CH 1, 2, & 3
In January 2006, a Shanghai court said Coffeebux's decision to use the logo and similar sounding name to Javabucks was
"clearly malicious"
ABC Company, which is headquartered in the United States, has production plants in Mexico and Vietnam. According to this information, ABC company is...
A multinational enterprise
GATT (General Agreement on Tariffs and Trade)
A series of treaties that reduced barriers to trade.
Purchasing power parity (PPP)
An adjustment in gross domestic product per capita to reflect differences in the cost of living.
United Nations (UN)
An international organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, cooperation.
Who/What is Affected: Workers
Arguments for Globalization: Development of better skills Arguments Against: Loss of jobs due to competition
Which of the following legal systems is most likely to be based on tradition, precedent, and custom?
Common Law
Those who believe that socialism can be achieved only through violent revolution and totalitarian dictatorship are called
Communists
Product safety and product liability laws are enforced to protect
Consumers
Which of the following is most likely to be observed in today's global economy?
Continued rise in the share of world output accountant for by developing nations such as China India
An argument in support of the falling barriers to international trade and investment is that the falling barriers...
Drive the global economy toward greater prosperity
Generally, the costs and risks associated with doing business in a foreign country are typically lower in
Economic advanced countries
What is the shift toward a more integrated and interdependent world economy called?
Globalization
Apple sources parts for its iPhone from around the world before assembling the phones in China. This reflects the:
Globalization of production
Which of the following refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors such as labor, energy, land, and capital?
Globalization of production
One common measure of economic development is a country's
Gross national income
International Monetary Fund (IMF)
International institution set up to maintain order in the international monetary system.
World Bank
International institution set up to promote general economic development in the world's poorer nations.
Michelle, an Italian fashion designer, sells her merchandise by exporting it to the United States, United Kingdom, and Brazil. According to this information, Michelle is most likely involved in
International trade
General Agreement of Tariffs and Trade (GATT)
International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.
For foreign direct investment (FDI) to occur, a firm should primarily
Invest resources in business activities outside its home country
Countries that emphasize individual goals over collective goals tend to have what type of economic system?
Market
Which of the following refers to an economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced?
Market
Gross National Income (GNI)
Measures the total annual income received by residents of a nation.
ABC Medical Corporation has developed a new medication to treat a rare disease. Which type of legal protection grants ABC Medical Corporation exclusive rights for a defined period to the manufacture, use, or sale of the new medication?
Patent
The advent of containerization has...
Significantly lowered the costs of shipping goods over long distances
The Role of Technological Change
Since World War II, there have been major advances in communication, information processing, and transportation. Microprocessors and Telecommunications.
The main factor driving Apple's decision to locate its iPhone production in China was
Speed
Social Democracy = France
State-owned enterprises allow for the "public good rather than the private profit"
GNI figures are helpful in understanding an economy because they
Tell us how poor a country is relative to another
The absence of a legal system that protects property rights and the lack of machinery to enforce that system in a market economy usually results in
The lack of incentive to engage in economic activity.
Gerald bought his son, David, a computer two years ago. Recently, he decided to buy his daughter, Julian, a computer of her own. In the context of the two-year gap between the purchase of both the computers and Moore's law, it is most likely that
The microprocessor in Julian's computer will be more advanced in terms of power than that of David's.
Which of the following has seen a positive change from 1960 to 2014?
The share of world output accounted for by developing nations
Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption, because of
The shift toward a market-based economic system.
A form of government in which political power is monopolized by a party, group, or individual that governs according to religious principles is called what type of totalitarianism?
Theocratic
Jewish law is an example of what type of law system?
Theocratic
Why was the World Bank set up?
To promote economic development
Which of the following protects the Nike "swoosh" logo from being used by any other shoe manufacturer?
Trademark
Foreign Corrupt Practices Act (FCPA)
U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
Which of the following countries has seen a relative decline in its share of world output between 1960 and 2014?
United States
Star Volans Inc. is planning on expanding its business globally. In terms of the costs involved in conducting business in a country, it will be most economical for the company if it chooses a country
Where politicians are held accountable by the electorate* - With regard to political factors, a company may have to pay off politically powerful entities in a country before the government allows it to do business there. The need to pay what are essentially bribes is greater in closed totalitarian states than in open democratic societies wherepoliticians are held accountable by the electorate.
The organization of approximately 185 countries that have all signed treaties to protect intellectual property rights is known as the
World Intellectual Property Organization
Which of the following was established to ensure that nation-states adhered to the rules laid down in trade treaties?
World Trade Organization
Communist Totalitarianism = China
Xi Jinping, the new party chief, has said officials need to guard against corruption as its spread would doom the party and the state.
Contract
a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.
Multinational enterprise (MNE)
a firm that owns business operations in more than one country.
John Smith, a U.S. based businessman, paid the equivalent of $20 to an official of the country of Murundi to expedite the overnight delivery of critical documents. When questioned, John Smith claimed this was not a bribe. The $20 is an example of
a grease payment.
Which of the following nations is most likely to be unappealing as a place for doing business?
a nation that has a totalitarian political system
Grease Payment
a payment made to expedite or to secure the performance of a routine governmental action.
