power, well-developed infrastructure, levels of technology World Bank and International Monetary Fund are good sources for data

intra-industry trade

when a country imports and exports the same kinds of goods

dumping

when a country promotes its exports by selling them at a lower price abroad than they would cost at home drives other firms out of the industry to gain a larger share of the export market

international franchising

when a firm in one country allows a firm in another country to *use its operating system and intellectual property* in exchange for royalties brand names, logos, trademarks franchising is a form of licensing NOTE: all franchises are licenses (FL), but not all licenses are franchises

technology transfer

when a foreign firm's know-how is passed on to home-country firms or individuals ---transfer of skills FROM foreign country TO host country sometimes occurs naturally with FDI other times, countries make technology transfer a prerequisite for doing business there

forum shopping

when a party in a lawsuit attempts to have the case heard in a country where the laws are most favorable

nationalization

when gov seizes ownership of a private firm most commonly carried out by leftist gov interested in controlling "strategic" private sector firms ---THOSE THAT ARE NOT MOBILE (natural resource industries, capital-intensive industries) ---not hard to confiscate assets if they are underground in your country EXPROPRIATION ---compensation offered to private owners CONFISCATION ---when no compensation is offered to private owners

flight capital

when individuals and firms invest their capital in other countries b/c there is political and economic instability in their home country

remittances

when people from developing countries work abroad in rich countries and send money back to their home country

capital markets

where firms get financing

company operating in a foreign country must abide by the country's domestic laws:

workforce management ---wages and benefits finances ---filings, disclosures, taxes marketing ---EX: nutrition labels developing and using technology ---safety standards

video on India

world's fastest-growing large economy only 1% of India's population pays income tax 39th most competitive economy 12 million people enter the workforce annually ---only 5.5 million jobs are added per year 1.4 million people work for INDIAN RAILWAYS ---8th largest employer in the world world's second fastest growing SERVICES economy ---EXPORTED $108 billion in info technology related to service exports India has halved its infant mortality rate in past decade, increased life expectancy and primary education enrollment tax system needs to be reformed OVERALL OUTLOOK FOR INDIA IS GOOD

United States

world's largest economy 23% of the world's GDP attracts foreign investment b/c political stability large middle class eager to buy goods from the rest of the world (prime export market) trade ONLY accounts for 28% of US GDP ---reason: US is so large; much trade among states that are super far from each other much EXPORT growth in: ---the oil and gas extraction industry (new fracking technologies) ---tourism industry ---technology industry ---other services DECLINING export growth in: ---mining ---machinery manufacutring switching to exports that are mostly services is a big shift that indicates the direction our economy should refocus

The _____ was created in _____.

EU, 1993

57% of global trade occurs in:

North America Europe Japan

Venezuela

"a humanitarian crisis" Chavez's price controls have led to severe shortages of basic necessities rampant hyperinflation

Trump's State of the Union Address

"from now on, we are expecting trading relationships to be fair and RECIPROCAL" "work together to fix bad deals" "we will protect American works and American intellectual property" Trump's tone was geared toward a domestic audience Democrats has 5 different response speeches (more than they historically have)

Japan

$4.83 trillion GDP 3rd largest economy ---US #1, China #2 127 million people has achieved strong economic growth in the past due to a strong partnership between the *** Ministry of International Trade and Industry (MITI) *** & the industrial sector firms often arranged in a large family of companies - aka "KEIRETSU" population is aging ---by 2025, 30% will be over the age of 65 ---this will likely put a strain on Japan's working class CULTURAL ATTITUDES TOWARD WOMEN ARE A MAJOR STRUCTURAL HURDLE FOR ECONOMIC GROWTH Japanese firms are transitioning from the historical paradigm (workers promised lifelong jobs) to a new paradigm (weak sales have caused companies to not hire full-time employees) joblessness and under-employment have given rise to a vicious DEFLATIONARY SPIRAL

