MGMT 1035: Global Business Midterm Review (Weeks 2–5)

Comprehensive practice flashcards for MGMT 1035 Global Business Midterm preparation covering Globalization waves, MNE strategies and historical evolution, Classical and Modern Trade Theories, and International Financial and Trade Institutions.

How does the course define globalization beyond simple cross-border merchandise trade?

Globalization is the process by which businesses or other organizations develop international influence or start operating on an international scale, encompassing economic, political, and cultural dimensions.

What are the three core dimensions of globalization identified in the course, and what does each entail?

The three dimensions are Economic (cross-border flows of goods, services, capital, production, data), Political (global forces, agreements, and international organizations shaping governments' policy room), and Cultural (cross-border movement of ideas, food, music, media, and language).

Why is the historical Silk Road considered a template for modern globalization rather than merely a single trade highway?

It was an informal network of land and sea routes connecting China to the Mediterranean that exchanged not only commercial commodities (silk, spices, gold, silver) but also languages, religions (Buddhism, Christianity, Islam), ideas, and diseases.

What commercial and administrative innovations developed in Venice to manage long-distance trade risk?

The development of the modern company (compagnia) to pool capital and spread risk across multiple investors and voyages beyond single families, and the double-entry bookkeeping system formalized by Luca Pacioli to track debits, credits, and profits across distant branches.

How did Malcolm McLean transform global shipping in 1956?

He introduced the standardized intermodal shipping container, allowing sealed metal boxes to move seamlessly between ships, trains, and trucks without unpacking, which cut transport costs by at least $75\%$ and enabled modern global supply chains.

What is the 'digital divide' in the context of tools enabling modern globalization?

While internet penetration reaches $90\text{--}95\%$ in North America and Western Europe, access remains extremely low in parts of the Global South (especially inland Africa), threatening to lock unconnected regions out of digital trade and knowledge flows.

According to Gita Gopinath, what is the central distribution dilemma created by globalization?

Globalization raises overall output, productivity, and consumer welfare while lowering prices in the aggregate, but it inflicts concentrated losses and wage stagnation on domestic workers whose skills compete directly with cheaper foreign labor.

What core policy solution does Gita Gopinath propose to sustain public support for international trade?

Governments must complement trade openness with robust, sound domestic adjustment policies, worker retraining, and social safety nets to protect and support those who are left behind.

What key argument do Olivia White and Jonathan Woetzel make in 'Reimagining Global Integration' regarding the trajectory of globalization?

Globalization is not retreating but evolving: cross-border flows of intangibles, digital services, intellectual property, and data (growing at $45\%$ annually) are expanding twice as fast as physical trade in goods.

What are the two prongs of China's Belt and Road Initiative (BRI) announced by Xi Jinping in 2013?

The overland Silk Road Economic Belt (railways, pipelines, and highways across Eurasia) and the Maritime Silk Road (sea routes, ports, and coastal infrastructure through South Asia and the Indian Ocean).

Why do critics characterize certain Belt and Road Initiative (BRI) projects as a 'debt trap' or part of a 'String of Pearls' strategy?

Critics argue China issues market-rate loans with opaque bidding for projects requiring Chinese contractors, creating unsustainable debt burdens that allow China to exert political leverage or seize strategic regional chokepoints when borrowers default.

How did the United States and the G7 respond to China's Belt and Road Initiative in 2021?

They launched the Build Back Better World (B3W) initiative as a competing infrastructure investment program to offer alternative development financing, though critics note it has faced funding limitations.

What major concerns were voiced by protesters during the 1999 WTO 'Battle of Seattle'?

Protesters argued that international trade agreements undermine national sovereignty, dilute local environmental and labor standards in a corporate 'race to the bottom,' and swamp local languages and cultural identities.

Why is the Strait of Hormuz considered one of the world's most critical maritime chokepoints?

It connects the Persian Gulf and the Gulf of Oman; any blockage or conflict immediately disrupts global petroleum, liquified natural gas, and fertilizer shipments, driving up worldwide energy and food prices.

What distinguishes the Northwest Passage dispute between Canada and countries like the United States and China?

Canada regards the Northwest Passage as sovereign internal waters requiring Canadian permission to transit, whereas the United States and China view it as an international strait with freedom of navigation.

What defines a Multinational Enterprise (MNE) or Multinational Corporation (MNC)?

A private business enterprise that owns assets or directly manages productive operations (goods or services) in more than one country, with central management or headquarters in a home country and operations in host countries.

Why does exporting alone not classify a domestic business as an MNE?

Exporting involves selling goods or services across borders from home, whereas MNE status requires real operations abroad and direct operational control through Foreign Direct Investment (FDI).

What is the key difference between Foreign Direct Investment (FDI) and foreign portfolio investment?

FDI involves acquiring direct operational control of a foreign productive asset or enterprise (e.g., building or buying a factory), while portfolio investment is purchasing financial securities (stocks or bonds) without managerial control.

What are the primary strategic motivations for a business to become an MNE?

Lowering production costs (labor, inputs, scale), locating closer to customer markets for feedback and lower freight, accessing specialized global talent and knowledge, and avoiding tariffs or import quotas by producing locally.