Tribal totalitarianism
a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power.
Representative democracy
a political system in which citizens periodically elect individuals to represent them in government.
Theocratic totalitarianism
a political system in which political power is monopolized by a party or group, or individual that governs according to religious principles.
Social democrats
a socialist system of government achieved by democratic means.
Civil law system
a system of law based on a very detailed set of written laws and codes
Theocratic law system
a system of law based on religious teachings.
Common law
a system of law based on tradition, precedent, and custom; when law courts interpret common law, they do so with regard to these characteristics.
Communist totalitarianism
a version of collectivism advocating that socialism can be achieved only through totalitarian dictatorship.
First-mover advantages
advantages occurring to the first to enter a market.
Human Development Index (HDI)
an attempt by the United Nations to assess the impact of a number of factors on the quality of human life in a country.
Market economy
an economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced.
Command economy
an economic system where the allocation of resources, including determination of what goods and services should be produced, and in what quantity, is planned by the government.
Individualism
an emphasis on the importance of guaranteeing individual freedom and self-expression.
World intellectual Property Organization
an international organization whose members sign treaties to agree to protect intellectual property.
International Business
any firm that engages in international trade or investment.
Property rights
bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource.
Which of the following is a form of totalitarianism which advocates that socialism can be achieved only through a totalitarian dictatorship
communist totalitarianism
Some countries consider bribes to be
compensation for work that would otherwise not be completed by underpaid government workers
Tribal Totalitarianism = Zimbabwe
defeated in 2009 parliamentary elections, president mugabe, remains in power today.
Which of the following services CANNOT be outsourced to foreign nations?
delivering closing arguments for a lawsuit
Innovation
development of new products, processes, organizations, management practices, and strategies.
Which of the following is most likely to be the result of a country having lax intellectual property laws?
firms will be reluctant to enter into such a country
Totalitarianism
form of government in which one person or political party exercises absolute control over all spheres of human life and opposing parties are prohibited.
Patent
grants the inventor of a new product or process exclusive rights to the manufacture, use, or sale of that invention.
Which of the following does the U.S. law and OECD convention allow as an exception?
grease payments or speed money
Late-mover disadvantages
handicaps experienced by being a late entrant in a market.
Some economists support the practice of paying small bribes based on the argument that they
help promote economic growth.
Patents, copyrights, and trademarks establish ownership rights over what type of property?
intellectual
Products of the mind, such as computer software, a screenplay, a music score, or the chemical formula for a new drug, constitute
intellectual property
Paris Convention for the Protection of Industrial Property
international agreement to protect intellectual property.
Product liability
involves holding a firm and its officers responsible when a product causes injury, death, or damage.
The practices of bribery -
is a normal part of business in some countries.
In what type of economy are certain sectors of the economy left to private ownership and free market mechanisms, while in other sectors there is significant state ownership and government planning?
mixed
If a country wants to improve its attractiveness as a place for doing business and as an investment site, it should
move toward a market-based system
Your U.S.-based company wants permission to build a factory in a foreign country. You have been asked to pay a bribe in order to get the paperwork approved. You should
not pay because doing so is prohibited by the Foreign Corrupt Practices Act.
legal system
of a country refers to the rules, or laws, that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained.
Democracy
political system in which government is by the people, exercised either directly through elected representatives.
Which of the following type of laws hold a firm and its officers responsible when a product causes injury, death, or damage?
product liability
Intellectual property
products of the mind, ideas (e.g. books, music, computer software, designs, technological know how); intellectual property can be protected by patents, copyrights, and trademarks.
Intellectual property rights are intended to
protect original ideas/works.
In what type of economy are all businesses state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals?
pure command
Deregulation
removal of government restrictions concerning the conduct of a business.
The philosophy behind intellectual property rights is to
reward the create of an idea
Public action
the extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats.
Legal risk
the likelihood that a trading partner will opportunistically break a contract or expropriate intellectual property rights.
Political risk
the likelihood that political forces will cause drastic changes in a country's business environment that will adversely affect the profit and other goals of a particular business enterprise.
Economic risk
the livelihood that events including economic mismanagement, will cause drastic changes in a country's business environment that adversely affect the profit and other goals of a particular business enterprise.
Moore's Law
the power of microprocessor technology doubles and its costs of production fall in half every 18 months.
Privatization
the sale of state-owned enterprises to private investors.
Political system:
the system of government in a nation.
Gross Domestic Product
the total value of goods produced and services provided in a country during one year.
Stock of FDI
the totaled accumulated value of foreign-owned assets at a given time.
Socialists
those who believe in public ownership of the means of production for the common good of the society.
Communists
those who believe socialism can be achieved only through revolution and totalitarian dictatorship
Entrepreneurs
those who first commercialize innovations.
Which of the following is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties?
totalitarianism
Globalization
trend away from distinct national economic units and toward one huge global market.
Representative Democracy = United States
two major political parties fields candidates for federal state, and local elections
Private action
violation of property rights through theft, privacy, blackmail, and the life of private individuals or groups.