2 types of international investments

---occurs when residents of one country supply capital to residents in another 1) foreign direct investment (FDI) - involves opening up a subsidiary abroad or purchasing more than 10% of a company (giving purchaser CONTROL of foreign assets) ---DOING SOMETHING ---purchasing A LOT of sock 2) foreign portfolio investment (FPI) - purchasing financial assets (stocks and bonds) for reasons other than control ---ppl do this to increase to ROI of their investment portfolios ---PASSIVE ---purchasing a small amount of stock

Distrance to Frontier (DTF) scores

---size of the gap between a given country's score and a perfect score (100) ---based on how freely companies are allowed to do business in a country US ranked #8 New Zealand ranked #1 Somalia (East Africa) ranked as worst scores on Gini index are negatively correlated with scores on DTF ---the level of income inequality tends to be lower in countries with more business-friendly regulation ---causation is not super clear DTF scores are positively correlated with CPI scores ---easier to do business where corruption levels are low the 10 economies that improved the most over the previous years in terms of reforms to increase the ease of doing business were generally LOW-INCOME and UNSTABLE according to 2016 data, economies in every region have improved

most influential members of the EU

1) Germany ---4th largest economy in the world ---3rd largest exporter 2) France ---pushed for European unification through common foreign and defense policies ---strong stands on human rights issues ---LOBBIED FOR PROTECTIONIST POLICIES 3) UK ---counterweight to French influence in Europe ---London is the world's largest financial center (b/c tradition and central global location) ---major destinations for FDI

the FOUR tigers

1) South Korea 2) Singapore 3) Taiwan 4) Hong Kong ^^^ high-income Asian nations ---4 countries, other than China and India, that have achieved remarkable growth over the past couple of decades ---GROWTH DRIVEN BY ***OPEN-TRADE POLICIES***

2 important Central American Canals

1) Suez Canal ---cuts through Egypt ---provided UK routes to its Asian colonies ---nationalized by Egypt in 1956 ---provides passage to 20,000 vessels annually 2) Panama Canal ---connects atlantic to pacific ---5% of global trade goes through

advantages of Canada for international investors and MNCs:

1) close to the US ---most Canadians live along the border (80% within 100 miles from the US) ---many Canadians in rural areas are closer to large US cities than to large Canadian cities 2) high political and legal stability ---EXCEPTION: separatist movement in Quebec (Quebecois) ---the majority are not for this ^^^ b/c sovereignty would physically split Canada and pose a major international issue over the ***St. Lawrence River*** 3) good education and infrastructure

how the world has become increasingly global:

1) world exports ---approx. 1/3 of the world's GDP comes from trade 2) FDI ---approx. 2.75% of the world's GDP 3) tourism ---Europe and America used to be just about the only touristy places ---now, Asian tourism has increased like crazy ---tourism is expected to increase in the Middle East and Africa 4) energy use ---growing economies tend to require more energy!!! ---the share of global energy by non-OECD counties will grow significantly in coming decades (especially in China and the rest of Asia) ---NOTE: the rate of energy consumption is falling both in OECD countries and in China (perhaps indicating that global economic growth is not as robust as it once was) ---in the future, renewable energy sources and nuclear power will account for a greater share of energy consumption (coal will account for a lower percentage)

challenges to African Growth

1) youth unemployment ---unemployed, young people usually end up participating in crime 2) low entrepreneurship ---this sector has potential and is developing rapidly 3) lacking regional integration ---intra-African trade is very low (12%) ---analysts believe that encouraging intra-African trade by decreasing trade regulations among countries is the KEY TO ACHIEVING ECONOMIC GROWTH IN AFRICA 4) political instability ---difficult to attract foreign investment 5) resource curse ---many African economies depend on a few or even just one commodity ---^^^ leaves countries vulnerable to global price changes ---potential for development in other industries is not realized (suffer neg. effects of fluctuating exchange rates) ---rebel groups & separatists may target resources

6 ways international business differs from domestic:

