International Business - Chapter 1

T/F. Cultural differences have no effect on the way an international firm conducts its business around the globe.

False

T/F. Globalization resulted in a decrease in non-U.S. firms' investment across national borders.

False

T/F. Since the 1960s, a notable trend in the demographics of the multinational enterprise has been the rise of U.S. multinationals.

False

What are the benefits to Boeing of outsourcing manufacturing components of the Boeing 787 to firms based in other countries?

Firstly, the countries from where the production was done usually ordered more planes from Boeing. This lead to an increase in the sales and the teams had to ensure all possibilities of sales were open and highly used. Boeing as an organization no longer had to worry about quality issues and management of inventory. Also using the outsourced model enables Boeing to focus on more value adding areas.

T/F. A small country is short on cash for much needed infrastructure development projects. It could go to the World Bank for assistance.Group starts

True

Globalization

the shift toward a more integrated and interdependent world economy. Includes the _________ of markets & production.

Role of Technological Change

- Communications - Internet - Transportation Technology

How does globalization affect labor policies and environment?

- Critics argue that firms avoid the cost of adhering to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced - Supporters claim that tougher environmental and labor standards are associated with economic progress(as countries get richer from free trade, they implement tougher environmental and labor regulations)

Implications for the Globalization of Markets

- Low cost communication networks help create electronic global marketplace - Low cost transportation makes it economical to ship products around the world - A reduction in cultural distance - A convergence of consumer tastes and preferences

opportunities of globalization

-Huge potential Market -Firm's can expand revenues and reduce costs. -Growing Economies -Brainpower for cheap -Optimism -Polycentric innovation (R&D around the world) -Come up with smart ways of designing services/ products and organizing processes to reach the billions of consumers just entering the global market.

Implications for the Globalization of Production

-Lower transportation costs -Geographically dispersed production system more economical -Allow firms to better respond to customer demands

Drivers of Globalization

1. Declining barriers to trade 2. Technological Change

What does the volume of world trade growing faster than the world GDP imply?

1. Firm's are dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. 2. 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. 3. The world has become significantly wealthier in the last 2 decades due to rising trade has helped pull the global economy along.

UN 4 purposes

1. Maintain international peace and security 2. To develop friendly relations among nations 3. To cooperate in solving international problems and in promoting respect for human rights. 4. To be a center for harmonizing the actions of nations.

3 types of economic systems

1. Market economies ➢all productive activities are privately owned and production is determined by the interaction of supply and demand 2. Command economies ➢government plans the goods and services that a country produces, the quantity that is produced, and the prices at which they are sold ➢can stagnate due to lack of incentive/motivation 3. Mixed economies ➢certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning

Globalization critics argue that the decline in unskilled wage rates is due to the A.migration of low-wage manufacturing jobs offshore. B. privatization of government owned enterprises. C.regulation of the global market by WTO. D. technology-induced shift toward skilled jobs.

A

Opponents of globalization argue that falling trade barriers A. allow firms to move manufacturing activities to countries with lower wage rates. B. create manufacturing jobs in wealthy advanced economies. C. force countries to maintain manufacturing in their home countries regardless of wage rates. D. reduce the pool of global labor.

A

The World Trade Organization promotes: A. the lowering of barriers to cross-border trade and investment B. the development of poor nations through low-interest loans C. state ownership of major enterprises D. the regulation of national economies

A

The ________ was created in 1944 by 44 nations that met in Bretton Woods, New Hampshire to promote economic development. A. World Bank B. International Trade Center C. World Trade Organization D. United Nations

A

The purpose of the U.N.'s Millennium Development Goals that were established in 2000 was to A. reduce the number of people living in extreme poverty. B. increase the supply of consumer goods to developing countries. C. legitimize the globalization process. D. increase the employment rate across all nations.

A

What impedes firms from achieving the optimal dispersion of their productive activities to locations around the globe? A. transportation costs B. government deregulations C. reduction of barriers to trade between countries D. reduction of barriers to foreign direct investment.

