D270 Final

Monetary Measures

among monetary aggregates, GNI provides the broadest measure of economic performance 1. is expanding or contracting 2. needs a boost or should be constrained 3. threatened by inflation or recession

Buy local legislation

sets rules whereby governments give preference to domestic production in their purchases Through "buy local" rules: -government purchases give preference to domestically made goods -governments sometimes legislate a percentage of domestic content

Economic Freedom Index

estimates economic freedom in a particular nation. In principle, this index measures the degree that a nation accepts Adam Smith's thesis that "basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society

Export-led development

have achieved rapid economic growth by promoting the development of industries with export potential (Taiwan, South Korea)

Economic Environments of the West Case

pg 126

G20 Countries

-Premier international forum for global economic cooperation -86% of the world economy -78% of global trade -66% of the world's population -and more than half the world's poor

Types of Economic Systems

-Command: centrally planned -Market: individuals rather than government make the majority of economic decisions -Mixed: fall somewhere in between

Corruption and bribery

Abuse of entrusted power for private gain

The Shadow Economy

All countries experience the effects of the shadow economy; they are particuarly influential in developing economies found anywhere and everywhere, includes the extra-legal activities (driving an unlicensed car, street trading, unregistered day care) as well as illegal doings- (prositution, drug-slinging, illicit gambling, alc smuggling, product piracy) Developed countries tend to have smaller shadow economies than developing economies such as Greece, India, and Mexico

Conflicting Outcomes of Trade Protectionism

All countries seek to influence trade and respond to their economic, social, and political objectives

Utlitarianism

An action is right if it produces the greatest amount of good

Economic System

An economic system organizes the production, distribution, and consumption of goods and services Three types: market, mixed, and command economies

Corruption and Bribery

Bribery is one facet of corruption Bribery of public officials takes place to obtain government contracts or to get officials to do what they should be doing anyway The determinants of corruption include cultural, legal, and political forces Bribes are payments or promises to pay cash or anything of value Petrobras:Brazilian national oil company, which has resulted in the disclosure of at least $2 billion in bribes, kickbacks, and money laundering, involving payments to company executives, the ruling of Brazilian Workers' Party, and more than 50 sitting politicians and numerous companies trying to secure lucrative contracts with Petrobras

Broad classes of countries include

Developed countries, emerging economies, developing countries

Complexity

Economic environments are dynamic systems, managers wrestle with identifying valid measures for developed, developing, and emerging economics and then modeling their relationships

Economic Freedom, Innovation, and Competitiveness

Economic freedom has a strong relationship with a country's relative competitiveness and innovation performance

Rationales for government intervention

Economic rationales: -fighting unemployment -protecting infant industries -promoting industrialization -improving corporate position (economic relationships with other countries) Noneconomic Rationales: -maintaining essential industries -promoting acceptable practices abroad -maintaining or extending spheres of influence -preserving national culture

Why governments intervene in trade?

Firm goals: -raise returns -competitive advantage -market penetration -risk reduction -low cost resources -high productivity Government goals: -jobs, jobs, jobs -regional economic development -raise domestic incomes -comparative advantage -increase tax base -environmental protection

Improving Economic Analytics (PART 2)

GNI, GDP, GNP distort country comparisons -rate of economic growth -population size -PPP: the number of units of a country's currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country

CASE: Should US imports of prescription drugs from Canada be widened?

Growing concerns about life expectancy relative to other countries -one hand, the US per per capita spending on both healthcare and pharmaceuticals is the world's highest -on the other hand, U.S. pharmaceutical expenses have been rising faster than incomes, and the portion paid by workers has been rising faster than the portion paid by health plans -manufacturers sell the same drugs abroad often at a lower price than the US -US law prohibits the federal or a state government than negotiating drug prices -thus pharmaceutical companies basically set their US prices. In effect, the US consumers are subsidizing the purchase of medicine by consumers in other countries - US imports more medicine than any other country -canadian drug prices cost 40-60% less, however comparing overall drug prices and sales is a problem bc they vary by volume What they might save by having access to drugs sold in Canada: 1.US per capita drug expenditures are highly skewed bc about a third of the market value is to treat chronic illness 2. almost 80% of the US volume sales are for generic products, which account for only 28% of the market value 3. US pharmacy drug prices vary substantially 4. Drugmakers have list prices, but these are seldom what individual consumers pay bc prices vary among insurance companies and between people with and without insurance -high US prices bear the burden of recovering developmental costs in effect, the competitive system abroad does not permit this, particularly as governments negotiate prices and put upward limits on them

Investment inflows

If import restrictions keep out foreign-made goods, foreign companies may invest to produce in the restricted area

There are three levels of moral development

Level 1. Preconventional: where children learn what is right and wrong but don't necessarily understand why their behavior is right or wrong Level 2: Conventional: where we learn role conformity, first from our peers, then from societal laws. One could argue that company codes of conduct are also part of the conventional level of behavior in the narrow context of a company rather than a society Level 3: Postconventional/ autonomous/ principled level: where individuals internalize moral behavior, not because they are afraid of sanctions, but because they truly believe such behavior is right

ethical behavior

Level 1: Preconventional -Children learning right from wrong, but don't understand why Level 2: Conventional -conforming to our peers and social law Level 3: Autonomous/ Postconventional: Individuals internalize what is morally right

Command

Low economic freedom -government owns most or all resources -advocates centralized, large-scale, capital intensive production -applies the visible hand of the state, central planning, and collectivism -Philosophical Anchor: Communism

Improving Economic Analytics

Managers improve the economic indicators by adjusting for the -growth rate of the economy in the short term, an expanding economy, indicated by positive growth in, GDP means that business, jobs, and personal income are growing If it is growing faster (or slower) than the growth rate of its population, then the country's standards of living are rising (or falling) -number of country purchasing power parity provides a method of measuring the relative purchasing power of different countries' currencies for the same basket of goods and services -local cost of living adjusting Purchasing Power Parity controls the differences in the relative cost of living between countries The prices of goods and services vary from country to country due to, among other things, differing factor endowments, productivity rates, and regulations

The Foundations of Ethical Behavior

Many actions elicit universal agreement on what is right or wrong, but other situations are less clear

Sustainability

Means meeting the needs of the present without compromising the ability of future generations to meet their own needs - sustainability involves meeting the needs of the present without compromising the ability of future generations to meet their own needs while taking into account what is best for the people and the environment Proponents: consider what is best for both people and environment Sustainability is no longer just good business practice. New businesses are emerging that are combining the idea of environmental responsibility and profitability

Global Competitiveness Index (GCI)

Measures national competitiveness-defined as the set of institutions, policies, and factors, that determine the level of productivity

Mixed

Middle economic freedom -government and private ownership and economic recources mixed in varying proportions -advocates optimizing economic efficiency, promoting egalitarianism, and preempting self-interest Philosophical anchor: Socialism

Deontological

Moral judgments are made and moral reasoning occurs independent of consequences

Poverty

Multidimensional condition whereby a person or community lacks the essentials for a minimum standard of well-being and life Implication: persistant poverty destablilizes performance and constrains potential. Creates stress points that challenge civil society