1. IB crosses national boundaries ---strong correlation between the extent of trade flows and a country's economic well-being ---transportation of goods across borders can be really hard in poor countries (transportation costs sometimes increase by as much as 15% - RESTRICTS TRADE FLOWS) 2. IB requires managers to think about currencies and currency flucuations ---most currencies float freely (values determined by S&D) (occur 1000s of times per day) ---companies must HEDGE AGAINST adverse changes ---admin costs, time costs, hedging costs ---Asians are most worried 3. IB requires an understanding of different legal systems ---strong/positive correlation between having minimal limitations on women, and being a high-income, stable growth country (not necessarily causal) 4. IB requires an understanding of different cultures 5. IB gives companies access to a wider range of resources ---NOTE: not all countries that are rich in natural resources are high-income countries (ie: Venezuela) ---RESOURCES CURSE 6. IB requires a broader sense of skills and knowledge ---through, country-specific understanding of economics, culture, politics, law, and finance to succeed in IB

Canada

35 million people (1/10 size of the US) 2nd largest country in terms of land mass (Russia is 1st) exports account for 55% of Canada's GDP natural resources: petroleum, timber, wood pulp, lumber, grain US and Canada have the 2nd largest bilateral trade relationship (just last year the US and China's relationship surpassed this) more than 75% of Canada's exports go to the US ---Canada is more dependent on the US than the US is on Canada Cana is the major export country for most states ---Brazil is the major export country for Florida (largely due to Embraer - Brazilian plan manufacturer in Florida) ---Switzerland is the major export country for Nevada (a lot gold gets sent to the Swiss) current threat: appreciation of the Canadian dollar against the US dollar (could hurt exporters)

arctic five

5 countries that play the most direct, active role in determining the region's political rate 1) US 2) Russia 3) Canada 4) Norway 5) Denmark Norway and Denmark, AKA "middle powers" ---important role in negotiating deals and maintaining peace among nations ---some analysts point to the peaceful resolution of disputes as a model for other geopolitical issues non-arctic nations also want access (India, China)

About ____ of all international transactions involve the ____.

50%, US dollar

Africa

55 countries 1.1 billion people history defined by colonization ---most Western nations still have a strong influence over their old colonies ---caused problems b/c artificial political borders were drawn that cut across ethnic and cultural lines ---sad massacres have happened (Rwanda) as a result of ethnic tensions recently, there has been a major commodity boom ---rich in natural resources (oil deposits, mineral deposits) many Africans are still extremely poor and live as SUBSISTENCE FARMERS *** agriculture accounts for 40% of GDP is many of the poorest African countries (compare to 1.6% in GDP of OECD countries and 17% in overall global GDP)

Asia

Asia's share of world output has fluctuated throughout human history severe economic crisis struck Asia in 1990s, coinciding with widespread currency collapse ---Asia's market share of GDP fell, buts PPP-adjusted measure of GDP market share rose ^^^ Why? b/c the cost of living fell by even more than Asia's GDP during this time accounts for LESS THAN 1/3 of world GDP, though it has more than half of the world's population

Between 1970 and 2009, the US share of the world's GDP

Became smaller than the European Union's

The foundation of the legal system in India is ________.

COMMON LAW

US's larges trading partner

China

important emerging markets

China and India fastest-growing countries biggest populations

Under Mao

China suffered economically during Mao's rule ---reason: economic policies and intense persecution of critics Great Leap Forward ---1950s and 60s ---series of economic and social reforms ---focused on COLLECTIVIZATION and CENTRAL PLANNING ---failed ---resulted in FAMINE and DEATH ---"forced industrialization" Cultural Revolution ---1960s and 70s ---sought to instill communist orthodoxy in the country ---remove remnants of capitalism ---tried to make the country's communist ethos reign supreme ---"removed anyone who didn't support him" died in 1976 after his death, leaders implemented a series of FREE MARKET REFORMS ---legalized some small business ---privatized agriculture ---trade liberalization ^^^all good things, led to several decades of growth

Baidu

Chinese Google

commodity boom has been driven mainly by:

Chinese growth

In the United States, to be counted as unemployed, you only need to want a job but not have one.