A

Which of the following factors hinders globalization of consumer goods market? A. National differences in tastes and preferences. B. Higher production costs in developed nations. C. homogenization of material culture D. Increased outsourcing of goods and services.

A.

Multinational Enterprise (MNE)

Any business that has productive activities in two or more countries.

The General Agreement on Tariffs and Trade (GATT) was responsible for: A. protecting government owned enterprises B. policing the global marketplace C. limiting nuclear testing D. promoting environment friendly technology

B

The Uruguay Round provided: A) reduced protection for patents, trademarks, and copyrights B) enhanced protection for patents, trademarks, and copyrights. C) increased trade barriers. D) reduced coverage of services and manufactured goods

B

The ________ is often seen as the lender of last resort. A. World Bank B. International Monetary Fund C.International Development Association D. World Trade Organization

B

The stock of foreign direct investment refers to A. the entry of funds into a country when foreigners make purchases in the country's stock and bond markets. B. the total cumulative value of foreign investments as a percentage of the country's GDP. C. movements of labor, capital, and other factors of production between countries. D. total export or import products from other countries.

B

Which of the following actions was implemented in the Uruguay Round, finalized in December 1993? A. reduction in the protection for patents, trademarks, and copyrights B. establishment of the World Trade Organization C. extension of the GATT to cover consumer products D. enhancement of trade barriers

B

Which of the following is a consequence of Globalization? A. decreasing interdependence between national economies. B. Increasing outsourcing of services C. Differentiating of material culture D. Increasing barriers to cross-border trade.

B

After the U.S., the second-largest source country of MNEs is A) a tie between France and the United Kingdom B) China. C) Japan. D) a tie between Germany and the United Kingdom

C

Globalization has enabled organizations to reduce their costs of production by A. differentiating material culture the world over. B. setting up barriers to cross-border trade. C. creating manufacturing units in developing countries. D. turning national economies into self-contained entities.

C

In 2008 and 2009, the _______ became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis. A. GATT B. Group of Ten C. Group of Twenty (G20) D. World Trade Organization

C

Which of the following factors contributed to the Great Depression of the 1930s? A. artificial fixing of currency rate by China B. problems in the U.S. subprime mortgage lending market C. countries progressively raising trade barriers against each other D. outsourcing of manufacturing units to developed nations

C

Which of the following is a factor of production? A. Tariffs B. Transportation costs C. Capital D. Government

C

_____ predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months. A. Keynes's law B. Say's law C. Moore's law D. Sullivan principle

C

United Nations

Committed to preserving peace through international cooperation and collective survey. (often does not get a lot done).

Benefits of Globalization of Production

Companies hope to lower their overall cost structure or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively.

Group of Twenty (G20)

Comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the EU and the European Central Bank. It represents 90% of global GDP and 80% of international global trade.

How does globalization affect jobs and income?

Critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries ➢Supporters contend that the benefits of this trend outweigh the costs ➢countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit

In addition to foreign subcontractors and Boeing, who else benefits from Boeing's decision to outsource component part manufacturing assembly to other nations? Who are the potential losers?

Customers benefit. Customers are the flight service providers who purchase the aircraft and end customers are the passengers of the flight. Having such agreement for assembly of aircraft ensures that the prices are competitive and the same can be passed on to the end customers. Potential losers could be the local employees of Boeing or its related companies for production of aircrafts/

An international business is defined as A. one that implements homogenous practices across countries. B. the basis for a multinational enterprise. C. a business that is restricted by U.N. regulations. D. any firm that engages in international trade.

D

An international business, unlike a multinational enterprise, A) needs to have manufacturing units in at least two foreign nations B) needs to manufacture products or provide services that target a global market C) need not customize its products to the requirements of national markets D) need not invest directly in operations in other countries

D

Early outsourcing efforts were primarily confined to: A. Healthcare B. Service activities C. Technological research D. Manufacturing activities

D

Foreign direct investment occurs when a firm invests resources in A. competitor-based products. B. local agricultural production. C. production and service technologies that will enhance globalization. D. business activities outside its home country.