How do centralized and decentralized (multinational) organizational models of MNEs differ in their trade-offs?

Centralized models maintain direct home-headquarters control, maximizing global brand consistency at the cost of local responsiveness; decentralized models grant foreign subsidiaries autonomy to adapt to local markets, making global uniformity harder to maintain.

What regulatory power asymmetry exists between MNEs and small host countries?

Large jurisdictions (US, EU, China) have the market size to compel MNE compliance, whereas small developing economies often lack leverage and may face corporate threats of disinvestment unless labor, environmental, or tax rules are diluted.

Why were 17th-century chartered companies like the Dutch VOC and the British East India Company unique precursors to modern MNEs?

They were private joint-stock companies that received state-enforced trade monopolies along with sovereign powers typically reserved for empires, including raising private armies, minting coin, levying taxes, and enforcing local laws.

What historical event in 1621 demonstrated the coercive state-backed violence of early chartered companies like the Dutch VOC?

The VOC violently conquered the Banda Islands to monopolize the global nutmeg trade, eliminating through massacre and enslavement approximately $13,500$ to $14,000$ of the native population of $15,000$.

According to the BBC reading on the British East India Company (EIC), what administrative measures were used to control employee corruption and nepotism?

The EIC required steep financial good-behavior bonds ($£500$), multi-year unpaid probationary periods, a 1764 ban on merchant gifts (an early corporate ethics code), and established the East India College at Haileybury in 1806 to formally train clerks.

What economic concept does The Economist's 'Big Mac Index' illustrate using a standardized MNE product?

Purchasing Power Parity (PPP), evaluating whether national market exchange rates accurately reflect the relative cost of an identical basket of goods across different currencies.

What ethical controversies in Africa highlighted the governance and regulatory challenges associated with Nestlé?

Aggressive marketing of infant formula that led mothers to dilute powder with contaminated water, contributing to infant mortality, and the continued reliance on child slave labor in West African cocoa supply chains.

Why is the Tata Group of India an important case study in the history of multinational enterprises?

Founded in 1868, it demonstrates that major MNEs are not exclusively Western or post-colonial phenomenons, having expanded across steel, power, and international offices in London while India was still under British imperial rule.

What is the core argument of the reading examining MNEs 'in retreat'?

Multinationals face eroded advantages due to rising host-country wages, sophisticated local competitors, technological parity, and political pressures to localize production and supply chains, causing multinational profit shares to decline.

What is the foundational premise of mercantilist trade theory?

The world's wealth (measured in physical gold and silver) is static and finite; trade is a zero-sum contest where one country can gain wealth only by causing another to lose it.

What specific trade policy goals did mercantilist governments pursue to accumulate national wealth?

Maintaining a strict favorable balance of trade (maximizing exports while minimizing imports through tariffs), securing captive colonial suppliers, and maintaining large domestic populations for factory labor and armies.

In mercantilist colonial trade, what pattern of exchange does this diagram illustrate?

The Triangle of Trade (or Triangular Trade), where enslaved people were shipped from Africa to the Americas, raw materials like sugar and tobacco went from the Americas to Europe, and manufactured goods were sent to Africa.

What were England's Navigation Acts and how did they enforce mercantilism?

A series of laws requiring colonial commodities (such as American tobacco) to be shipped exclusively through England on English vessels, preventing colonies from trading directly with rival European powers.

Why were Britain's agricultural Corn Laws repealed in the 1840s by Robert Peel's government?

They placed high protective tariffs on imported grain to shield domestic landowners, causing food shortages and unaffordable bread for Britain's growing industrial urban working class.

How did Adam Smith redefine national wealth in The Wealth of Nations (1776)?

He argued wealth is not the accumulation of gold and silver in government treasuries, but the total standard of living, productivity, and availability of consumable goods and services to a nation's people.

What is Adam Smith's theory of Absolute Advantage?

A nation should specialize in and export goods that it can produce more efficiently (using fewer resources or labor units) than any other country, and import goods where it has an absolute cost disadvantage.

What is David Ricardo's theory of Comparative Advantage (1817)?

Countries can mutually benefit from trade even if one country is absolutely more productive at making everything, provided each specializes in the good where its domestic opportunity cost of production is lowest.

How does comparative advantage differ from competitive advantage?

Comparative advantage is a national-level economic theory based on relative opportunity costs between countries; competitive advantage refers to an individual business firm's proprietary edge over rivals.

What does the Factor Proportions (Heckscher-Ohlin) theory identify as the driver of international trade?

Differences in national factor endowments: countries will export goods that intensively utilize their relatively abundant and cheap factors (such as capital, labor, or land) and import goods intensive in scarce factors.

What is Paul Krugman's New Trade Theory, and what pattern of trade does it explain?

It explains why similar industrial nations trade identical manufactured products, showing that trade is driven by increasing returns to scale, network effects, and first-mover advantages rather than differences in factor endowments.

Under Strategic Trade Theory, when is government industrial policy justified?