FALSE

notes from UNCTAD (united nations conference on trade and development)

FDI inflows were at their peak in 2007 - $2 trillion FDI inflows by developed economies dipped below inflows by developing economies for the FIRST and ONLY time in 2013 and 2014 FDI expansion is expected to increase from 2017 to 2019 top macroeconomic factors that influence future global FDI decisions: ---the state of developing Asian economies ---the state of the US economy ---the state of the BRICs and other emerging economies ---the state of the EU economy top corporate and external influencing factors that influence future global FDI decisions: ---technology change ---availability of a skilled labor force ---energy security ---global urbanization list of "top prospective host economies" (countries expected to receive the most foreign investment) ---US ---China ---India ---Indonesia ---Thailand ---Brazil ---^^^ 9/15 total are developing countries FDI has been the largest source of financing for developing countries ---*remittances* have increases ---*official development assistance* has remained stable ---portfolio investments have flucuated estimated "global inward" FDI stock has grow a lot - reflects the trend toward an increasingly service-based economy ---MOST FDI OCCURS IN THE SERVICE SECTOR (as opposed to manufacturing or primary sectors) many countries around the world have state-owned multinational enterprises (SO-MNEs) ---largest group = finance, insurance & real estate sector ---not many in the US at the microlevel, FDI is driven by: ---digitalization ---ubranization ---^^^mostly affects media/entertainment, retail, high-tech, healthcare, transportation MOST FDI IS ATTRACTED BY *EUROPE* the list of countries with the most FDI inflow changed a lot from 2014 to 2016

Hong Kong

GB colony until 1997 when control was given to Chinese technically part of mainland China, it has traditionally been allowed to operate fairly autonomously ---until 2047 according to a recent agreement also a major port like Singapore - RE-EXPORTING EXPORTING accounts for 400% of Hong Kong's GDP center for electronics, textiles, banking, finance viewed as a gateway for businesses to enter into the Chinese market ***

Singapore

GB founded as a trading colony in 1819 achieved independence in 1965 - grown rapidly ever since regional technological hub center for oil refining growing communications and financial services sector ***EXPORTS account for 326% of its GDP ---excellent ports that engage in RE-EXPORTING

Y = C+ G + I + NX

GDP (Y) formula 4 components: 1) consumption (C) 2) investment (I) 3) government spending (G) 4) net exports (NX) NX = exports (X) - imports (I) --- 1) only includes FINAL goods 2) only counts production and sale of NEW goods 3) counts the imputed value of owner-occupied housing 4) includes the value of goods and services produced IN the US ---EX: US store makes profit selling Chinese tennis balls - PROFIT counts toward GDP 5) "agnostic" economic measurement ---bad spending too (divorces, hospital stays, expansion of prison system) ---avoids political fights

gross national income (GNI)

GDP + net income NI = (div + int received from foreigners) - (div + int paid to foreigners)

what country is viewed as most trustworthy, but least compassionate

GERMANY

largest economy in the EU

Germany

The most influential members of the EU are

Germany, France, UK

largest democracy in the world

India MORE THAN 1.2 BILLION PEOPLE - CRAY CRAY

MIGA

Multilateral Investment Guarantee Agency World bank subsidiary similar insurance for firm's major projects in risky markets

cross-border trade is EASIEST in:

NOTE: the USA ranks as #16 Singapore Hong Kong South Korea Sweden Ireland Estonia Denmark UAE Panama France

Vladamir Putin

Russia's 2nd president after the fall of the USSR ---Yeltsin resigned in 2000 and essentially put Putin as his successor ---oligarchs expected a puppet, but they underestimated Putin PUTIN WAS ABLE TO SHIFT THE BALANCE OF POWER seemed like he would institute positive economic reform in the country ---deregulated small and medium enterprises ---allowed ppl to own private farms ---reformed the tax system he halted this all in 2003 ---renationalized many major companies (oil and gas) since then, Russian politics has been marked by corruption and graft ---Putin and his "cronies" (oligarchs) have gained the most from Russia's economic growth former KBG (***former*** Russia CIA) promoted by Yeltsin to head of the FSB (the new Russia CIA) *** during Yeltsin's presidency the oligarchs controlled the gov, but during Putin's presidency, the gov controlled the oligarchs *** if Putin does not like you, you better flee or invest your money in other countries ---most common: investing in western sport franchises or media outlets (a lot of Russian owners of UK soccer teams) interesting: Russian oligarchs' money kept abroad = to the total assets possessed by citizens' households in Russia ---this offshore money is 3x the size of Russia's foreign reserves Russian gov has so much control that Putin's approval rating is above 90%