Economics is rich with metrics to measure performance and potential

Narrow (GNI, GDP,GNP) and broad (HDI,HPI,NPP) estimators profile absolute and relative economic conditions in developed, developing, and emerging economies

Host country BOP Effects

Net Import Effect (m-m1) m=import displacement m1=import stimulus Positive: if the FDI results in the substitution of local production for imported products Negative: if it results in an increase in imports Net Export effect (x-x1) x=export stimulus x1=export reduction Positive: if the FDI results in the generation of exports Negative: if it results in a decline FDI may also stimulate home country exports of complementary products to the host country Net Capital (c-c1) c=import displacement c1= import stimulus Positive: if the FDI results in capital inflows to build plants and capacity Negative: if it results in outflows to repatriate profits back to the home country are difficult to assess because of the time lag between i) the inward flow of investment funds and ii) the subsequent outward flow of remitted earnings from that investment -although initial capital flows to the host country are positive, they may be negative in the long-run if capital outflows eventually exceed the value of the investment

What did Starbucks do wrong in Saudi Arabia?

Nothing, legally -followed local laws and customs -backlash from within Saudi Arabia and across the globe

Non-Tariff Barriers: Quantity Controls

Quotas (exports and imports) embargo VER- voluntary export restraint (US-Mexico tomato dispute) specific permission requirements (licenses) administrative delays (intentional) standards and labels buy local legislation Restrictions on Services: -(consulting, transportation, insurance, banking, advertising, etc.) Reasons: -essentiality not-for-profit services (mail, education, hospital) -standards (qualifications) -immigration (of employees from foreign companies)

Nontariff Barriers: Quantity Controls

Quota

Stability

Rather than assessing an economy's potential for increasing affluence, perspectives like happynomics or welfare economics encourage incorporating elements of psychology, health, security, and sociology Fully understanding growth, progress, and prosperity calls for assessing the consequences of economic choice on sustainability and stability

Maintaining essential industries:

Reason: Defense, transportation, scare resources should be controlled by domestic businesses. Important at times of war or national emergencies Tools: FDI regulations, Regulatory standards, subsidies, export bans. Problem: Hurts foreign competitors, affects other countries' exports; how do you decide what is "essential"?

Preserving Culture

Reason: Foreign products could harm the culture of the country Tools: subsidies, sanctions, preferential tariffs/quotas, embargoes Problems: Reduce or eliminate foreign products/services can harm competition on price, keep country from progressing (i.e. technology, healthcare, information) and/or protect inferior products made in the home country

Infant Industries

Reason: Long-term growth comes from new, innovative industries, but new industries are too small to compete with global competitors, so the government needs to protect them until they can compete Tools: Subsidies, FDI Regulations, Domestic Content laws Problems: Makes foreign products uncompetitive, limits foreign ownership, when does an industry reach adulthood?

Balance of payments

Summary of economy's trade and financial transactions, as conducted by individuals, businesses, and government agencies, with the rest of the world Implication: indicates if a country has sufficient savings to pay for imports as well as if it produces enough income to finance growth

Tariffs

Tariff barriers directly affect prices and nontariff barriers may directly affect either price or quantity. Tariff (duty) is a tax levied on a good shipped internationally Specific duty: a tariff assessed on a per-unit basis Ad Valorem duty: a percentage of the item's value Compound duty: on both Exports tariffs: tariffs collected by the the exporting country Transit tariffs: If they're collected by a country through which the goods are passed Import tariffs: if they're collected by importing countries Tariffs may be levied: -on goods entering, leaving, or passing through a country -for protection or revenue -on a per-unit basis, a value basis, or both Unless they're optimum tariffs, import tariffs raise the price of imported goods by taxing them, thereby giving domestically produced goods a relative price advantage

Unemployment

The share of out-of-work citizens actively seeking employment for pay relative to the total civilian labour force Implication: People gainfully employed testify to the competency of policymakers to sustain a productive economy. Persistent unemployment spotlights government ineptitude

Misery Index

The sum of a country's inflation and unemployment rates. The higher the sum, the greater the economic misery Implication: Higher misery discourages spending and investment in the face of growing auesterity

Inflation

The sustained rise in consumer prices measured against a standard level of purchasing power Implication: Influences interest rates, living costs, consumer confidence, and ultimately, political stability

Public Debt

The total of a state's financial obligations; measures what the government borrows from its citizens, foreign organizations, foreign governments, and international institutions Implication: Decreasing debt opens growth opportunities. Growing debt signals increasing austerity, rising taxes, and, if uncontrolled, debt crises that impose political, economic, and social costs

Command Economy

The visible hand of the state supersedes the invisible hand of the market In which is owns and controls the factors of production (namely land, labour, capital, and entrepreneurship.) the government officials , not the private consumers, determine the prices of goods and services and, hence, the allocation of resources Despite points of overlap, state capitalism is not a form of a command economy

Balance-of-Trade Adjustments

Two options that can affect its competitive position broadly are: 1. Depreciating or devaluating or devaluing its currency, which makes basically all of its products cheaper in relation to foreign products 2. Relying on fiscal and monetary policy to bring about lower prices increases in general than those in other countries

How do disputes get solved?

WTO provides a dispute mechanism resolution mechanism

Laissez-faire

which can be translated as "Let do" and more broadly advises "let it be" or "leave it alone" looks to the state to enforce contracts, protect property rights, ensure fair and free competition, regulate certain activities, and provide general safety and security.

CASE- The U.S.- Vietnamese Catfish Dispute

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The Paradox

-1989? -Given the benefits of economic freedom, why do so few countries maximize it? -6.3 billion people moderately, mostly unfree or repressed -only 38 out of 178 are free or mostly free

World Trade Organization (WTO)

-164 current members (98% of trade) -adopted the principles and trade agreements of GATT -Expanded to cover trade in: services, investment, intellectual property -government brings charges of unfair trade practices to the WTO

IB students need to know:

- a highly efficient and clean market may not necessarily be the most attractive for expansion -a large market may not always be highly attractive for expansion -the world no longer revolves around the USA. Emerging markets may soon overpower the USA economically -Economic Freedom is critical for business. It leads to higher standard of living and can foster entreprenuership, growth, and competitiveness

Other types of trade barriers include

- arbitrary standards - importing, exporting, and currency licensing - administrative delays - reciprocal requirements - service restrictions

Industrilization emphasizes either

- products to sell domestically or -products to export

If domestic producers have less access to foreign markets than foreign markets than foreign producers' have to their market

- they may be disadvantaged -restricting foreign entry may disadvantaged domestic consumers -negotiating equal market access for each product is impractical

Key economic measures

-GNI,GDP, GNP -Rate of Economic growth -population size -purchasing power parity (PPP) -Sustainability and Happynomics: Net National Product (NNP), Genuine Progress Indicators (GPI), Human Development Index (HDI), Your Better Life Index (YBLI), Gross National Wellness Index (GNWI), Happy Planet Index (HPI)

