Exam 1 Global Business Management

Drivers of Globalization

-decline in barriers to the free flow of goods, services, and capital. -Technological change, particularly the dramatic developments in communication, information processing, and transportation technologies.

All societies are stratified to some degree, they differ in two related ways:

-degree of mobility between social strata. -the significance attached to social strata in business contexts

Patent Copyright Trademark

-grants the inventor of a new product or process exclusive rights for a defined period to the manufacture. -Are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit -are designs and names, officially registered, by which merchants or manufacturers designate and differentiate their products

Individualism is built on two things:

-importance of guaranteeing individual freedom and self-expression. -the welfare of society is best served by letting people pursue their own economic self-interest

Representative Democracy

Citizens periodically elect individuals to represent them. Ex: United States

Geography and international trade:

Coastal states have been more supportive of market institutions than landlocked states.

The difference in growth rates of world production and world trade:

While we produce more goods and services today compared with before, a far greater proportion of that production is being traded across national borders than at any time in modern history. Moreover, the knowledge society that we live in has resulted in consumers knowing more than ever about goods and services being produced worldwide. From a customer perspective, this is driving demand for internationally traded goods. Thus, the larger the difference between the growth rates of world trade and world production, the greater the extent of globalization and the more important it becomes to understand international business.

Did Walmart violate the FCPA?

Yes. p. 51

Contract:

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

Society

a group of people sharing a common set of values and norms

Democracy:

a political system in which government is by the people, exercised either directly or through elected representatives (Australia, Canada, Denmark, Ireland).

Collectivism

a political system that stresses the primacy of collective goals over individual goals (China, Japan).

Culture

a system of values and norms that are shared among a group of people and that when taken together constitute a design for living

Gross National Income (GNI)

a yardstick for the economic activity of a country; it measures the total annual income received by residents of a nation.

Globalization critics often argue that :

adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises and puts them at a competitive disadvantage in the global marketplace vis-à-vis firms based in developing nations that do not have to comply with such regulations

In a market economy:

all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand. Ex: New Zealand, Switzerland, Australia

purchasing power parity (PPP)

an adjustment that allows a more direct comparison of living standards in different countries

individualism:

an individual should have freedom in his or her economic and political pursuits (U.S., Germany, Australia).

cross-cultural literacy

an understanding of how cultural differences across and within nations can affect the way business is practiced

A multinational enterprise (MNE)

any business that has productive activities in two or more countries

First-mover advantages

are the advantages that accrue to early entrants into a market.

Late-mover disadvantages

are the handicaps that late entrants might suffer

Folkways

are the routine conventions of everyday life. Generally, folkways are actions of little moral significance. Rather, they are social conventions that deal with things like appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and so on. Although folkways define the way people are expected to behave, violation of them is not normally a serious matter

civil law system:

based on a detailed set of laws organized into codes

Common Law

based on tradition, precedent, and custom EX: U.S. and Great Britain

Mixed Economy:

between market and command economies.(U.S., Iceland, France, UK.)

The Spread of Market-Based Systems:

command and mixed economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems, such as the United States, Switzerland, Hong Kong, and Taiwan. As a consequence, even more states have gravitated toward the market-based model.

As emerging economies such as Brazil, Russia, India, and China:

continue to grow, a further relative decline in the share of world output and world exports accounted for by the US and established developed nations seems likely

Sen's view:

development is not just an economic process but a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community.

Intellectual property

efers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug

In a planned economy, that state owns all means of production, so:

entrepreneurial individuals have few economic incentives to develop, because the states captures the gains

United Nations Convention on Contracts for the International Sale 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 Not ratified: India and UK

Social Media has:

expanded the boundaries of what is included in group life and placed an added emphasis on what we can call extended social groups

political risk tends to be greater in countries:

experiencing social unrest and disorder or in countries where the underlying nature of a society increases the likelihood of social unrest

High levels of corruption significantly reduce:

foreign direct investment level of international trade economic growth rate in a country

Totalitarianism:

form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties (China, North Korea, Soviet Union)

The economic freedom in a market economy creates:

greater incentives for innovation and entrepreneurship than either a planned or a mixed economy.

