Flashcards IB201 International Business Midterm

Globalization

A shift toward a more integrated and interdependent world economy.

Two Facets of Globalization

Globalization of Markets (merging distinct national markets into one huge global marketplace) and Globalization of Production (sourcing factors of production globally to leverage national differences).

World Trade Organization (WTO)

Polices the world trading system, ensures nation-states adhere to trade rules, and succeeded GATT in 1995.

International Monetary Fund (IMF)

Maintains order in the international monetary system and acts as the lender of last resort to nation-states in economic turmoil.

Drivers of Globalization

1) Decline in barriers to the free flow of goods, services, and capital. 2) Technological changes (microprocessors, Internet, containerization).

Moore's Law

As the cost of microprocessors falls, their power increases.

Stock of Foreign Direct Investment (FDI)

The total cumulative value of foreign investments in a country over time.

Mini-Multinationals

Small- and medium-sized businesses increasingly involved in international trade and investment, enabled by lower barriers via the Internet.

Political Economy

The interdependent political, economic, and legal systems of a country.

Collectivism vs. Individualism

Collectivism stresses collective goals over individual goals (traced to Plato). Individualism stresses individual freedom, self-expression, and free market forces (traced to Aristotle).

Four Forms of Totalitarianism

1) Communist Totalitarianism 2) Theocratic Totalitarianism 3) Tribal Totalitarianism 4) Right-Wing Totalitarianism.

Market Economy vs. Command Economy

In a Market Economy, production and prices are determined by supply and demand. In a Command Economy, the government plans the goods, quantity, and prices.

Common Law vs. Civil Law Systems

Common Law is based on tradition, precedent, and custom (requires detailed contracts). Civil Law is based on a detailed set of written legal codes (requires shorter contracts).

United Nations Convention on Contracts for the International Sale of Goods (CISG)

A uniform set of rules governing certain aspects of commercial contracts between buyers and sellers in different nations.

Foreign Corrupt Practices Act (FCPA)

US law making it illegal to bribe foreign officials to obtain or maintain business, but allowing small "facilitating/grease payments" for routine government actions.

Intellectual Property Protection Mechanisms

1) Patents (exclusive rights to inventions) 2) Copyrights (exclusive legal rights of authors/creators) 3) Trademarks (official designs/names identifying products).

Purchasing Power Parity (PPP)

An adjustment to gross national income (GNI) to provide a direct comparison of living standards across countries based on local cost of living.

Human Development Index (HDI)

UN metric measuring development using life expectancy, educational attainment, and whether average incomes meet basic life needs.

Drivers of Sustainable Economic Growth

Innovation and Entrepreneurship, supported by market economies, strong property rights, and democratic regimes.

Economic Transformation Steps

1) Deregulation (removing legal market restrictions) 2) Privatization (transferring state property to private owners) 3) Legal System Creation (protecting property rights).

First-Mover Advantages vs. Late-Mover Disadvantages

First movers capture early market share and build brand loyalty. Late entrants face high barriers to entry and higher market penetration costs.

Culture, Values, and Norms

Culture is a system of values and norms shared among a group. Values are abstract ideas about good/right/desirable. Norms are social rules governing behavior (split into Folkways and Mores).

Social Mobility (Caste vs. Class System)

Social mobility is the extent to which individuals can move out of their born social strata. A Caste system is closed and rigid. A Class system allows mobility through achievement or luck.

Key Economic Teachings of Confucianism

Loyalty, Reciprocal Obligations, and Honesty. These build high trust and lower the cost of doing business.

Hofstede's Cultural Dimensions

1) Power Distance 2) Individualism vs. Collectivism 3) Uncertainty Avoidance 4) Masculinity vs. Femininity 5) Long-Term vs. Short-Term Orientation 6) Indulgence vs. Restraint.

Ethnocentric Behavior

The belief in the inherent superiority of one's own culture or ethnic group.

Convergence Hypothesis

The idea that globalization, economic development, and modern communication are causing cultures to converge toward a common global culture.

GLOBE Framework

Global Leadership and Organizational Behavior Effectiveness research program identifying 9 cultural dimensions (e.g., Assertiveness, Future Orientation, Performance Orientation).

Cross-Cultural Literacy

An understanding of how cultural differences across and within nations affect the way business is practiced.

Ethical Dilemma

A situation in which no available decision alternative seems ethically acceptable.

Six Roots of Unethical Behavior

1) Personal Ethics 2) Decision-Making Processes 3) Organizational Culture 4) Unrealistic Performance Goals 5) Leadership 6) Societal Culture.

Friedman Doctrine

A "straw man" ethical approach stating that the sole social responsibility of business is to increase profits, provided it stays within the law.

Cultural Relativism

The belief that ethics are culturally determined and firms should adopt the ethics of the culture in which they operate ("When in Rome...").

Righteous Moralist vs. Naïve Immoralist

Righteous Moralist applies home-country standards abroad. Naïve Immoralist argues that if firms from other nations are acting unethically in a host country, you can too.

Utilitarian Approach to Ethics

Moral worth of actions is determined by their consequences; actions are desirable if they produce the greatest good for the greatest number of people.

Kantian Ethics

Philosophy that people have dignity and should be treated as conscious ends in themselves, never merely as means to the ends of others.

Rawls' Veil of Ignorance & Difference Principle

Veil of Ignorance ensures decision-makers imagine they do not know their personal traits. The Difference Principle states that inequalities are justified only if they benefit the least-advantaged group.

Mercantilism

An 16th/17th-century trade philosophy advocating government intervention to maximize exports and minimize imports, viewing trade as a zero-sum game.

Absolute Advantage

Proposed by Adam Smith (1776): A country should specialize in and export goods it produces more efficiently than any other country.

Comparative Advantage

Proposed by David Ricardo (1817): A country should specialize in producing goods it produces most efficiently and import goods it produces less efficiently, even if it has an absolute advantage in everything.

Heckscher-Ohlin Theory (Factor Proportions)

Countries export goods that make intensive use of locally abundant factors of production (land, labor, capital) and import goods using scarce factors.

Leontief Paradox

Empirical finding by Wassily Leontief showing that US exports were less capital-intensive than US imports, contradicting the Heckscher-Ohlin theory.

Product Life-Cycle Theory

Proposed by Raymond Vernon: Products are developed and exported by wealthy nations initially, but as production becomes standardized, it shifts to lower-cost nations.

New Trade Theory

Suggests trade allows nations to achieve economies of scale while increasing product variety; dominance in global markets can stem from first-mover advantages rather than factor differences.

Porter's Diamond of National Competitive Advantage

Four national attributes explaining competitive success: 1) Factor Endowments 2) Demand Conditions 3) Related & Supporting Industries 4) Firm Strategy, Structure, and Rivalry.

Specific vs. Ad Valorem Tariffs

Specific tariffs are levied as a fixed charge for each unit imported. Ad Valorem tariffs are levied as a proportion/percentage of the value of the imported good.

Subsidies

Government financial support to domestic producers, helping them compete against low-cost foreign imports and gain export market access.

Local Content Requirement (LCR)

A requirement that a specific fraction of a good be produced domestically (in physical or value terms).

Dumping and Antidumping Duties

Dumping is selling goods in a foreign market below cost or below fair market value. Antidumping/Countervailing duties are tariffs imposed to punish offending foreign firms.

Political vs. Economic Arguments for Trade Intervention

Political arguments focus on protecting jobs, national security, human rights, and retaliation. Economic arguments focus on protecting infant industries and pursuing strategic trade policies.