International trade:
when a firm exports goods or services to consumers in another country.
Foreign direct investment:
when a firm invests resources in business activities outside its home country.
The Changing World Output and World Trade Picture
*- Early 1960s:* --> U.S. - dominant industrial power accounting for about 38.3% of world manufacturing output. *- By 2014:* --> U.S. accounted for only 22.4%. --> Germany, France, and the U.K. had a similar decline. Rapid economic growth now in countries like China, India, Russia, and Brazil. --> Further relative decline by the U.S. is likely
In the early 20th century, socialism split into communists and social democrats:
- *Communists* - socialism could only be achieved through revolution and totalitarian dictatorship. - *Social Democrats* - worked to achieve the same goals by democratic means. - Many state-owned enterprises failed to succeed, and many nations implemented privatization programs.
Democracy and Totalitarianism
- *Democracy:* political system in which government is by the people, exercised either directly or through elected representatives. - Most common form today is representative democracy- elected representatives vote on behalf of constituents. - *Totalitarianism*: form of government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited.
Geography, Education, and Economic Development
- *Geography* - influences economic policy, and thus economic development. --> Favorable geography facilitates trade which can promote economic growth. - *Education levels:* --> Investment in education promotes faster economic development.
Doing Business in Another Country: Risk
- *Political risk* - the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise. - *Economic risk* - the likelihood that economic mismanagement will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise. - *Legal risk* - the likelihood that a trading partner will opportunistically break a contract or expropriate property rights.
Property Rights and Corruption
- *Property rights:* the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource. - *Private action:* theft, piracy, blackmail, and the like by private individuals or groups. - *Public action:* public officials extort income or resources from property holders. - Excessive taxation, requiring expensive licenses or permits from property holders, or taking assets into state ownership without compensating the owners. -Corruption is present in all countries to some degree, however when a country has a high level of corruption: --> Foreign direct investment falls. --> International trade falls. --> Economic growth falls.
A country's level of economic development affects its attractiveness as a possible market or production location for firms
- A common measure is gross national income (GNI). - A purchasing power parity (PPP) adjustment provides a more direct comparison of living standards in different countries. --> Gross National Income (GNI) - Measures the total annual income received by residents of a nation. --> *Purchasing Power Parity (PPP)* - adjustment to gross domestic product (GDP) per capita (per person) to reflect differences in the cost of living. - GNI per Capita (per person / head)
There are three types of economic systems: the market economy, the command economy, and the mixed economy.
- A market-based economic system is likely in countries where individual goals are given primacy over collective goals. - State-owned enterprises and restricted markets are common in countries where collective goals are dominant.
Mixed Economy: Facts
- A mixed economy includes some elements of a market economy and some elements of a command economy. - Governments take over troubled firms considered vital to national interests. - The number of mixed economies in the world today is falling.
Broader Conceptions of Development
- Amartya Sen - development should be assessed less by material output and more by the capabilities and opportunities that people enjoy. - The UN created the Human Development Index based on life expectancy, education attainment, and whether average incomes are sufficient to meet the basic needs of life in a country. - Reflects Sen's ideas and gauges a country's economic development and likely future growth rate.
Markets that were formerly off-limits to Western business are now open.
- China (population of 1.3 billion) could be a bigger market than the U.S., the EU, and Japan combined. - India (population 1.2 billion) is also a potentially huge market. - Latin America has 600 million potential consumers. *No guarantee that democracy will thrive in newer democratic states. *Rapid economic development has taken place in China and Vietnam since the shift toward a more market-based system.
Collectivism and Individualism:
- Collectivism: a system that stresses the primacy of collective goals over individual goals. - Can be traced to the Greek philosopher Plato. - Today, socialists support collectivism. - When collectivism is emphasized, the needs of the society as whole are generally viewed as being more important than individual freedoms. ------------------------------------------- - Individualism: suggests individuals should have freedom over their economic and political pursuits. cCan be traced to Aristotle who argued that individual diversity and private ownership are desirable. - Individualism stresses: --> Individual freedom and self-expression. --> Letting people pursue their own self-interests to achieve the best overall good for society. --> Democratic systems and free markets.
Four major forms of totalitarianism today:
- Communist totalitarianism: advocates achieving socialism through totalitarian dictatorship. - Theocratic totalitarianism: political power is monopolized by a party, group, or individual that governs according to religious principles. - Tribal totalitarianism: a political party that represents the interests of a particular tribe monopolizes power. - Right wing totalitarianism: individual economic freedom is allowed but individual political freedom is restricted in the belief that it could lead to communism.
International business different for four reasons
- Countries are different. - Range of problems is wider and problems more complex. - Must find ways to work within governmental limits. -Transactions involve converting money into different currencies.
International business more complicated than domestic
- Countries vary in economic development. - Cultural, education, and skill levels vary. - The political, economic, and legal systems are known as the political economy. - Societal culture affects the political economy and the political economy shapes societal culture.