Ethics of the Environment

-Global Warming (Paris Climate Agreement) -Pollution -Raw materials

Sustainability and Stability

-Green economics -Net National Product (NNP) -Genuine Progress Indicators (GPI) -Human Development Index (HDI) -Happynomics Your Better life Index, Gross National Wellness Index (GNWI), Happy Planet Index (HPI)

Gross National Index (GNI)

-In the past, it was called Gross National Product GNI: the market value of all goods and services produced by the domestic economy plus the income received from other nations, minus same type of payments made to other nations Example: -Ford production value in USA and Mexico would count toward USA GNI -Toyota production in USA would not count (Toyota is not USA company)

Dimensions of Economic Freedom Index

-Rule of Law: property rights, freedom from corruption, effective judicial system -Limited Government: fiscal health, government spending, limited taxation -Regulatory Efficiency: labour, business and monetary freedom -Open Markets: trade, investment and financial freedom, freedom of movement of labour and goods

Walmart in India

-Walmart sells $135 billion outside USA in 26 countries -but no in Germany, S Korea, Russia, or India -reason for pulling out of India:Indian government is requiring Foreign retailers to source 30% of products from small and medium sized Indian businesses

Economies in transition? Emerging economies

-accelerating growth -modernizing -market liberalization -exports -FDI -middle class, expanding consumption, pro business -rule of law?

emerging economies at a glance

-almost 6 billion people -account for 60% of global GDP, up from 36% in 1980 and 50% in 2006 -account for 50% of global exports, up from 20% in 1970 -have contributed huge reduction in global poverty (China alone has lifted 600 million people out of poverty in the last 30 years) -have contributed 80% of global growth since 2008 financial crisis (helping save jobs in advanced countries) -China is now 1st or 2nd largest Trading partner for 78 countries

Big challenges for IB

-communication, power generating, and transportation infrastructure -distribution channels -financial markets -volatility -problems finding and and working with suitable business partners -government involvement and control -corruption

Who loses by protectionism

-consumers -foreign producers -internal economy: efficient loss (specialization and competition) and encourages lobbying -Global economy: loss of specialization/efficiency, retaliation practices

Where-to-be-born Index (WTBBI)

-measures the opportunity for a healthy, safe, and prosperous life

Corruption Perceptions Index

-covers 180 countries -measures perceived levels of corruption in the public sector -aggregates scores from 13 independent research organizations -each country is assigned a score and a rank -score and rank are a basic comparison of two countries. Do more research for IB evaluation

Why study the Economic Enviornment?

-economic systems shape a market -better investment choices -operating decisions -policy decisions -better returns/less risk

Classifying countries: Developed Economies

-efficient capital movement -stable institutions -infrastructure -international trade and investments -technology -higher economic freedom -higher political freedom -Rule of law

Other Areas in which IB is under Societal scrutiny today

-environmental sustainability -energy conservation and sustainability -Pharmaceutical/ Medical Industry Issues -Labour issues (sweatshops and more) --low wages, child labour, poor work, conditions, long work hours, right to unionize,etc. -Lack of Intellectual Property Protection

Reasons not to influence trade

-expensive -creates inefficiencies (Domestically and worldwide) -encourages lobbying -encourages retaliation -damages competitiveness (Former Soviet Union, Mexico, and many others)

How can you and you company avoid corruption?

-follow the laws of the home and host countries -international, regional, and national rules and laws -international "watch dog" organizations -USA foreign Corrupt practices act: US companies, in their worldwde operations are, forbidden to engage in activities that are illegal in the usa, exception is speed money -Internal Code of Conduct for the company

General Agreement on Tariffs and Trades (GATT)

-formed in 1947 by 23 countries to abolish quotas and reduce tariffs -liberalize world trade -required members to open markets equally to every other member -The World Trade Organization replaced the GATT in 1995

#ShameonStarbucks connects interest groups

-gender equality -concerns over Islam and Sharia laws -globalization -US values -freedom -racism -history -natural organic foods -product labels -sustainability

Protectionism (lecture)

-government restrictions and incentives designed to help domestic businesses compete with foreign businesses -impede the flow of imports or to encourage the flow of exports

Effects of corruption

-higher levels of corruption lead to lower economic growth and per capita income levels -corruption erodes the authority of the government which condones it -corruption disclosures damage the reputation of the country and the MNEs from there (locally and globally)

Who wins by Protectionism?

-import-competing industries: more sales, higher prices -government- tariffs, political appeasement of interest groups -domestic producers -special interest groups

When MNEs move factories to foreign countries-what are gains and losses for home countries?

-loss of jobs in home countries -loss of tax revenue for local communities -new jobs to manage international operations

what country (or countries) in the world have completely free trade?

-meaning a totally unregulated flow of goods and services across the boarders NONE

It is hard to determine whether or not the actions of MNEs affect societal conditions

-measuring the impact of the MNE on home and host societies depends on its stakeholders, the ability to understand cause-and-effect relationships, and individual vs. aggregate effects -Cause-and-effect relationships refer to the true impact on an MNE on a host country. - opponents of FDI persist in trying to link MNE activities to such problems in host countries such as inequitable income distribution, political corruption, environmental debasement, and social deprivation -proponents tned to assume a positive link between their activities and such effects in recipient countries as higher tax revenues, increased levels of employment and exports, and greater innovation The philosophy, goals, and actions of each MNE are unique

How companies deal with governmental trade barriers

-move into the country -lobby government -seek other market/niches -internal innovations -involve other companies -public pressure -file dispute with WTO

What are the gains and losses for host countries?

-new jobs -transfer of knowledge and technology -save jobs (acquisition)- loss of tax revenue for local communities -lock out local firms -destroy local entreprenuership -bid for labour and resources

Subsidies

-offer direct assistance to companies to boost their competitiveness Governmental subsidies may help companies be competitive: -but there is little agreement on what a subsidy is -but agricultural subsidies are difficult to dismantle -especially to overcome market imperfections because they are least controversial governments have bailed out banks, granted generous consumer loans to support their auto companies, eliminated taxes on their companies' export earnings, and invest in ownership share in key companies . in turn, these actions alter international competitiveness Agricultural subsidies: everyone agrees that subsidies exist here in developing countries- official reason is food is too critical to be left to chance US- to counter overproduction, US pays subsidies to farmers

Important points to understand

-on one side... governments have to intervene in order to protect the best interests of their domestic economy and people -BUT... too much government protectionism hurts domestic consumers and tends to protect the weak, inefficient domestic businesses and limit competition which will hurt their economy

State capitalism

-political officials shape how assets are valued and when and where they are used -state owns "national champion" businesses -forces financial system to provide low-cost capital -trade relations (promotes exports/limits imports) -reduced political freedom to expand economic prosperity

The balance-of-payments effects in terms of of capital flows for FDI are usually

-positive for the host country initially and negative for the home country -negative for host country and positive for the home country later

MNC stakeholders

-shareholders -home and host countries governments -customers -suppliers -employees -NGOs and environmental groups -Local communities

Is a law a good indicator of what ethical behavior should be in a country?