D

In the last two decades, Latin American countries such as Brazil, Mexico, and Chile have: A. embraced communist principles B. promoted government ownership of enterprises C. experienced increasing debt and inflation D. welcomed foreign investment

D

The average tariff rates for manufactured goods have fallen significantly since 1950, and now stand at about: A. 18 percent B. 5.9 percent C. 4.8 percent D. 1.6 percent

D

The relative decline of the United States in the share of world output and world exports reflects: A. an increase in the barriers to foreign trade in the U.S. B. the deepening of the global financial crisis C. the reduced industrialization in developing nations. D. The growth in the economic development of the world economy.

D

Which of the following expresses one of the reasons why managing an international business is different from managing a purely domestic business? A. The range of problems confronted by a manager in a domestic business is wider and the problems more complex than those confronted by a manager in an international business. B. International business transactions use the euro instead of the U.S. dollar. C. An international business does not need to contend with government intervention whereas a domestic business must work within the confines of its local government. D. An international business must find ways to work within the limits imposed by government intervention in the international trade and investment system.

D

Which of the following statements pertaining to changes in the global economy of the 21st century is true?A. Barriers to the free flow of goods, services, and capital have increased. B. Volume of global output has been growing more rapidly than cross-border trade and investment. C. National economies are becoming more independent. D. The world is moving toward an economic system that is more favorable for international business.

D

International Monetary Fund (IMF)

Established to maintain order in the international monetary system. Seen as the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations. Not a favorable institution as they require nation-states to adopt specific economic policies aimed at returning their troubled economies to stability and growth.

True or false. World Bank gives aid of $100M to Kenya for creating rural health care facilities. This is an example of foreign direct investment.

False.

What are the potential costs and risks to Boeing of outsourcing?

One major issue highlighted in the case is late deliveries. Managing the data flow from such a vast network of outsourced suppliers is difficult. Another major risk is the data loss which can occur when dealing with such a vast group of suppliers.

How does the Internet affect international business activity and the globalization of the world economy?

One of the biggest implications of the internet is its role as an equalizer. Firms are no longer constrained by size, location, scale, and time zones. The Internet makes it possible to reach customers anywhere in the world and global communications are facilitating a cultural convergence making it easier for companies to sell standardized products.

T/F. One concern frequently voiced by those opposed to globalization is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and Western Europe.

True

T/F. Supporters of globalization believe that tougher environmental regulations and stricter labor standards are a natural aspect of economic progress.

True

T/F. Today, nearly every nation in the world belongs to the United Nations.

True

What is political economy?

how the political, economic, and legal systems of a country are interdependent. ➢they interact and influence each other ➢they affect the level of economic well-being in the nation

Generally, costs are __________ in economically developed and politically _________ countries.

lower; stable

International trade

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

Globalization of Markets

refers to 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.

World Trade Organization (WTO)

responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by member states. Also responsible for facilitating the establishment of additional multinational agreements among member states. Promoted the lowering of barriers to cross-border trade and investment.

Consequences of Tariffs

retaliatory trade policies, with countries progressively raising trade barriers against each other.

Barriers to International Trade

tariffs, import quotas, embargoes, sanctions

Foreign Direct Investment (FDI)

Occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods.

"The study of international business is fine if you are going to work in a large multinational enterprise, but it has no relevance for individuals who are going to work in small firms" Evaluate this statement.

Globalization has an effect on all firms, even small ones, as it has changed the world economy. Firms can no longer ignore events going on outside their borders because what occurs in one country has implications for the rest of the world. Today, thanks to advances in technology, many small firms sell and source internationally, and those that fail to take advantage of international opportunities may not achieve their full potential. In the U.S. for example, almost 90% of firms that export employ fewer than 100 people. They also account for more than 20% of U.S. Exports.