ruble

Russian currency

Mikhail Khodorkovsky

Russian oil tycoon was once the richest man in Russia he criticized Putin in public and said he would run against him for president in response, Putin nationalized his company, Yukos Oil, AND threw him in jail for alleged fraud the facts of his case were so unconvincing that he was labeled a "prisoner of conscience" after 10 years, he was released

assigned South Africa video

South African economy grew at a relatively low rate of 1.5% in 2014 ONE OF THE BIGGEST PROBLEMS: ---state-owned power company is unable to meet the country's demand for electricity country is building new infrastructure and power plants ---will take years ---until then the country will have to deal with blackouts ---situation is OBV not good for attracting business to Africa

How many state-controlled television channels are in Russia?

THREE

recession

TWO consecutive quarters of negative GDP grow

ARTICLE #1 - World Economic Forum

WEF took place in Davos, Switzerland this annual meeting brings together some of the world's most powerful people (heads of state, CEOs, business leaders, journalists, academicians, celebs, etc.) criticized b/c takes place in a secluded, luxury ski town, and it is attended by the world's richest/most powerful people organizers release reports on the biggest risks the world is currently facing, as well as future risks according this years report, the top 5 global risks include: ---1) weapons of mass destruction ---2) extreme weather events ---3) natural disasters ---4) failure of climate change mitigation ---5) water crises ---^^^ 4/5 relate to climate change DR. PHALIN IS NOT VERY WORRIED ABOUT CLIMATE CHANGE; she believes "human ingenuity will eventually solve the problem" according this years report, the top emerging risks include: ---1) lack of food ---2) algorithms shutting down the internet ---3) a decrease in global trade ---4) rise of autocratic regimes/demise of democracies ---5) extinction of fish and loss of biodiversity ---6) global financial crisis ---7) rise of global inequality ---8) cyber warfare ---9) nationalist movements ---10) break-up of the internet Dr. Phalin is not worried about lack of food (1) or extinction of fish (5) because she believe human ingenuity will solve this problem, as well ^^^ Dr. Phalin likened these concerns to Thomas Malthus's concerns about overpopulation ---advances in farming technology have increased agricultural productivity, and there's more than enough food for everyone

India

WORLD'S 2ND MOST POPULOUS COUNTRY ---1.25 billion people WORLD'S LARGEST DEMOCRACY (#1!!!) most of the population is still poor and rural tremendous opportunity for growth gained independence from UK in 1947 ---gov structure still reflects UK influence after WWII, relied (with mixed success) on gov ownership of businesses in key industries to spur economic growth 1991 ---series of market reforms and privatization ---^^^attracted FDI GDP has grown at an avg. rate of 8.1% per year since 2003

TRIPS

WTO's Treaty-Related Aspects of Intellectual Property most nations have signed, but not all countries abide by its rules

South Korea

after WWII- communist North, democratic South OFFICIAL NAME: Republic of Korea (ROK) success due to: vibrant, export-led economy ---exports account for 85% of South Korea's GDP close cooperation between the South Korean gov and "CHAEBOL" ----- North Korea's ironic official name: "Democratic People's Republic of Korea" (DPRK)

Taiwan

after the Chinese Communist Party took over mainland China in 1949, 2 million nationalists fled and established what we now know as Taiwan (they considered it to be "the Republic of China") one of the fastest-growing regions in the world over the past 3 to 4 decades EXPORTS account for 67% of its GDP ongoing political battle between Taiwan and the People's Republic of China (mainland China) Taiwan maintains its independence, while mainland China swears they own Taiwan ---the US regularly conducts military exercises in the waters around Taiwan to discourage China from being idiots there are important cultural ties between Taiwan and mainland China ---though they are technically at a mini war with each other, they have agreed to disagree so that they can take advantage of the economic opportunities of friendly relations NOTE: PRESIDENT TRUMP WAS THE FIRST TO MAKE A DIRECT PHONE CALL TO TAIWAN'S PRESIDENT