Innovation and Entrepreneurship require a Market Economy / Strong Property Rights
- Countries with high economic freedom have high economic growth and richer citizens. - Hong Kong, Switzerland, Singapore, the U.S., Canada, and Germany. - Countries that lack economic freedom also fail to achieve respectable economic growth. ---------------------------------- - Individuals and businesses must have the opportunity to profit from innovative ideas. - Hernando de Soto - the developing world will not benefit from capitalism until property rights are better defined and protected.
Globalization and the World's Poor
- Critics argue the gap between rich and poor has gotten wider and the benefits of globalization have not been shared equally. - Many of the world's poorest nations are under totalitarian regimes, suffer from endemic corruption, have few property rights, are involved in war, and are burdened by high debt. - United Nations adopted Millennium Goals. --> Eight economic and human development goals for the world.
Two factors driving the move toward greater globalization:
- Decline in barriers to free flow of goods, services, and capital - Technological change
Today's world reflects globalization
- Declining barriers to cross-border trade and investment. - Advances in transportation and telecommunications. - Material culture similar all over the world. - National economies merging into integrated global economic systems.
The Political System - Economic Growth
- Democratic regimes tend to be more conducive to long-term economic growth than dictatorships - even the benevolent kind. - Limiting human freedom also suppresses human development and therefore limits progress. - Democracy is often a consequence of economic growth. - South Korea and Taiwan. - This has contributed to the attitude of many Western governments towards human rights violations in China. - If China establishes a free market system, it is hoped that greater individual freedom and democracy will follow.
Declining Trade and Investment Barriers
- During the 1920s and 1930s, many nations put up barriers to international trade to protect domestic industries. - After WWII, advanced Western countries reduced barriers. GATT, Uruguay Round, and WTO. - *We produce more goods and services than ever before but a greater proportion being traded across national borders* - *Consumers are more knowledgeable which drives demand.* - *Volume of world trade growing faster than GDP.* --> More companies dispersing parts production. --> Economies are becoming even more intertwined. --> World has become significantly wealthier.
Political systems can be assessed in terms of the degree to which they:
- Emphasize collectivism as opposed to individualism. - Are democratic or totalitarian.
The overall attractiveness of a country depends on balancing the benefits, costs, and risks.
- Evaluate Benefits - Middle-class population growth potential, free, free market economy, first - mover advantages - Evaluate Costs - Bribe payments, Infrastructure issues, Resolving contract disputes - Evaluate Risks - Unexpected political change, Economic Uncertainty
The world economy today
- Fewer self-contained national economies with high barriers to cross-border trade and investment. - A more integrated global economic system with lower barriers to trade and investment. - Over $5 trillion in foreign exchange transactions daily. - Over $19 trillion of goods and $5 trillion of services being sold across national borders. - The establishment of international institutions.
The Group of 20 (G20):
- Finance ministers and central bank governors of 19 largest world economies. - Represents 90% of global BDP. - A forum for a coordinated policy response to the financial crisis of 2008-2009.
Innovation and Entrepreneurship are the Engines of Growth
- For a country to sustain long term economic growth, the business environment needs to be conducive to innovation and entrepreneurial activity. - Innovation - new products, new processes, new organizations, new management practices, and new strategies. - Entrepreneurs first commercialize innovative new products and processes.
Impediments to Globalization:
- Formal and informal trade barriers. - Barriers to foreign direct investment. - Transportation costs. - Economic and political risk. - Managerial challenge (issues coordinating a globally dispersed supply chain)
Doing Business in Another Country: Benefit
- Function of market size, and current and future consumer purchasing power. - May be able to gain *first mover advantages*. - Late entrants face *late-mover disadvantages*.
Why Outsource?
- Giving business to nations can help with sales - To disperse component part production to those suppliers who are the best in the world at their particular activity. - So a business can unburden itself of some of the risks and costs associated w/ developing production facilities.
Command Economy: Facts
- In a pure command economy the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are all planned by the government. - All businesses are state-owned, and have little incentive to control costs and be efficient. - Because there is no private ownership, there is little incentive to better serve consumer needs. - Dynamism and innovation are absent.
Market Economy - Facts
- In a pure market economy the goods and services that a country produces, and the quantity in which they are -- produced is determined by supply and demand. - Supply must not be restricted by monopolies. - The role of government is to encourage free and fair competition between private producers.
The Protection of Intellectual Property
- Intellectual property: property that is the product of intellectual activity. - Patents: give the inventor exclusive rights to the manufacture, use, or sale of that invention. - Copyrights: exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit. - Trademarks: designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products. --------------------------------- - The protection of intellectual property rights differs greatly from country to country. - 185 nations are members of the World Intellectual Property Organization. - Paris Convention for the Protection of Industrial Property: agreement signed by 170+ countries to protect intellectual property rights. - Enforcement is lax in many nations especially in China and Thailand.
International Business
- International business is any firm that is engaged in international trade or investment. - Managing international business differs from managing purely domestic business. - International business must vary its practices country by country. - International business issues greater in complexity. - Need to understand rules governing international trade and investment.
The Foreign Corrupt Practices Act limits corruption in the U.S
- It is illegal to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority. - All publicly traded companies must keep detailed records so that it is clear whether a violation of the act has occurred. - Facilitating or expediting payments to secure the performance of routine government actions are permitted
Legal Systems:
- Laws protecting private property rights and providing mechanisms for contract enforcement. - Without a legal system in place, little incentive to engage in economic activity.