"Ultimately, the study of international business is no different from the study of domestic business. Thus, there is no point in having a separate course on international business." Evaluate this statement.

I believe that this statement is false. Countries are different in a range of ways: cultures, political systems, economic systems, legal systems and levels of economic development. The range of problems confronted in an international business is wider and the problems are more complex than those in a domestic business. Managers of an international business must decide where in the world to produce their products, so they can minimize costs and maximize value added. They must also decide whether it is ethical to adhere to the lower labor and environmental standards found in many less-developed countries. Managers also have to determine what countries to avoid and international businesses must find ways to work within the limits imposed by the governmental intervention and the global trading system.

On the balance, do you think that the kind of outsourcing undertaken by Boeing is a good thing or a bad thing for the American economy?

I think that Boeing's outsourcing plan can be a good thing for the economy. It creates new relationships across borders and helps ensures that the best products are delivered to the customers when they need it, at a reasonable price.

World Bank

International institution that provides low-cost, long-term loans to less-developed countries to develop basic industries and facilities.

General Agreement on Tariffs and Trade (GATT)

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

Describe the shifts in the world economy over the past 30 years. What are the implications of these shifts for international businesses based in Great Britain? North America? Hong Kong?

Over the last 30 years, there has been a shift away from a world in which national economies were relatively self-contained entities, isolated by barriers to cross-border trade and investment, and by national differences in government, regulation, culture, and business systems. Now, countries are moving toward where barriers to cross-border trade and investment are declining, material cultures are becoming similar, and national economies are merging into an integrated, interdependent global economic system. As emerging markets like China, play a more vital role in the world economy, the dominance of companies from the U.S. and Europe has declined. Significant implications for British firms involve looking beyond Europe and America for investment and opportunities. Consumer spending power is growing quickly in developing countries. For North American companies, the same holds true, although the importance of the growing prosperity in Latin America suggests a potentially huge market in their "backyard". Hong Kong is perceived as the gateway to the immense market of mainland China. Since Hong Kong firms are now less taken for granted, access to China is improving along with the move towards a market economy within China. International businesses based in all three locations are facing new opportunities and threats.

The Globalization Debate

Pros ➢Increased trade & investment ➢Lower prices ➢Economic growth ➢Higher consumer income ➢More jobs Cons ➢Job losses ➢Environmental degradation ➢Cultural imperialism ➢A crisis in one region can affect the rest of the world (ex. 2009 financial crisis)

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).

How have changes in technology contributed to the globalization of markets and production? Would the globalization of production and markets have been possible without these technological changes?

Technological change has made globalization a reality. Major advances in communication, information processing, and transportation have brought the world "closer together." The development of the microprocessor is one of the most important innovations as it increased the amount of information that could be processed by firms and individuals. The internet has created a 24/7 market place where information is available in real time. Advances in transportation have enabled firms to take advantage of the savings associated with dispersing production to low cost production locations. Advances in communications have helped create an emergence of a global market for consumer products. Because of technological change, firms can locate facilities wherever in the world make the most sense, and ship products to customers worldwide more cost effectively than any time in the past.

Boeing's management decided to keep all production in America. What do you think the effect would be on the company, its employees, and the communities that depend on it?

There would be more jobs in the US, more skilled workers, but the prices of airplanes and airplane tickets would increase.

If current trends continue, China may be the world's largest economy by 2030. Discuss the possible implications of such development for: a. the World Trading System b. the World Monetary System c. the business strategy of today's European and US based global corporations. d. global commodity prices.

a. Currently China enjoys a somewhat privileged status within the WTO, but if China was the world's largest economy, it would become a full and equal member, with all the rights and responsibilities which means China wold be in a position to actively affect the terms of trade between many countries. b. China would have to have fully convertible and trading currency, and it could become one of the benchmark currencies of the world. c. China would represent both a huge market, and potentially the home base of some very capable competitors. (more companies would move to China) d. Commodity prices would fall.

Globalization of markets results in markets becoming: A. more interdependent B. less diverse c. more protected d. less competitive

b