Social Structure

how a society is organized in terms of its values, norms, and the relationships that are part of the society's fabric

Values

ideas about what a group believes to be good, right, and desirable

Property rights are truly secure:

in a well-functioning, mature democracy.

Pseudo-Democracy

in between pure democracies and complete totalitarian systems of government

Even though the long term trend has been toward lowering tariff rates:

it is possible that recent increases in tariff rates imposed by the Trump Administration in the U.S. could signify a reversal of this trend.

Promoters of free trade argue that the best way for countries to improve is:

lower their barriers to free trade and investment and to implement economic policies based on free market economics

Human Development Index (HDI)

measures the quality of human life in different nations, picked up by the United Nations because of Sen's thesis.

Hernando de Soto has argued that:

much of the developing world will fail to reap the benefits of capitalism until property rights are better defined and protected

Mores

norms that are more widely observed, have greater moral significance than folkways, and are central to the functioning of a society and to its social life. Mores have a much greater significance than folkways.

international trade

occurs when a firm exports goods or services to consumers in another country

Foreign Direct Investment (FDI)

occurs when a firm invests resources in business activities outside its home country.

Economic freedom does not equate with political freedom

p. 74

This is an indication that multiple paths to being innovative exist in both individualistic and group-oriented cultures, drawing from the uniqueness of the particular culture and what core competencies are reflected in the culture

p. 96

Theocratic totalitarianism

political power is monopolized by a party, group, or individual that governs according to religious principles. Ex: Islam

Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to

protect domestic industries from foreign competition. One consequence, however, was "beggar thy neighbor" retaliatory trade policies, with countries progressively raising trade barriers against each other. Ultimately, this depressed world demand and contributed to the Great Depression of the 1930s.

The West realized high tariffs on imports weren't good, so they:

reduced barriers to the free flow of goods, services, and capital among nations after WWII.

Legal System:

refers to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.

Globalization of Production

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 of production (such as labor, energy, land, and capital)

Private Action:

refers to theft, piracy, blackmail, and the like by private individuals or groups

Deregulation:

removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate

In civil law systems, contracts are: ___ because: ____

shorter, many of the issues are already covered in a civil code.

U.S. share of world exports of goods and services has:

slipped to 8.2 percent, significantly behind that of China

While a society may be equivalent to a country, some countries have several:

societies or subcultures, and some societies embrace more than one country

Socialists and Marx argued:

that the few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted

World Trade Organization (WTO)

(like the GATT before it) is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states.

Two degrees to which a political system is assessed:

- Collectivism vs. individualism - Democratic vs. totalitarian

A manager in an international business must:

- Decide where to do site production activities to minimize costs and maximize value added. -Decide how too coordinate globally dispersed production activities. -Decide which foreign markets to enter and avoid.

The political economy of many of the world's states are changing because: (2)

- economies are moving toward a free market economic model - international trade with protectionism is on the rise

3 reasons for the spread of democracy:

- many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations -new information and communication technologies—including satellite television, the Internet and associated social media, and more—have reduced a state's ability to control access to uncensored information -economic advances have led to the emergence of increasingly prosperous middle and working classes that have pushed for democratic reforms

Social stratification is based on four basic principles:

-Social stratification is a trait of society, not a reflection of individual differences. -Social stratification carries over a generation to the next generation. -Social stratification is generally universal but variable. -Social stratification involves not just inequality but also beliefs.

Managing an international business is different from managing a purely domestic business for 4 reasons:

1) Countries are different 2) the range of problems confronted by a manager in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business 3) an international business must find ways to work within the limits imposed by government intervention in the international trade and investment system 4) international transactions involve converting money into different currencies

Social strata

All societies are stratified on a hierarchical basis into social categories

Example of how Boeing globalized production too much

As the 787 moved through development, it became clear that Boeing had pushed the outsourcing paradigm too far. Coordinating a globally dispersed production system this extensive turned out to be very challenging. Parts turned up late, some parts didn't "snap together" the way Boeing had envisioned, and several suppliers ran into engineering problems that slowed down the entire production process. As a consequence, the date for delivery of the first jet was pushed back more than four years, and Boeing had to take millions of dollars in penalties for late deliveries. The problems at one supplier, Vought Aircraft in North Carolina, were so severe that Boeing ultimately agreed to acquire the company and bring its production in-house.