Response to violations of intellectual property:
- Lobbying governments for better laws and enforcement of those laws. --> Trade Related Aspects of Intellectual Property Rights (TRIPS) - requires WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. - Filing lawsuits. - Avoiding countries with poor intellectual property laws.
The United Nations (UN): Facts
- Maintains international peace and security. - Develops friendly relations among nations. - 193 member countries. - Promotes respect for human rights. - Is a center for harmonizing the actions of nations.
Responsibility of Global institutions:
- Manage, regulate, and police the global marketplace. - Promote the establishment of multinational treaties to govern the global business system.
Socialism:
- Modern socialists trace their roots to Karl Marx. - Advocated state ownership of the basic means of production, distribution, and exchange. -The state then manages the enterprises for the benefit of society as a whole.
World Trade Organization (WTO): Facts
- Polices world trading system and ensures nations adhere to the rules established in WTO treaties. - Succeeded the General Agreement on Tariffs and Trade (GATT). - 162 nations accounted for 98% of world trade (2016).
Doing Business in Another Country: Costs
- Political costs - include the cost of paying bribes or lobbying for favorable or fair treatment. - Economic costs - relate primarily to the sophistication of the economic system, including the infrastructure and supporting businesses. - Legal costs - can be higher in countries with dramatically different product, workplace, and pollution standards, or where there is poor legal protection for property rights.
Product Safety and Product Liability
- Product safety laws set certain safety standards to which a product must adhere. - Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. -->Liability laws are usually least extensive in less developed countries. -Firms must decide whether to adhere to the standards of the home country or the standards of the host country.
A country's legal system is important because laws:
- Regulate business practice. - Define the manner in which business transactions are to be executed. - Set down the rights and obligations of those involved in business transactions.
Deregulation:
- Removing legal restrictions to the free play of markets. - Establishment of private enterprises. - Removing price controls. - Removal of gov't restrictions concerning conduct of a business. Easier to establish private businesses. —> anyone can join businesses now. Ex: Phone Company
The Spread of Market-Based Systems
- Since the late 1980s there has been a transformation from centrally planned command economies to market-based economies. - Command and mixed economies failed to deliver the sustained economic performance achieved by countries that had adopted market-based systems. - *Many countries shifted to a market-based system.*
States in Transition / Spread of Democracy
- Since the late 1980s, a wave of democratic revolutions has swept the world, and many of the previous totalitarian regimes collapsed. - There has been a move away from centrally planned and mixed economies towards free markets. - Many totalitarian regimes failed to deliver economic progress to the majority of their population. - New information and communication technologies have broken down the ability of the state to control access to uncensored information. - Economic advances of the last quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms.
The Globalization of Production
- Sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor energy, land, and capital). - Lower overall cost structure. - Improve the quality or functionality of the product to compete more effectively. - Early outsourcing was primarily for manufacturing - Today, modern communications technology allows companies to outsource services
The New World Order and Global Terrorism
- The end of the Cold War and the "new world order" that followed the collapse of communism, taken together with the collapse of many authoritarian regimes in Latin America, have given rise to intense speculation about the future shape of global geopolitics. - Fukuyama: war of ideas may be at an end and liberal democracy has triumphed. - Huntington saw the world split into different civilizations each with its own value systems and ideology.
The Globalization of Markets
- The merging of historically distinct and separate national markets into one huge global marketplace. - In many markets today, the tastes and preferences of consumers in different nations are converging upon some global norm. *A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets.
Overall Attractiveness of a Country...
- The overall attractiveness of a country as a potential market and/or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. - Generally, the costs and risks are lower in economically developed and politically stable markets. - However, the potential for growth may be higher in less developed nations.
THE MACRO ENVIRONMENT INFLUENCES MARKET ATTRACTIVENESS
- The political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business. - The political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market and/or investment site. - A democratic country with a market-based economy, protection of property rights, and limited corruption is a more attractive place to do business.
In most totalitarian regimes:
- There is widespread political repression. - There are no free and fair elections. - Media is censored. - Basic civil liberties are denied. - Challenges to the regime are prohibited.
Differences in Contract Law
- They approach contract law (the body of law that governs contract enforcement) differently. - A *contract* specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved. - In a common law state, contracts are very detailed with all contingencies spelled out. - In a civil law state, contracts are shorter and much less specific. - The *United Nations Convention on Contracts for the International Sales of Goods (CISG)* establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. - Countries that adopt CISG signal to other nations that they will treat the Convention's rules as part of their law.
Privatization:
- Transfers ownership of state property into the hands of private individuals. transferring gov't owned businesses to private businesses (ex:utility company - power companies like Duke)
Moore's Law: Facts
-*The Internet:* --> Currently, 3.3 billion users (46% of global population). - *Transportation Technology:* --> Containerization. - revolutionized transportation business → lowering costs of shipping goods over long distances. Bc international shipping industry is responsible for carrying about 90 percent of the volume of world trade in goods; this has been an extremely important development. - *Implications for the Globalization of Production:* --> Lower transportation costs. --> Geographically dispersed production systems are more economical. --> Allow firms to better respond to customer demands. - *Implications for the Globalization of Markets:* --> Low cost communication networks help create an electronic global marketplace. --> Low cost transportation makes it economical to ship products around the world. --> A reduction in cultural distance. --> A convergence of consumer tastes and preferences.