-some things that are unethical are not illegal -sometimes a law can be a good basis for ethical basis because it embodies local cultural values BUT as of September 30, 2020, the list of goods produced by child labour or forced labour comprises 155 goods from 77 countries

Non-tariff Barriers: Direct price influences

-subsidies (what is the purpose?) -Aids and loans (spend in our country) -Customs Valuation: value, product classification: 13000 categories, origin) -Other: customs clearance, document requests, minimum price

VW Emissions Scandal

-technology to go around government imposed auto emissions requirements -over 11 million cars affected -by end of 2016 over $18 billion in compensation to customers and government fines -VW still faces many pending lawsuits, mounting losses to its reputation, continued scrutiny by customers, shareholders, and government regulators

Commonalities of Big Emerging Markets (BEMs)

-territory -population -natural resources, increased consumption -liberalization-FDI -Infrastructure needs -aspirations of technological leadership -political influence

Economic freedom in business

-the liberty managers have to decide endless aspects of everyday business operations -without government coercion or constraint on the production, distribution, or consumption of goods and services

Developing economies

-uneven -corruption -lower incomes -resistance to foreign ownership -lower literacy levels, poor public hygiene and nutrition -lower economic and politcal freedom -rule of man?

What determines societies' views toward international business?

1. Historical events (wars, foreign policy conflicts) 2. Perceived impact of globalization 3. Trade and economic policy 4. National security issues 5. Deteriorating economic situation 6. Environmental, health, and safety concerns 7. Nationalism and ethnocentrism 8. Views towards immigrants and refugees 9. Media stories

Boeing vs. Airbus: Anatomy of a Subsidy

1. Key Challenges -price of aircraft: $80-$380 million -cost to develop in R&D: billions of dollars 2. Government Intervention Tools -direct and indirect subsidies 3. How do governments subsidize the indsutry? -cash disbursements -tax breaks -infrastructure construction -direct government purchases -indirect government contracts (defense, NASA) 4. Why do governments subsidize? -protection from foreign competition -promotes economic development -creates local jobs -generates spinoff industries -generates tax revenues

Market Economy

An economic system whereby individuals, rather than the government, make most decisions Capitalism and its thesis that private ownership confers inalienable property rights that legitimize the profits earned by one's initiative, investment, and risk Australia, Canada, Hong Kong, Singapore, Switzerland, and United States "invisible hand" of economically free, self-interested consumers as the driver of productive efficiency pushes producers, spurred by the profit motive, to make products that consumers, spurred by their quest to maximize utility, buy. Endorses the doctrine of capitalism, its principles of the invisible hand and laissez-faire, and the goal of maximizing economic freedom The need for government to provide public goods and protect public goods and protect society makes visible the otherwise invisible hand in market economy

Understanding the balance-of-payments effect of FDI

B=(m-m1)+(x-x1)+(c-c1) b=balance-of-payments effect m=import displacement m1= import stimulus x= export stimulus x1= export reduction c= capital inflow (other than import and export payments) c1=capital outflow (other than import and export payments)

Customs valuation

Because it is difficult for customs officials to determine the honesty of import invoices -valuation procedures have been developed -they may restate the value -they may question the origin of and product-classification of imports Import tariff assessments depend on the product, price, and origin-which tempts exporters and importers to declare these wrongly to pay a lower duty and tempts gov to declare wrongly as a protectionist measure

reciprocal requirements

Countertrade (offsets): a government in the importing country requires the exporter to provide it with additional economic benefits such as jobs or technology as part of the transaction Critics say that by participating in these transactions, shift purchases from smaller domestic contractors to those is foreign countries, thus weakening these domestic suppliers and the exporting country's future defense capabilities

Standards and Labels

Countries can devise classification, labeling, and testing standards to allow the sale of domestic products, but obstruct foreign made ones. May require that companies put product info on their labels The professed purpose of standards is to protect safety or health, but some companies argue they are just a means to protect domestic producers In reality, there's no way of knowing to what extent products are kept out of countries for legitimate safety and health reasons vs. arbitrarily protecting domestic production. Rejecting shipments for health and safety reasons, particularly those from developing countries, may cause negative image for the exporting countries causing them to lose sales and reputation

Specific permission requirements

Countries may require that importers and exporter secure governmental permission (an import or export license) before transacting trade Can restrict imports and exports directly by denying permission or indirectly because of the cost, time, and uncertainty involved Foreign exchange control: requires an importer to apply a government agency to secure the foreign currency to pay for the product

Examples of U.S.A "Sphere of Influence"

Cuba: -not a total embargo, as certain transactions involving journalistic pursuits, certain foodstuffs, humanitarian assistance, and travel are allowed despite the "embargo" Iran: -there is an embargo on US goods going to Iran unless you export medical and dental "devices" or foodstuffs North Korea -US entities are permitted to make financial investments in North Korea Each country has its own specific, unique set of sanctions

Maintaining essential industries

Essential-industry argument: under this, nations must apply trade restrictions to protect crucial domestic industries so that they are not dependent on foreign supplies during hostile political periods In protecting essential industries, countries must: -determine which ones are essential -consider costs and alternatives -consider political and economic consequences once given, protection is hard to remove, even when the rationale for protection no longer exists governments might stockpile and buy supplies of essential raw materials that might be in future short supply

4 MNC Choices Toward Business Abroad

Exploitive: views differences in wages, working conditions. and living standards as exploitive opportunities Transactional: engages in law-abiding, non-exploitive commercial intera Responsive: acts in a way that is sensitive and responsive to the needs of all its immediate stakeholders Transformative: commits to leading initiatives to bring life-enhancing changes to the broader society

Fighting unemployment

Reason: The unemployed (or those fearing their jobs will be lost) are a powerful pressure group. Full employment is a goal of of every government Tools: Tariffs, Quotas, Domestic Content Laws Problems: Affects another country's exports, and, thus, there their employment situation

Gross Domestic Product

GDP: market value of all production that takes place within a nation's borders, without regard to whether the production is done by domestic or foreign factors of production -No shadow economy is counted- ex: Peru, Bolivia, Georgia (55%-75%) Example:Both a Ford and Toyota manufactured in USA would count toward the USA's GDP -A FORD produced in Mexico would not count toward USA GDP

Market

High economic freedom -mostly private (individual or business) owernship of resources -advocates decentralized entrepreneurial innovation -applies the invisible hand, laizzes faire, property rights, and individualism Philosophical anchor: Capitalism

Maintain Spheres of Influence

Reason: Reward those countries that are politically friendly and not reward (or even punish) those that re not friendly Tools: Tied to aid, subsidies, sanctions, preferential tariffs/quotas, embargoes Problems: Affects other countries exports, makes non-favored countries less competitive, hurts companies and individuals in those countries who are not responsible for the government's actions

Protections for the industry were controversial and of limited success: (catfish industry)

Reasons for: -employment -tariff revenue -local producer competitiveness Reasons against: -weaken domestic industry (lower competition) -retaliation -reduced consumer choice and higher prices

Religious regulation of commercial space in KSA

Saudi Arabian religious law requires seperate entrances and dining rooms for men and women/families. Or sinlge-sex businesses Starbucks operates 78 stores in Saudi Arabia -77 provide seperate spaces for men and women -1 is for women and families only

Trade-offs among Constituencies

Stakeholders: the collection of constituencies that an organization must satisfy to survive in the long run

Tariff Barriers: Direct Price influences

Tariffs (duties) -specific (per unit) -Ad valorem (% of value) -Compound (both) -Import Tariff -Transport Tariff -Export Tariff (China grain/Argentina beef) -effective tariff controversy -Optimum tariff theory

Economic Freedom (lecture)

The degree of economic freedom an individual has to use his or her: -initiative -effort -competencies to pursue their ambitions

Does ethical behavior vary by country?