emerging markets

part of the "developed countries" classification countries that either experienced rapid growth or have potential for future growth that exceeds that of traditional markets popular groups of emerging markets: 1) the NICs - "Newly Industrialized Countries" ---Mexico, Brazil, South Africa, China, India, Philippines, Indonesia 2) BRICS ---THE MOST PROMISING EMERGING MARKETS ---Brazil, Russia, India, China, South Africa ---trade with BRICs and US is almost as large as US trade with Canada and Mexico combined ---today India is the only BRICs country that has achieved particularly strong growth relative to their historical growth 3) the Big 10 ---Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea, Turkey 4) the Next 11 ---Bangladesh, Egypt, etc. ---many of these are not growing particularly yet, but have potential 5) the CIVETS ---Colombia, Indonesia, Vietname, Egypt, Turkey, South Africa 6) the MINTs ---Mexico, Indonesia, Nigeria, Turkey NOTE: these lists are developed by diff. analysts using various metrics ---when a country is on multiple lists, it means that more analysts are in agreement about the positive potential of that country no matter how you define this group, it is clear that they are important ---China and India both have rapidly-growing economies (their combined population accounts for 1/3 of the world's population)

trade secrets

patent applications are public, so some companies choose to protect intellectual property on their own trade secrets can be maintained indefinitely - as long as companies are able to keep them secret

cybersquatter

people who buy domain names solely to prevent a legit company from acquiring it, hoping to sell it to them in the future

deflationary spiral

people who do not have jobs, do not spend money, which puts downward pressure on demand and prices business earn less profit and thus hire fewer workers, causing people to spend even less!

"lost decade"

period of time in Japan in the 90s that resulted from a real estate and stock market bubble burs in 1989 in fact, there have been more than 2 "lost decades" of a stagnant economy at this point Japan has been slow to adjust to changes in the world economy ---ie: rising importance of emerging markets and e-commece Japanese yen has historically been OVERVALUED; discourage exports *** Japan is notorious for unfair trading practices ---dumping ---non-tariff barriers

ARTICLE #5

the inflation rate recently increased to 1.8% (higher than it has been since 2011) still below the Fed's 2% target investors are worried that the Fed will respond to higher-than-expected inflation by raising interest rates faster than they otherwise would have been small amount of inflation is a good thing (around 2%) ---sign that the economy is healthy and people are spending money the Fed wants to avoid inflation about 2% b/c it distorts economic decision making ---try to cool off economy w/ higher interest rate low interest rates fueled the stock market boom (investing in debt is better for investor when interest rates are high!) when the Fed decreases interest rates, it's like pushing on a string (takes a while for the change to have an effect) when the Fed increases interest rates, it's like pulling on a string (immediate effect)

national laws impact

the markets a firm can serve prices that firm can charge cost of inputs location destinations

economies of scale

the more you produce, the more cost per unit DECREASES describes a competitive advantage that large entities have over smaller entities the cost of producing one unit is less when many units are produced at once

Internet penetration rate

the number of households that have access to the Internet world average Internet penetration rate is approx. 50% regions with above average penetration: ---North America (88%) ---Europe (84%) ---Oceania (68%) ---South America (66%) regions with below average penetration: ---Africa (29%) ---South Asia (33%) ---Central Asia (48%) OVERALL THERE ARE MORE INTERNET ***USERS*** IN ASIA OBV B/C MORE PEOPLE strong positive correlation between Internet penetration rates and GDP per capita the arrival of "fast internet" in Africa was linked to an increase in employment in skilled jobs and a decrease in employment in unskilled jobs ---OVERALL EMPLOYMENT INCREASE ---there was also increased productivity of manufacturing firms in Ethiopia, new business creation in South Africa, and increased exports in African countries interestingly, the US has slower and more expensive broadband access than many countries around the world ---high prices and slower services ---due to the lack of competition for providers of Internet connection (companies are unmotivated to improve their service) NOTE: South Korea has the world's fastest broadband speed AND lowest costs