Different Legal Systems
--> Common law: based on tradition, precedent, and custom. (Tradition refers to a country's legal history, precedent to cases that have come before the courts in the past, and custom to the ways in which laws are applied in specific situations.) - Found in most of Great Britain's former colonies, including the United States. --> Civil law: based on a detailed set of laws organized into codes. - Found in more than 80 countries, including Germany, France, Japan, and Russia. --> Theocratic law: based on religious teachings. - Islamic law is the most widely practiced.
Globalization, Labor Policies, and the Environment
--> Lack of regulations--- ENVIRONMENTAL in less developed countries. Adhering to environmental regulations increases costs of manufacturing. - if they pressed on them to follow through with these regulations, it would cost more. -- so utilizing outsourced production facilities/manufacturers-- they don't have to worry about these costs / standard health/environment regulations (increased pollution, employ child labor, and ignore workplace safety and health issues) --> Supporters argue that tougher regulations lead to economic progress. -- thinks it leads to less, bc free trade enables developing countries to increase their economic growth rates / become richer. Which will lead to tougher environmental and labor laws. --> Studies show a hump-shaped relationship between income levels and pollution levels.-- as an economy grows and income levels rise, initially pollution level also rises. But eventually rising income levels lead to greater demand for environmental protection. (developing countries experiencing more pollution, developed countries experiencing less)
The Globalization Debate
--> Many experts believe that globalization is promoting greater prosperity in the global economy, more jobs, and lower prices for goods and services. --> Others feel that globalization is not beneficial. --> Falling trade barriers destroy manufacturing jobs in wealthy economies → reducing jobs available in the U.S. (U.S. and western Europe). --> Service activities increasingly outsourced to nations with lower labor costs. --> Supporters say benefits outweigh the costs. --> Outsourcing allows a company to reduce its cost structure and as a result, can reduce prices. --> OECD studies show that while the gap between poorest and richest segments of society has widened, in most countries, real income levels have increased for all, including the poorest segment. --> Many advanced economies report shortage of highly-skilled workers and an excess of unskilled workers.
Rise of Mini-Multinationals
--> More small and medium-sized businesses involved in international trade and investment. --> The Internet lowers barriers that small and medium firms face in building international sales.
The Changing World Order
--> The collapse of communism in Eastern Europe: - Greater export and investment opportunities, but political unrest is increasing risk. --> Economic development in China: - Huge opportunities despite continued government control, but also new competition from Chinese firms. --> Free market reforms and democracy in Latin America: New markets and new sources of materials and production, - but economic and political risk remains high. -->A more integrated global economy: - New opportunities for firms - But political and economic disruptions can throw plans into disarray
The Changing Foreign Direct Investment Picture
--> The share of world output generated by developing countries has been steadily increasing since the 1960s. --> The stock of foreign direct investment (total cumulative value of foreign investments) generated by rich industrial countries is declining. --> Cross-border flows of foreign direct investment are rising. --> The largest recipient of FDI (Foreign Direct Investment - Direct investment in business operations in a foreign country.) is China, followed by Brazil, Mexico, and India.
The Changing Demographics of the Global Economy In the 1960s:
--> U.S. dominated the world economy, world trade, and world FDI. --> U.S. MNEs (multinational enterprises) dominated the international business scene. --> About half the world-- the centrally planned economies of the communist world-- was off limits to Western international business. --> Today, much of this has changed.
Official figures can be misleading
--> Unrecorded cash transactions can be significant. - India's black or shadow economy may be around 50% of GDP. - The EU estimates that the shadow economy accounted for 10% of GDP in the UK and France in 2012, 24% in Greece, and 32% in Bulgaria.
Globalization and National Sovereignty
-->As perceived by critics, unelected bureaucrats now impose policies on the democratically elected governments of nation-states, thereby undermining the sovereignty of those states and limiting the nation's ability to control its own destiny. --> Supporters argue that the power of these organizations is limited to what nation-states collectively agree to grant. --> The organizations must be able to persuade members states to follow certain actions. --> Without the support of members, the organizations have no power.
Pseudo-Democracies
-Many nations lie between pure democracy and complete totalitarianism --Authoritarian elements capture much of the machinery of state and use this in an attempt to deny basic political and civil liberties --Russia under Vladimir Putin
1 What type of risk can be defined as the likelihood that a trading partner will opportunistically break a contract or expropriate property rights?
1 Legal
2 MedPlus Incorporated, based in the United States, hesitates to enter into a joint venture with Azpak Limited, a Sri Lankan company, due to inadequate protection of intellectual property rights. MedPlus is trying to avoid what type of risk?
2 Legal
In the context of cost, which of the following can be considered as the most attractive market or investment site?