Strong legal protection of property tights is another requirement for a country to have:

Entrepreneurial activity.

Brazil's Struggling Economy:

Partly due to a fall in global commodity prices, given high IR, the only way to get out of deficit is to cut spending and raise taxes. Not easy - the pension system entitles Brazilians to retire at 54.

Foreign Corrupt Practices Act (FCPA)

Passed by the U.S., This law makes it illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority

The fact that the volume of world trade has been growing faster than world GDP implies three things:

First, more firms are doing what Boeing does with the 777 and 787: dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the world's nation-states are becoming ever more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services. Third, the world has become significantly wealthier in the last two decades. The implication is that rising trade is the engine that has helped pull the global economy along.

If the critics of globalization are correct, three things must be shown:

First: the share of national income received by labor, as opposed to the share received by the owners of capital (e.g., stockholders) should have declined in advanced nations as a result of downward pressure on wage rates. Second, even though labor's share of the economic pie may have declined, this does not mean lower living standards if the size of the total pie has increased sufficiently to offset the decline in labor's share—in other words, if economic growth and rising living standards in advanced economies have offset declines in labor's share (this is the position argued by supporters of globalization). Third, the decline in labor's share of national income must be due to moving production to low-wage countries, as opposed to improvement in production technology and productivity.

Highest and Lowest GNI Countries:

High - U.S., Australia, Switzerland. Low- China and India (developing).

Who's work is by far the most used culture research in both scholarship and business practice over the last century

Hofstede's

Example of a folkway:

In the US and Germany, people are very time conscious. p.92

Example of culture at different levels:

It is reasonable to talk about "American society" and "American culture," but there are several societies within America, each with its own culture. For example, in the United States, one can talk about African American culture, Cajun culture, Chinese American culture, Hispanic culture, Indian culture, Irish American culture, Southern culture, and many more cultural groups. In some way, this means that the relationship between culture and country is often ambiguous

Growth rates based on geography:

Landlocked countries grow slower than coastal. Tropical countries grow 1.3% more slowly each year than countries in the temperate zone.

Example of More

Many mores (and laws) differ across cultures. In the United States, for example, drinking alcohol is widely accepted, whereas in Saudi Arabia the consumption of alcohol is viewed as violating important social mores and is punishable by imprisonment

Critics of globalization:

One concern frequently voiced by globalization opponents is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and Western Europe. Critics argue that falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower.

Moore's Law

The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months)

Globalization

The shift toward a more integrated and interdependent world economy

Group of Twenty

There have been twelve G20 Leaders' Summits since they started in 2008. The Group of Twenty includes 19 prominent countries and the European Union (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, and the European Union). G20 members represent about 85 percent of global GDP, 80 percent of global trade, and about two-thirds of the world's population. Now, is it really right for the G20 to include 19 countries and one union entity (the European Union), or should the European Union countries be selected individually (as some already are)?

Supporters of Globalization:

They believe that globalization stimulates economic growth, raises the incomes of consumers, and helps create jobs in all countries that participate in the global trading system.

Democracy is spreading, while _____ is declining:

Totalitarianism

In a command economy:

the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. The government to allocate resources for "the good of society." (North Korea, Cuba).

The relative decline of the United States reflects:

the growing economic development and industrialization of the world economy

Legal risk

the likelihood that a trading partner will opportunistically break a contract or expropriate property rights. When legal risks in a country are high, an international business might hesitate entering into a long-term contract or joint-venture agreement with a firm in that country.

Economic risk

the likelihood that economic mismanagement will cause drastic changes in a country's business environment that hurt the profit and other goals of a particular business enterprise. They are not independent of political risk.

Political risk:

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

Globalization of Markets

the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade and investment have made it easier to sell internationally.

Norms

the social rules and guidelines that prescribe appropriate behavior in particular situations

If trade barriers decline no further:

this may slow the rate of globalization of both markets and production.

Public action:

to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders.

Privatization

transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction

Communists believed socialism could only be achieved through:

violent revolution and totalitarian dictatorship, whereas the social democrats committed themselves to achieving Page 40socialism by democratic means, turning their backs on violent revolution and dictatorship.

United Nations (UN)

was established October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security.

Forecast for world trade:

world trade will continue to increase more rapidly than world production for the foreseeable future.