What is right and wrong may vary by country -Cultural dimensions, indivudualism vs. collectivism, religious values, economic circumstances, lawsm social values, etc -Relativism vs. Normativism (universal standards)

How companies deal with governmental trade influences

When companies are threatened by import competition, they have several options, four of which stand out: 1.move operations to another country 2. concentrate on market niches that attract less international competition 3. Adopt internal innovations, such as greater efficiency or superior products 4.Try to get governmental protection Each option entails risks and costs, therefore different companies make different choices

Aids and Loans

When govs require foreign aid and loans recipients to send their funds in the donor country, a situation known as tied aid or tied loans, some otherwise noncompetitive output can compete abroad Tied aid helps-win large contracts for infrastructure, such as telecommunications, railways, and other electric power projects

Administrative delays

administrative custom delays that may be caused by intention or inefficiency create uncertainty and raise the cost of carrying inventory

Paradox of Promise vs. Prevalence

despite the documented benefits of economic freedom, just 5 countries, out of 178, have policies that maximize it. Triumph of capitalism over communism Managers watch key events to gauge the contest between economic freedom and state control. These include how the government: -regulates the economy -protects property rights -sets fiscal and monetary policies -promotes transparent policies The surge in state capitalism helps explain why many emerging and developing economies deemphasize economic freedom.

Comparable Access or "Fairness"

hold that industries are entitled to the same access to foreign markets as foreign industries have to theirs Two practical reasons for rejecting the idea of fairness 1. Tit-for-tat market access can lead to restrictions that may deny one's own consumers lower prices 2. Governmental negotiation and monitoring of seperate agreements for each of the thousands of different products and services that might be traded would simply be impractical

Green Economics

holds that an economy is a component of, and dependent on, the natural world gauges economic performance in terms of the effect of current choices on long-term sustainability

Quota

limits the quantity of a product that can be imported or exported in a given time frame, typically per year Import quotas normally raise prices bc 1. limit supplies 2.provide little incentive to use price competition to increase sales Notable difference between tarrifs and quotas: tariffs generate revenue for the government, quotas generate revenue only for the companies that obtain and sell a portion of the intentionally limited supply of the product at a higher price than what competitive prices would be A quota may be: -be on imports and exports -set the total amount to be traded -allocate amounts by country -be negotiated as a voluntary export restraint (VER) -prohibit all trade when it is an embargo May provide export quotas when: to provide domestic consumers a sufficient supply of goods at low prices, to prevent depletion of natural resources, or to attempt to raise prices abroad by restricting foreign supply Voluntary export restraint (VER): a quota variation whereby, essentially, Country A asks Country B to voluntarily reduce its companies' exports to country A. US asked Mexico to lower tomatos - voluntary is misleading- either do it or they will impose stricter regulations on trade Embargo: a specific type of quota that prohibits all trade govs impose embargos to us economic means to achieve political goals, thus they are a type of trade sanction

Dynamism

market changes can make today's valid measures dubious tomorrow, the characteristics of an economic environment determine which, where, and when each approach makes sense

Optimum-tariff theory

one by which a foreign producer lowers its export prices when an importing country places a tax on its products An optimum-tarrif's success: -shifts revenue to an importing country -is difficult to predict -may cause lower worker income in developing countries

Socialism

promotes a mixed economy, holds that a fair and jsut economy, besides optimizing productivity, promotes common cause by supporting low unemployment, prevents the consolidation of wealth and privilege, protects the public by limiting abuses of market power

Export restrictions may

raise world prices, • require more controls to prevent smuggling, • be ineffective for digital products, • lead to product substitution or new ways to produce the product, • keep domestic prices down by increasing domestic supply, • give producers less incentive to increase output.

import substitution

restricting imports to boost local production of products they would otherwise import

Restrictions on services

service is the fastest-growing sector in international trade. In deciding whether to restrict service trade, countries typically consider 4 factors: 1.essentiality -govs sometime prohibit private companies, foreign, or domestic from operating in some sectors bc they feel the services are essential and provide social stability -other cases they set price controls or subsidize gov-owned services 2. Not-for-profit services -mail, education, hospital , when a gov prioritizes these, it customarily prefers local ownership and control 3. Standards -face to face, and gov limits entry into many of them to ensure practice by qualified personnel 4. Immigration -satisfying the standards of a particular country is no guarantee that a foreigner can work there forever

Gross National Income (GNI)

the broadest measure of a country's economic performance. It has 4 components: personal consumption, business investments, government spending, and net exports of goods and services measures the value of all production in the domestic economy together with the income that the country receives from other countries

Nation's exchange reserves

the funds that help purchase priority foreign goods and maintain the trustworthiness of its currency

Promoting acceptable practices practices abroad

trade limitations may be used to compel a foreign country to amend an objectionable practice The rationale is to weaken the foreign country's economy by decreasing its foreign sales and by limiting its access to needed products, thus coercing it to amend its practices on some issue such as human rights, environmental protection, military activities, and production of harmful products.

Prevention of Foreign Monopolies

two potential adverse consequences for the importing economy 1. The foreign country may be shifting its unemployment abroad by subsidizing the sales 2. If there are high barriers to entry, surviving foreign producers may be able to change exorbitant prices. However, for most products competition is so widespread that no country or company can reach such a dominant position

Various principles help managers better assess economic environments, including

system complexity, market dynamism, market independence

Consequences of Corruption

-higher levels of corruption correlate strongly with lower national growth rates and lower levels of per capita income -damage reputations of companies

Balance of Payment Effects

- The effect of an individual MNE may be positive or negative -Host countries want capital inflows bc they provide the foreign exchange needed to import goods and services and to pay off foreign debt -The formula to determine the balance-of-payments effect is simple but the data used must be estimated and are subject to assumptions -On the import side, the balance-of-payments is positive if the FDI results in a substitution for imports and negative if it results in an increase in imports. Equation for analyzing the effect of FDI on a host country's balance of payments: B=(m-m1)+(x-x1)+(c-c1) B=balance-of-payments effect m= import distribution m1=import stimulus x= export stimulus x1=export reduction c= capital inflow for other than import and export payment c1=capital outflow for other than import and export payment

CASE: Anglo American PLC in South Africa: What do you do when costs reach epidemic proportions?