A country that has a well-developed body of business contract law
Capricorn Creative Inc., a U.S.-based advertising firm, was the first in the advertising industry to identify the growth potential of Brazil and to make huge investments in its economy. As a result, the firm was able to build brand loyalty and gain experience in that country's business practices. In the language of business strategy, Capricorn Creative has typically benefited from
A first-mover advantage
As a result of _____, large amounts of economic activity in India are unrecorded and the official GDP figures of the country fail to tell the entire story of the economy.
Active Bartering* - In some countries the "official" figures do not tell the entire story. Large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. In some countries (India being an example), they are reportedly very significant. Known as the black economy, estimates suggest that in India it may be around 50 percent of GDP.
If GNI adjusted for cost of living in China is about $13,000 while GNI adjusted for cost of living is about $56,000 in the United States, then
American enjoy higher standard of living
Who/What is Affected: Producers
Arguments for Globalization: More markets to sell in Arguments Against: Can go bankrupt due to competition
Who/What is Affected: Consumers
Arguments for Globalization: More products to choose from Arguments Against: Don't know how products are made
Who/What is Affected: The Environment
Arguments for Globalization: Tougher laws lead to lower pollution rates Arguments Against: Lack of adequate regulations causes abuse
Which of the following statements is a general implication of globalization?
As a result of globalization, a severe crisis in one region of the world can affect the entire globe
Negative impact of Globalization
As globalization unfolds, it is transforming industries and creating anxiety among those who believed their jobs were protected from foreign competition.
United Nations (UN)
As much as 70% of its work is devoted to establishing higher standards of living, full employment, and conditions of economic and social progress and development.
Right - Wing Totalitarianism = Italy in the 1930s
Benito Mussolini's dictatorship
Which of the following of the Cold war era has vanished?
Bipolar world *
The North American Free Trade Agreement (NAFTA) was formed in 1994 among
Canada, Mexico, and the United States
Which of the following is a law system based on a detailed set of laws organized into codes?
Civil Law
A legal system which is based on a detailed set of laws organized into codes is referred to as a
Civil Law System
The needs of society as a whole are generally viewed as being more important than individual freedoms when the emphasis is on
Collectivism
Which of the following refers to documents that specify the conditions under which an exchange is to occur and detail the rights and obligations of the parties involved?
Contracts
A composer can protect an original musical score from being copied and sold by someone else by acquiring for the score a(n)
Copyright
You can adjust GNI per capita by purchasing power to account for differences in the
Cost of living
The overall attractiveness of a country depends upon the balance between the likely benefits of doing business in that country against the likely ___________ and ___________.
Costs and risks
Apple's production presence in China
Creates both low skilled and engineering level jobs
Which of the following best illustrates the globalization of production?
Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process.
Which of the following refers to a political system in which the government is by the people, exercised either directly or through elected representatives?
Democracy
In the context of global economy, which of the following has been widely accepted since the late 1980s?
Deregulation of economies* - Paralleling the spread of democracy since the 1980s has been the transformation from centrally planned command economies to market-based economies. Many states in Asia, Latin America, and Western Europe have sold state-owned businesses to private investors (privatization) and deregulated their economies to promote greater competition.
Which of the following has been reduced as a result of globalization?
Differences in material culture
Foreign Direct Investment (FDI)
Direct investment in business operations in a foreign country.
Economic advances in many countries have led to the
Emergence of increasingly prosperous middle and working classes
Group of Twenty (G20)
Established in 1999, and G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank.
GTO
Finance ministers and central bank governors of major economies coordinate policy on global financial crises.
Benefit of Globalization for Businesses
For businesses, this globalization process has produced many opportunities. Firms can expand their revenues by selling around the world and/or reduce their costs by producing in nations where key inputs, including labor, are cheap.
According to the ____________________________________ it is illegal to bribe a foriegn government official to obtain or maintain business over which that foreign official has authority.
Foreign Corrupt Practices Act
ABC Toys, a U.S.-based toy manufacturer, has set up a manufacturing plant in Hong Kong. This is an example of
Foreign direct investment
Apple's multi-million dollar investment in R&D facilities in China can best be described as ____________.
Foriegn direct investment
In a pure command economy, the prices at which goods and services are sold are planned by the
Government
__________ measures the total annual income received by residents of a nation.
Gross National Income
Which of the following measures the total annual income received by residents of a country and is regarded as a yardstick for the economic activity of a country?
Gross national income
According to the video, the standard of living in the United States is _____ as compared to that of China.
Higher
Globalization opponents argue that "exporting jobs" to low-wage nations has contributed to
Higher unemployment in wealth advanced economies such as the United States
When the industry practice was to charge a fee for each DVD rented by the customer, Netflix pioneered the subscription method, a new way to rent DVDs that was cheaper. This is an example of
Innovation
Which of the following is broadly defined as the development of new products, processes, organizations, management practices, and strategies?
Innovation
Factors of Production
Inputs into the productive process of a firm, including labor, management, land, capital, and technological know-how.
Globalization of Production
Inputs into the productive process of a firm, including labor, management, land, capital, and technological know-how.
Due to strong legal protection of property rights, businesses and individuals will.
