Global Business Final

Why was the fall of the Berlin Wall significant to globalization?

opened up new markets; enabled creation of EU and euro; countries now looked to the victors, the west, for their political and economic role model

Pros and cons of outsourcing/offshoring (Boeing example)

Pros: got them foreign clients, made them more efficient, cheaper

Cons: went too far and lost competency

What do those in favor of globalization say?

skilled jobs increase, outsourcing reduces costs, developing countries buy from developed, environmental standards rise, global institutes serve members, income per capita increasing

What do those opposed to globalization say?

good manufacturing jobs lost, wage rates compressed by global competition, trade deficits widen, environment degraded, global institutes control members, income gap widens

Political Systems

2 dimensions: individualism v. collectivism (state-owned communism); democratic v. totalitarian

Economic Systems

market (private businesses), mixed, command (state owned businesses)

What is IP and why is it important to global business?

intellectual property rights (patents, copyrights, TM, trade secrets) are important bc if rights are low, no one will want to do business there

Foreign Corrupt Practices Act

illegal to bribe foreign government official in order to obtain or maintain business over which foreign official has authority; can use grease payments

Relation of Political Economy and Economic Development (country examples)

Vietnam economic development has taken off after privitization, increased FDI, joining WTO and free trade agreements

Privitazation

the transfer of state-owned property to private ownership

Deregulation

The lifting of government restrictions on business, industry, and professional activities.

Acts 17:16-34 & Global Business

Paul takes what Athenians do well (religious fervor) and uses it to share the Gospel to them; he doesn't force his own way of thinking on them

Principles for Operating in Another Culture

1. understand and demonstrate your understanding of the culture

2. beware of your own biases when assessing a culture

3. get to know the person as well (don't stop at stereotype)

4. simply your communication

5. don't think of yourself more highly than you ought

Advice for Christian in Ethics in Business

1. ethical dilemmas are complex, seek info before making decision

2. start with Scripture

3. understand applicable standards and cultural norms

4. demonstrate leadership in areas that are in accordance with worldview

Matthew 25:38-46 & Global Business

as you did it to one of the least of these my brothers, you did it to Me

Standards for Ethical Decision Making

Floor of Social Protection

essential health care for all; income security for children, unemployed, elderly, disabled

Why is free trade controversial?

macro-gain, micro-pain (gains are nice til I close hometown factory); not always fair trade; globalist v. nationalist

Comparative Advantage

country should specialize in production of goods it produces most efficiently

Economies of Scale

the more you make, the cheaper it gets for you to do so

First Mover Advantage

advantages that accrue to early entrants into an industry

8 Instruments of Trade

import tariffs, export tarriffs/bans, subsidies, import quotas, voluntary export restraint, local content requirements, admin policies, antidumping duties

Import tariffs

winners: government

losers: importer

Export tariffs/bans

winners: domestic consumers

losers: domestic producers

Subsidies

winners: domestic producers and consumers

losers: domestic consumers

Import Quota

restriction on what can be imported

winners: domestic producers

losers: domestic consumers

Voluntary export restraints

quota on trade imposed by exporting country

winners: domestic consumers

losers: domestic importers and exporters

local content reqs

winners: domestic producers

losers: domestic producers, foreign producers

admin policies

rules designed to make importation difficult

winners: domestic producers

losers: domestic importers

antidumping duties

punishing firms for selling goods at lower prices abroad than they do @ home

Why do governments intervene in trade?

protect jobs, protect national security, retaliate, protect consumers, foreign policy, human rights

Why is FDI important to economic development of nation?

it is amount of foreign-owned assets in country; it is way of getting money into country without making it yourself

Maquiladoras

materials from US imported to FOREIGN OWNED factory in Mexico; goods transformed in Mexico are then exported back to US

5 Levels of economic integration

1. free trade area

2. customs union

3. common market

4. economic union

5. political union

Pros and cons of regional integration

pros: comparative advantage, increased FDI, freedom of movement, less risk of conflict, easier than global

cons: macro-gain micro-pain, national sovereignty, trade diversion forces countries to buy from specific country

Why was EU formed?

peace; maintain relevance compared to US, China, and Japan; potential economic benefits

Freedom of Movement

an citizen of an EU nation is a citizen of all EU nations and can thus move around Europe easier (no customs)

Benefits / drawbacks of Euro

benefits: just one stable currency; easier to compare and help each other

drawbacks: can't make own monetary policy; some EU nations stronger than others; have to help the homies

Why did citizens vote for Brexit?

surging immigration from eastern Europe, growing power of EU bureaucracy in Brussels, inability to make own trade deals

How is Brexit working out?