- despite where it choses to do business, and MNE is going to face quite a variety of threats and disruptions to its plans and operations, ranging from bureaucratic corruption and political instability to terrorism and war -South Africa had the highest number of people living with HIV/AIDS and one of the world's highest rates of HIV infection and mortality from AIDS-related diseases -ART program provides education and prevention efforts

The problem of child labour

- two arguments for the use of child labour in the Indian carpet industry 1. they're better suited than adults to perform certain tasks 2. if they weren't employed, they'd be even worse off -in the 1990s, Bangladesh was pressured to stop employing thousands of child workers or face US trade sanctions. In this case, the plight of the children did in fact go from bad to worse. Between, 5000 and 7000 young girls, for example, went from factory work to prostitution For MNEs, the basic challenge is negotiating a global labrynth of business environments with different cultural, legal, and political rules than those they're used to at home

What's being done about corruption?

-International efforts to combat bribery include those established by the OECD (Organization for Economic Cooperation and Development) -problem is none have law behind them Foreign Corrupt Practices Act (FCPA): outlaws bribery payments by US firms to foreign officials, political parties, party officials, and political candidates -US legislation that makes bribery illegal. It applies to domestic or foreign operations and to company employees as well as their agents overseas. Sarbanes-Oxley: legislation in the US is helpful in combatting corruption through more effective corporate governance, financial disclosure, and public accounting oversight

Ethical Dilemmas of labour conditions

-Major labour issues that MNEs get involved in through FDI or purchasing from independent manufacturers in developing countries are fair wages, child labour, working conditions, working hours, and freedom of association -The objectives of ETIs (Ethical Trading Initiative- a British based organization that focuses on MNEs' employment practices and whose standards are consistent with those adopted by the UN-based International Labour Organization) is to get companies to adopt ethical employment policies and then monitor compliance with their overseas suppliers. ETI's trading initiative base code identifies the following issues: 1. Employment is freely chosen 2.Freedom of association and the right to collective bargaining are respected 3. Working conditions are safe and hygenic 4. Child labour shall not be used 5. Living wages are paid 6. Working hours are not excessive 7. No discrimination is practiced 8. Regular employment is provided 9. No harsh or inhumane treatment is allowed

Terms of trade may deteriorate because

-demand for primary products grows more slowly than manufactured ones -production cost savings for primary products will be passed on to consumers

Protectionism

-governmental actions to influence international trade -despite free-trade benefits, governments intervene in trade to attain economic, social, or political objectives. Officials enact trade policies that they reason will have the best chance to benefit their nation and its citizens- and sometimes their political longevity

Governments' Noneconomic Rationales and outcome for trade intervention

-maintaining essential industries (especially defense) -promoting acceptable practices abroad -maintaining or extending spheres of influence -preserving national culture

CASE: Emerging Economies: Comeback or Collapse

-many emerging economies are applying potent pro-growth policies -emerging economies build institutions such as the Asian Infrastructure Investment Bank -the accelerating rise of emerging economies signaled that the wealthier countries of the of the twentieth century would not dominate the global economy i -transfer of the leadership baton from wealthy countries to emerging markets, for better and for worse, revolutionizes our interpretation of economic environments -ambition of emerging economies: restore their historic stature as the engine of the global economy -2016, a startling collapse in many commodity prices, from coffee to oil to cement to iron, has dampened prospects for many -one way or the other, policymakers, executives, workers, and investors wrestled with the unfolding revolution powered by the comeback , or fallout of the collapse -making investments, positioning assets, and running operations for either outcome pushed managers to make sense of the possibly good, possibly bad, brave new global business environment

Import restrictions to create domestic employment

-may lead to retaliation by other countries when restricting imports to create jobs, the countries losing these jobs may retaliate with their own restrictions, unemployment would shift from one sector to another -affect large and small economies differently In addition to retaliation, gaining jobs by limiting imports has the following limitiations: 1. fewer imports mean fewer import-handling jobs, such as those in the container-shipping industry, the clearance of goods through customs, and the distribution of the imports 2. Given the global complexity of production, import restrictions on one industry cause higher input costs for other industries, thus making them less competitive. For example, U.S. import restrictions on steel raise input costs in the US automobile and farm equipment industries 3. Imports stimulate exports, through less directly, by increasing foreign income, which foreign consumers then spend partially on new imports. Thus, restricting earnings abroad has some negative effect on domestic earnings and employment. Import restrictions to create domestic employment: - may lead to retaliation by other countries -affect large and small economies differently -reduce import handling jobs -may decrease jobs in another industry -may decrease export jobs because of lower incomes abroad

The role of stakeholders

-proposals on trade regulations often spark fierce debate among people who believe they will be affected -those stakeholders most affected by trade regulations push hardest for trade rules favorable to them

Companies must satisfy the demands of

-shareholders -employees -customers -suppliers -society Shareholders want additional sales and increased production ( which result in higher profits and returns) Employees want safer workplaces and higher compensation Customers want higher-quality products at lower prices Society would like to see more jobs, increased corporate taxes, more corporate support for social services, and more trustworthy behavior on the part of corporate executives

Successful countries' threats to levy trade restrictions to coerce other countries to change their policies

1. Believability -either the country has access to alternative sources for the product or its consumers are willing to to do without it 2. Importance - exports of the restricted product must be significant to influential parties in the producer country

Why do companies care about ethical behavior?

1. To develop competitive advantage 2. To avoid being perceived as irresponsible NGOs are active in prodding companies to comply with certain standards of ethical behavior

Developing a code of conduct

A code of conduct is a major component of most companies' strategies for ethical and socially responsible behavior External and internal What makes a good internal code of conduct? Here are the 4 criteria: 1. It sets global policies with which everyone working anywhere for the company must comply. A good example is the code promulgated by the Finnish cell-phone company Nokia, which discusses how its code was set, who approved it, how it is communicated to its employees, and what its foundation values are. 2. It communicates company policies not only to all employees but to all suppliers and subcontractors as well. 3. It ensures that the policies laid out in the code are carried out. This usually occurs though training programs where employees sign off on their compliance and sometimes through internal audits. 4. It reports the results external stakeholders. This usually occurs in a company's annual report to shareholders, but the GE uses social media to communicate with external stakeholders, a common practice of most MNEs.