When global markets are oligopolies with high initial fixed R&D costs and scale economies, targeted state subsidies or tax breaks can help a domestic firm enter the market, capture global profits, and generate technological spillovers (e.g., Airbus).

How is the term 'Global South' defined in global business and economic history?

It is a political-economic term representing developing nations in Latin America, Africa, and parts of Asia whose economic trajectories were constrained by colonial systems and historical resource extraction.

What is South-South trade, and what is the role of the GSTP?

Trade conducted directly between developing nations; the Global System of Trade Preferences (established in 1989 by the G77) reduces tariffs among 42 developing nations to expand internal market opportunities and reduce dependence on the Global North.

What risks of renewed industrial policy are emphasized in The Economist's 'Return to Picking Winners'?

Governments may pick failing national champions, waste public funds on projects private capital would fund anyway, fall prey to political lobbying, trigger international subsidy arms races, and fail to 'let losers go' (Dani Rodrik).

Why does Paul Krugman argue against using tariffs to revive the US domestic apparel industry in 'Making Sweatshops Great Again'?

Apparel is a low-tech, labor-intensive sector that moved abroad due to natural efficiency; tariffs to restore basic low-wage manufacturing raise consumer prices without creating strategic innovation spillovers or economic security.

Why does Paul Krugman support targeted industrial policy for the semiconductor sector (such as the US CHIPS Act)?

Advanced semiconductors feature substantial knowledge spillovers (like Silicon Valley ecosystems) and severe geopolitical security vulnerabilities, given that over $90\%$ of advanced logic chips are concentrated in Taiwan.

What is Quinn Slobodian's central thesis regarding Special Economic Zones (SEZs) in 'Crack-Up Capitalism'?

Globalization has not eliminated borders; rather, it fragments nation-states internally into deregulated zones and enclaves where international capital operates free from domestic taxes, regulations, and democratic oversight.

What was the devastating economic consequence of the US Smoot-Hawley Tariff Act of 1930?

It raised US tariffs to protect domestic producers, which provoked swift international retaliation, caused world trade to contract drastically, and deepened the Great Depression worldwide.

What exchange-rate mechanism was created at the 1944 Bretton Woods Conference?

An international fixed exchange-rate system where member currencies were pegged to the US dollar, and the US dollar was convertible to gold at a fixed rate of $35$ dollars per ounce.

What historical event marked the collapse of the Bretton Woods fixed exchange-rate peg in 1971?

The 'Nixon Shock,' in which US President Richard Nixon unilaterally suspended the direct convertibility of the US dollar into gold, leading major economies to adopt floating exchange rates by 1973.

What is the primary operational distinction between the IMF and the World Bank Group?

The IMF focuses on international monetary stability, surveillance, and short-term conditional lending for balance-of-payments crises; the World Bank focuses on long-term project loans for infrastructure, reconstruction, and poverty reduction.

What does 'IMF conditionality' mean, and why is it often controversial?

Borrowing countries must implement mandated economic reforms (e.g., fiscal austerity, spending cuts, privatization) to receive loan tranches; critics argue these conditions can worsen poverty, increase unemployment, and restrict domestic policy autonomy.

How did the 1995 creation of the World Trade Organization (WTO) expand upon the 1947 GATT?

The WTO became a permanent international body with full legal status and a binding dispute-settlement mechanism, expanding multilateral trade rules beyond physical goods to include services (GATS), intellectual property (TRIPS), and agriculture.

What does the Most-Favoured-Nation (MFN) principle require of WTO members?

It requires non-discrimination: any favorable tariff or commercial concession granted by one member to any country must immediately and unconditionally be extended to all other WTO member nations.

What is Jagdish Bhagwati's 'spaghetti bowl' critique of Regional Trade Agreements (RTAs)?

The proliferation of hundreds of preferential bilateral and regional agreements creates a chaotic tangle of crisscrossing tariffs and differing rules of origin that fragment trade, discriminate against outsiders, and burden small firms with high compliance costs.

What is Gary Hufbauer's counter-argument viewing Regional Trade Agreements as 'stepping stones'?

Given the consensus stalemate and sluggish pace of multilateral WTO rounds, RTAs serve as a 'turnpike method' allowing motivated countries to lower tariffs to zero and liberalize services and investment much faster.

What key auto-sector rules of origin were revised when the USMCA replaced NAFTA in 2020?

The regional value content requirement was raised from $62.5\%$ to $75\%$, and a Labor Value Content rule was added requiring $40\%$ of a qualifying vehicle to be made by workers earning at least $16$ US dollars per hour.

According to Sapir and Mavroidis, why did China's 2001 accession to the WTO create enduring institutional tensions?

The WTO framework implicitly assumed members were liberal market economies; China instead maintained a 'socialist market economy' characterized by state-owned enterprises, industrial subsidies, and heavy government market intervention.

What key global-business lesson emerged from the 2003 Baninter collapse in the Dominican Republic?

Concealed private bank fraud can precipitate a systemic national crisis, requiring a tripartite coordinated intervention between the local central bank, an IMF Stand-By Arrangement, and a trusted foreign MNE bank (Scotiabank), underscoring that institutional stability requires transparency and the rule of law.