Invest more in innovations* - Strong legal protection of property rights is another requirement for a business environment to be conducive to innovation, entrepreneurial activity, and hence economic growth
What is the most widely practiced theocratic legal system in the modern world?
Islamic Law
Which of the following is a typical function of a trademark?
It allows merchants or manufacturers to designate and differentiate their products.
How does privatization help stimulate gains in economic efficiency?
It provides incentives to new private owners to search for increases in productivity and to enter new markets
Which of the following best exemplifies an entrepreneur?
Javier purchased an invention made by his friend to start a company that processes plastic bags into synthetic cloth.
When Galaxy Ventures, a real estate company, entered the low cost housing business, the market was already saturated with other players. Thus, the company was forced to exit the market due to lack of customer loyalty and substantial dividends. Which of the following is a term used to describe the situation faced by the company?
Late- mover disadvantages
Although China and India are very large markets when measured by number of consumers, they are relatively small markets when measured in economic terms due to their
Limited purchasing power
Royal Teas, a U.K.-based company employing just 30 people worldwide, generates $1.5 million in revenues of which 60 percent comes from exports to Asian countries. In this context, Royal Teas is most likely classified as a
Mini-multinational firm
Richard purchased a computer for $600 in 2015. Compared to the $900 computer that he had purchased back in 2011, the new one seems to be more efficient in terms of the price he has paid and the power of the microprocessor technology. This is best explained by
Moore's law
Globalization of Markets
Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers of distance, time, and culture, and toward a system in which national markets are merging into one global market.
International Trade
Occurs when a firm exports goods or services to consumers in another country.
If gross national income per capita adjusted for differences in the cost of living is about $13,000 in China, a developing country, and is about $56,000 in the United States, a developed country, then
On average, americans can afford more goods and services than their chinese counterparts
The cost of doing business is most likely to be the lowest in
Open democratic societies* - The need to pay what are essentially bribes is greater in closed totalitarian states than in open democratic societies where politicians are held accountable by the electorate.
Which of the following grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention?
Patent
A black economy is most likely to be prevalent when
People engage in barter agreements to avoid paying taxes
When social unrest and disorder in a country causes drastic changes in its business environment that adversely affect the profit and other goals of a business enterprise, the business enterprise is said to be facing which of the following type of risk?
Political
In economic terms, the long-run monetary benefits of doing business in a country are most likely to be a function of the
Present wealth (purchasing power) of consumers of the country *- In the most general sense, the long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers.
WTO (World Trade Organization)
Primarily responsible for policing the world trading system.
The sale of state-owned enterprises to independent, nonpublic investors is referred to as
Privatization
Which of the following movements started in Great Britain in the early 1980s when then Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company?
Privatization
Which of the following creates an environment that is conducive to product and process innovations and to entrepreneurial activity?
Privatization * - Economic stagnation occurred in many mixed economies in those sectors where the state had a monopoly (such as coal mining and telecommunications in Great Britain). This stagnation provided the impetus for the widespread privatization of state-owned enterprises that was witnessed in many mixed economies during the mid-1980s.
The World Bank: Facts
Promotes economic development using low-interest loans.
International Monetary Fund (IMF): Facts
Promotes order in the international monetary system. Lender of last resort.
The motive behind the high tariffs imposed by nations on imports of manufactured goods, prior to World War II, was to
Protect domestic industries from foreign competition
Which of the following creates an unfavorable environment for innovations and entrepreneurship?
State monopoly in production* - In a planned economy, the state owns all means of production. Consequently, entrepreneurial individuals have few economic incentives to develop valuable new innovations, because it is the state, rather than the individual, that captures most of the gains.
Bretton Woods Institutions: IMF and the World Bank
The IMF and World Bank were created in 1944 by 44 nations that met to maintain order in the international monetary system and promote economic growth.
The primary reason Apple established production facilities in China for its iPhone was to capitalize on
The ability of subcontractors to rapidly respond to changes in demand
Political systems are assessed according to two dimensions
The first is the degree to which they emphasize collectivism as opposed to individualism. The second is the degree to which they are democratic or totalitarian. These dimensions are interrelated and may share certain characteristics
Political economy
The political, economic and legal systems of a country.
Right-wing totalitarianism
a political system in which political power is monopolized, by a party, group or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the grounds that it would lead to the rise of communism.
Collectivism
a political system that emphasizes collective goals as opposed to individual goals.
United Nations Convention on Contracts for International Sale of Goods (CISG)
a set of rules governing certain aspects of the making and performance of commercial contracts between sellers and buyers who have their places of businesses in different nations.
Theocratic Totalitarianism = Saudia Arabia
ruled by an islamic absolute monarchy.
Product safety laws
set certain standards to which a product must adhere
Critics worry economic power is shifting away from national governments and toward _______________________________ such as the WTO, the European Union (EU), and the UN.
supranational organizations
Political system
system of government in a nation.
Legal system
system of rules that regulate behavior and the processes by which the laws of a country are enforced and through which redress of grievances is obtained
Contract law
the body of law that governs contract enforcement.
Trademarks
the designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products.
Copyrights
the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.