Legal Jurisdiction: Pro and Con

According to the legal argument, an individual or company can do anything that isn't illegal. However, there are five good reasons why this is inadequate: 1. Some things that are unethical are not illegal. Some forms of interpersonal behavior, for example, can clearly be wrong even if they're not against the law 2. The law is slow to develop in emerging areas, and it takes to pass and test laws in the courts. They can't always anticipate dilemmas that will arise in the future 3. The law is often based on imprecisely defined moral concepts that can't be seperated from the legal concepts they underpin. 4. The law often needs to undergo scrutiny by the courts. 5. The law isn't very efficient Pros: 1. The law embodies many of a country's moral principles, making it an adequate guide for proper conduct 2. The law provides a clearly defined set of rules, and following it at least establishes a good precedent for acceptable behavior 3. The law contains enforceable rules that apply to everyone 4. Bc the law represents a consensus derived from widely shared experience and deliberation, it reflects careful and wide-ranging discussions

Diversification

Although demand and prices for commodities fluctuate markedly, a shift to production of manufactures creates competitive risk

Motivations for Corporate Responsibility

Companies generally experience four strong motivations for acting responsibly: 1. Unethical and irresponsible behavior can result in legal headaches, especially in such areas as financial mismanagement, bribery, and product safety 2. Such behavior could also result in consumer action such as a boycott 3. Unethical behavior can affect employee morale. Conversely, responsible behavior can have a positive influence on a workplace, both at corporate headquarters and in overseas facilities 4. You never know when bad publicity is going to cost you sales. Perhaps this concern is one reason why many global apparel and clothing companies responded so quickly to criticism about unfair employment practices in developing countries

Ethics and the Environment

Companies that extract natural resources, generate air or water waste, or manufacture products such as autos that generate pollution need to be concerned with their environmental impact

Foreign Direct Investment

Controlling ownership in a business enterprise in one country by an entity based in another country Implication: Promotes development, job expansion, industrialization, and exports. Transfers skills and technologies

Developing an Industrial Base

Countries seek protection to promote industrialization because that type of production -can use surplus agricultural workers more easily -brings in investment funds -diversifies the economy -brings faster growth than primary products do protectionist arguments to spur local industrialization, these arguments have been based on the following assumptions 1. Surplus workers can increase manufacturing output more easily than agricultural output 2. Import restrictions lead to foreign investment inflows, which provide jobs in manufacturing 3. Prices and sales of agricultural products and raw materials fluctuate widely, which is a detirement to economies that depend heavily on them, especially if the dependence is on just one or a few commodities 4. Markets for industrial products grow faster than markets for both agricultural and raw market commodities

Teleological Approach

Decisions are based on the consequences of the action

CASE: Ecomagination and the Global Greening of GE

Ecomagination: an ambitious strategy designed to demonstrate that an ecologically conscious conglomerate can cultivate the bottom line while doing its duty toward the global environment -GE has decided to take a more conciliatory stance, allying itself with a growing number of companies that regard investor and environmental interests as intrinsically interlocked, rather than diametrically opposed -GE has five basic committments: 1.to reduce greenhouse emissions and improve the energy efficiency of operations 2. to double investment in the research and development of "clean" technologies 3. to increase revenues from those same technologies 4. to reduce its global water use by 20% 5. to keep the public informed now evaluates business unit managers not only on profitability and return on capital but also on success in reducing the intensity of GHG emissions GE insists that the markets for such products and services are both growing and profitable, and Immelt is convinced that taking advantage of them not only helps the environment but also strengthens the company's strategic position with major profit opportunties GE has been praised for efforts to go green but also generated a great deal of of skepticism -what is markets its betting on don't materialize fast enough, clean technology prices, isolating certain investors

Mixed Economy

Fall between the market and command types, system in which economic decisions are principally market driven and ownership is largely private, but the government intervenes, from a little to a lot, in valuing assets, allocating resources, regulating activities, and organizing markets combines elements of the market and command economic systems; both government and private enterprise influence production, consumption, investment, and savings. Anchored in capitalism, a command economy is anchored in communism, and a mixed economy is anchored in socialism blends elements of command and market systems democracy promotes a market economy

Economic Rationale

Fighting unemployment: the unemployed can form an effective pressure group for import restrictions

Deflation

General decline in prices, often caused by a reduction in the supply of money or credit or declining aggregate demand Implication: Slows economic growth; anticipating lower prices, consumers defer purchases, thereby risking a deflationary spiral, Increased the real value of debt

Developed economies

Generally have high income levels, extensive industrialization, advanced technological infrastructure, and high standard of living has a robust economic environment marked by wide-ranging activities, efficient capital movement, stable institutions, extensive infrastructure, international trade and investments, advanced technologies, and higher economic freedom Australia, Canada, Japan, New Zealand, Norway, Switzerland, United States Champion political freedom, practice multiparty democratic governance, enforce the rule of law, and support free markets. Many people still struggle with poor quality jobs in developed countries, steadily shifted to diversified, service-oriented activities that rely on information and technology to support product and process innovation Also referred to as: - high income economies -advanced markets -advanced industrial economies -postindustrial economies

Developing Economies

Generally have low income levels, slight industrialization, incomplete infrastructure, and lower standards of living inefficient capital movement, resistance to foreign ownership, trade restrictions, imperfect competition, unstable institutions, limited infrastructure, sketchy technologies, and lower economic freedom. Corruption, cronyism, and crime complicate efforts to regulate society consistently or adopt prudent economic policies Angola, Ethiopia, Indonesia, and Pakistan Significant gaps exist in economic and social characteristics between developed and developing economies Poverty is the state of having little or no money, few or no material possessions, and limited access to education, health, and community Higher infant mortality, shorter life expectancy, lower literacy levels, poorer public hygiene, insufficient health care, and inadequate nutrition in developing countries relative to their developed counterparts poverty forces many to struggle for food, shelter, clean water, and health services, to say nothing of safety, education, and opportunity

Managers often consider the meta-models to improve the understanding of the absolute and relative potential of an economic environment. Popular indices include

Global Competitiveness Index: The World Economic Forum holds that providing increasing prosperity hinges on how well a country develops institutions, regulating activity, and uses resources to improve productivity. A country's proficiency managing these domains determines its international competitiveness -pillars include financial market development, macroeconomic development, market efficiency, technological readiness The Global Innovation Index (GII): measures a nation's capacity to imagine ideas, leverage them into pioneering products, and in the process, generate knowledge competitiveness, and wealth. -anchors analysis in terms of inputs and outputs inputs: promote and enable innovation , include institutions and policies, human capacity, business markets, etc. Outputs: knowledge, competitiveness, wealth World Competitiveness Index (WCI): asses a nation's ability to set and sustain a business environment that enables enterprises to compete, prosper, and create wealth -four factors determine a nation's competitiveness: economic performance, government efficiency, business efficiency, and infrastructure Where to be Born Index (WTBBI):how well a country provides opportuntiies for a healthy, safe, and prosperous life helps explain both its current and future economic environment An economy's productivity, namely its efficiency in converting inputs into useful outputs is a key determinant of its competitiveness

Global Warming and the Paris Agreement on Climate Change

Global warming results from the release of greenhouse gases that trap heat in the atmosphere rather than allowing it to escape Kyoto Protocol: signed in 1997, committed signatory countries to reducing the emissions to 5.2 percent below 1990 levels and between 2008 and 2012- did not include rapidly growing developing economies The Paris Climate Agreement involving 187 countries targeted policies to reduce GHG emissions in order to keep the global average temperature to 2 degrees celsius above pre-industrial levels Success of Paris Agreement- from the public and private sectors Most large MNEs are demonstrated by GE in the opening case, are responding to global concerns about the environment by setting their own goals and and reporting progress to their stakeholders Many MNEs also have the task of adapting to different standards in different countries