new customs; new regs on local content; slow border crossing; have to sign new trade agreements; loss of business investment; London no longer finance hub of Europe

NAFTA benefits / drawbacks for each country

benefits: MEX more jobs and FDI; US+CAN lower prices and increased competeablitity

drawbacks: MEX more pollution and loss of sovereignty; US+CAN job loss and declining wage levels

USMCA benefits / drawbacks for each country

benefits: more needs to come from NA and high-wage factory; increased access to dairy market; increased IP protection

drawbacks: trade diversions, higher cost to NorthAm producers, higher prices for consumers

Trade Diversion

occurs when you would have traded with someone if not for something political

Does USMCA result in trade diversion?

yes

Use of foreign exchange by global business

sometimes have to convert currency in trade; short-term investment; speculation (day trading currency)

How do you know if a currency is strengthening or weakening relative to another?

if it now takes MORE currency to equal the other, said currency is weakening

Why does a currency strengthen or weaken relative to another?

low interest rates lead to high inflation rates; if this is only going on in one country then we have a difference in strength

Spot Exchange

rate of exchange between 2 currencies at specific date/time

Forward Exchange

agreement on the rate of exchange at some point in the future

Currency Provision

we'll agree to this exchange rate within a margin of 5%, for example

What ails Turkiye?

high inflation has lead to weakening lira; no one wants weakening lira so Turkish importers have to convert to USD and they lose money

Money Supply and its relationship to foreign exchange

increasing the money supply often weakens the currency relative to currencies with stable amounts

Inflation and its relationship to foreign exchange

inflation leads to devalued currency

Interest Rates and its relationship to foreign exchange

interest rates have INVERSE effect on exchange rates

Transaction Risk

income from transactions are affected by fluctuations in foreign exchange values

Translation Risk

impact of currency exchange rate change shows up on the reported financial statements of a company

Argentina and relation between interest, inflation, money supply

interest rates were low; inflation then hitstagflation height which led to terrible exchange rate

Hedging the Thai Baht

Thai baht weakens to USD so US has to pay less for Thai products; Thai gov't recommends currency provisions like hedging against future exchange rate fluctuations

Floating Exchange Rate System

foreign exchange market determines the relative value of currency (US, EU, UK, JPN)

Pegged Exchange Rate System

value of currency is fixed to reference currency (like USD)

Managed-float

value of currency is allowed to float, but central bank will intervene if its beyond their liking

Fixed Exchange Rate

countries fix their currencies against each other (Europe pre-euro)

Dollarization

country utilizes foreign currency as its standard

Tight monetary policy

interest rates up, control money supply, spending slows, businesses contrast, risk recession

Loose monetary policy

interest rates down, money supply increases, spending quickens, businesses expand, risk inflation

What are conditions of IMF assistance?

public spending controls (reduce subsidies), higher interest rates, constrain money supply, change exchange rate policy to floating, increase taxes, deregulate and privitize

Why is Argentina considering dollarization?

better value, stronger, less volatile

Pakistan and the IMF

Pakistan has needed help 13 times since '80s; public debt, trade deficit, high inflation, weak currency; tried to fix it by propping rupee and buying it with USD, but now they have no USD for trade; IMF loaned them ~6.5 billion but with heavy conditions; Pakistan didn't follow

Airbus and the Euro

Airbus sells in USD but buys in euro; USD dropped in value so Airbus profit squeezed; they hedged currency, started buying in US, and forced European supplier to sell in USD, opened factory in Alabama

Business strats for currency management

hedge, manage transaction and translation exposure, establish production cites in different countries, outsource manufacturing across globe, include currency provisions

Who are biggest trade partners of US?

MEX, CHN, CAN, JPN, GER, VTN

What do biggest trade partners of US have in common?

big economies; they sell us more than they buy from us

What are main reasons for US trade deficit?

import a ton of computers and vehicles

What is reshoring, and what is the trend for it in the US?

bringing jobs back to the US has been increasing since 2010

Why does US want to change trading relationships?

feel like we're being taken advantage of and that we're no longer industrial power

Costa Rica

ton of FDI coming in bc high English literacy, education, and freedoms; good place but could be trending downward if corruption and violence left unchecked

Gemany

declining population; fertility rate below death rate; 3rd largest economy in world; inflation shot up from Russia closing pipeline; trade surplus; cars; politically free; good economic freedoms and IP protection

Ireland

super free; really market FDI, but since their labor isn't cheap, its mostly pass-through FDI; declining fertility rate as they develop; higher GDP PPP per capita than US; have lot of FDI bc only EU nation with English 1st language and closest to US

Mexico

heavily dependent on US; new tariffs could have bad effect on them; always had trade deficit this century except COVID