Surplus Workers

Industrialization argument: presumes that, although a country may develop an inefficient and non-globally competitive industrial sector, it will achieve economic growth by enabling the unemployed and underemployed to work in industry Shifting people out of agriculture can create problems: 1. The underemployed in rural areas may lose the safety net of their extended families, while many migrating to urban areas cannot find enough suitable jobs, housing, and social services 2. Improved agricultural practices may be a better means of achieving economic success than a drastic shift to industry 3. Most past manufacturing was performed by relatively unskilled workers and at a time when this output's proportion of global output and growth exceeded those in other sectors When a country shifts from agriculture to industry; 1. output may increase if the agricultural workers produced little before 2. demands on social and political services in cities may increase 3. development possibilites in the agricultural sector may be overlooked 4. industrial jobs may not be forthcoming

Protecting Infant Industries

Infant-industry argument: holds that a government should shield an emerging industry from foreign competition by guaranteeing it a large share of domestic market until it can compete on its own - says that over time because of 1. increased economies of scale 2. greater work efficiency presumes that early operating costs within a newly producing country may be too high to compete in world markets and that sufficient cost reductions will occur over time Risks in designating industries: 1. Determining Probability of Success -first govs must identify those industries that have a high probability of success -second the security of government import may deter managers from adopting the cost and quality measures needed to compete -third if a protected industry fails to become globally competitive, its affected stakeholders may successfully prevent the imports that benefit consumers Possible costs of import restrictions include higher prices and taxes. Such costs should be compared with those of unemployment.

Economies in Transition

Is often used in place of economies in transition. One also sees terms such as frontier markets and newly industrializing countries BRICS- Brazil, Ru, India, and China Market liberalization promotes foreign investments and growing exports, deregulation and privatization improve business efficiency, and expanding economic freedoms encourage entrepreneurialism Emerging economies exhibit improving productivity, rising income, and growing prosperity, particularly relative to slower-growing developing economies Chittagong, Bamako, Kampala, Kano, Kinshasa

Estimators of economic progress toward improving happiness includes

Net National Product (NNP) -measures the depletion of natural resources and degradation of the environment that result from making and consuming products Genuine Progress Indicators (GPI): begin by applying the same accounting framework used to calculate GDP. It then adjusts for the corresponding costs of reduced environmental quality, health and hygiene, livelihood security, equity, free time, and educational attainment Human Development Index (HDI): matters of human development do not show up immediately in income or growth measures. Ultimately, the reasoning goes, they will, given that improving the human condition through better nutrition, education,healthcare, and hygiene improves economic performances Sustainability and stability perspectives hold that the objective of economic activity is to create an environment for people to enjoy long, healthy, and happy lives

Interdependence

No country is isolated Growing political control of economic processes improves efficiencies in developing economies, but lessens them in their developed counterparts; recycling foreign-exchange reserves means capital is too cheap here, but too expensive there Cross-national interdependencies moderate the forces of supply, demand, and their pricing signals

Relativism vs. Normativism

Relativism: one point of view is to accept that there are significant differences from country to country that might affect our behavior -holds that ethical truths depend on the values of a particular society and may vary from one society or country to another - implication: it would not be appropriate to inject or enforce one's ethical values on another, or that a foreigner must adopt local values or morals whether or not they are consistent with the foreigner's own home values and beliefs -ethical truths depend on the groups holding them Normativism: holds that there are indeed universal standards of behavior that, although influenced by different cultural values, should be accepted by people everywhere -key is to distinguish between what is common to all and unique to the individual -there are universal standards of behavior that all cultures should follow managers need to exhibit ordinary decency- principles of honesty and fairness Social responsibility requires human judgment, which is subjective and ambigious

Major instruments of trade control

Tariffs Nontariff barriers: subsidies Aids and Loans

Income Distribution

The distribution of income among a nation's population; estimated by the Gini coefficient Implication: Equality opens opportunties whereas inequality promotes debt, stress, and risks

What MNEs can and can't do

When IKEA ran into trouble in India for buying carpets from local companies that relied heavily on extensive child labour, it identified and tackled two different problems rather than try to force suppliers to stop exploiting the children 1.Helped working mothers increase family earning power so they could escape the clutches of the loan sharks to whom they were putting up their children as collateral 2. Set up "bridge schools" to enable working children to enter mainstream education channels within a year some companies avoid operating in countries where child labour is employed, whereas others try to establish responsible policies in those same countries

Estimators of economic progress toward improving happiness include

Your Better Life Index -developed by the Organization for Economic Cooperation and Development (OECD), the YBLI advocates evaluating economic performance Gross National Wellness Index (GNWI): measures a country's capacity to promote individual well-being in terms of mental, health, work, income, social relations, economic, retirement, political, and environmental standards Happy Planet Index (HPI): -a utilitarian view holds that people aspire to live long, healthy, ecological sensitive lives -how well a country helps its citizens to do so, while not infringing on the opportunity of future generations and people in other countries to do the same, fully represents its economic performance and potential -fundamental logic of monetary metrics are misaligned, overly emphasizing growth at all costs while downplaying its costly, destabilizing, and often destructive externalities

Growth and employment effects

are not a zero-sum game bc MNEs may use resources that were unemployed or underemployed The argument that both home and host countries may gain from FDI rests on two assumptions 1. resources aren't necessarily being fully employed 2. capital and technology can't be easily transferred from one industry to another

Managers study a country's economic environment to

assess its development, explain its performance, and estimate its potential

Gross National Product (GNP)

begins by estimating the market value of goods and services produced in a given year by the labour, assets, and capital supplied by the resident of a country

Effective Tariff

developing countries have argued that the manufactured portion turns out to be higher than the published tariff rate because the manufactured portion is effectively charged 20%.

Sustainabilty

endorses a broader accounting of the gains and costs of growth that fall beyond monetary metrics but help gauge an economic environment

Dumping

exporting below cost or below home-country pricing -most countries restrict imports of dumped products, enforcement usually occurs only if the imported product disrupts domestic production; otherwise host-country consumers get the benefit of lower prices and don't complain -may be used to introduce a new product -may cause higher prices or subsidies in the exporting country -is hard to prove

Economic Freedom

holds that one has the right to work, produce, consume, save, and invest in the way that one prefers "absolute right of property ownership, fully realized freedoms of movement for labour, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself Economically free countries support activities that create income and generate wealth Measures the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty Does not signify the absence of government, ultimately freedom requires protection The track record of free markets around the world indicates that economic freedom is positively related to financial prosperity, economic stability, and standards of living. Economic freedom, by expanding international trade across open borders, promotes globalization

Base of the Pyramid

the largest, but poorest, socioeconomic group in the world spotlights the some four billion people who earn a few dollars per day and live primarily in developing economies

Gross Domestic Product (GDP)

the total market value of all output produced within a nation's borders, no matter whether it is generated by a domestic or foreign-pwned enterprise, over a fixed period of time Total market value of goods and services produced by workers and capital within a nation's borders; it provides the truest measure of national economic activity