WGU D080 1

Globalization

Worldwide interconnections in virtually every sphere of activity including the spread of products, technology, information, and job opportunities. Globalization can result in blurred boundaries between nations, organizations, and investors

trade

The action of buying and selling goods and services

capital

Financial assets such as funds but also equipment, facilities, and other means of production

outsource

To obtain goods or services from an outside or foreign supplier

nongovernmental organizations (NGOs)

Not for profit organizations that are independent of the government and are active in humanitarian causes

Which type of globalization refers to the international movement of goods, capital, and services?

Economic

patents

Protects inventions and improvements to existing inventions for a limited period of time in exchange for detailed public disclosure of those inventions

copyrights

A government authority or license giving the owner of an invention the right to exclude others from making or selling the invention for a set period of time

trademarks

Protection for any word, name, symbol, device, or any combination used in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others

assets

A useful or valuable thing; something you own such as building, inventory, or cash

liabilities

Being responsible for a debt or financial obligation, something you owe

financial instrument

A monetary contract between parties

multinational firms

A large corporation incorporated in one country which produces or sells goods or services in various countries

The 5 Stages of going Global

Stage 1 ~ Market Entry

Stage 2 ~ Product Specialization

Stage 3 ~ Value Chain Disaggregation

Stage 4 ~ Value Chain Reengineering

Stage 5 ~ Creation of New Markets

Economies of scale

A proportionate savings in costs gained by an increased level of production

Economies of scope

To develop efficiencies in terms of variety not volume

A CEO seeks to better use the economies of scale and scope of production to increase the international company's profits.

Which type of globalization driver is the CEO seeking to use?

Cost

A CEO seeks to better use the economies of scale and scope of production to increase the international company's profits.

Which type of globalization driver is the CEO seeking to use?

Cost

A CEO is discussing an expansion of production of a company's highly perishable dairy line in a country that can offer low labor costs and good internet connections. The country has no highways, and roads are poorly maintained.

Which challenge to international business expansion do the road conditions present?

Infrastructure

Six Sigma

A method that provides tools for organizations to increase performance and decrease process variation

Which factor of CAGE addresses differences in country size that affect barriers to globalization?

Economics

Gini coefficient

Measures the inequality among values of a frequency distribution such as levels of income

Happy Planet Index

Measures how well nations are doing at achieving long, happy, sustainable lives

Which argument is used by critics who wish to discourage movement towards globalization?

It increases the wealth of the rich rather than the poor.

gross domestic product (GDP)

The total value of goods and services provided in a country in a one-year period

gross national product (GNP)

The total value of goods and services provided by a country, both inside and outside of its borders, in a one-year period

Which type of economy is decentralized and allows firms and households to participate in global trade with minimum governmental interference?

Market

Which type of legal system is based on a code and focuses on how the law is applied to the facts?

Civil

Which law is based on tradition and precedent given that judicial rulings can stand as precedents for future cases?

Common

Which legal system can vary from community to community and is found in countries without strong formal justice systems?

Customary

In which legal system does a judge decide the applicable law for the case as a jury determines the facts?

Common

Common law

Based on precedence. Any activity that is not clearly illegal may be acceptable. The role of the judge is to hear arguments from both parties and make a judgment. This judgment stands as precedent for future cases.

Religious law

based on religious beliefs. One example is a requirement in Sharia that people following Sharia may not borrow money. To compensate for the inability to take on debt, an asset-based system has been established.

balance of payments

The difference in total value between payments into and out of the country over a period of time

fixed-rate currency exchange system

When a country's currency value is fixed or pegged by a monetary authority against the value of another currency, a basket of currencies, or another measure of value

World Bank

~ Encourages developing countries to borrow for development projects

~ Developmental institution

~ Financed reconstruction after wars in the 1940s. It is now focused on supporting developing countries

~ Large: 40 offices, over 10,000 staff

~ Investment bank owned by the governments of the 180 member nations

~ Borrows and loans

~ Borrowers must meet requirements to qualify for loans

International Monetary Fund

~ Oversees the international monetary system

~ Cooperative institution

~ In phase one, prior to 1973, regulated international exchange rates

In phase two, post-1973, provides a means for effective international currency exchange, supervises economic policies, and provides financial assistance to members

~ Small: 2,300 staff members

~ Resources come from quota subscriptions or membership fees

~ Acts more like a credit union

~ Loans to all member nations

Which activity of the International Monetary Fund (IMF) impacts policymaking?

Being owned and directed by the governments of the member nations

What is a characteristic of the International Monetary Fund (IMF)?

The IMF is a cooperative institution and provides more effective currency exchange.

What was the initial purpose of the International Monetary Fund (IMF) in phase one, prior to 1973?

Regulated currency exchange between nations

privatization

Selling government holdings to private companies

deregulation

The removal of regulations or restrictions in a particular industry

How does the International Monetary Fund (IMF) impact international organizations and governments?

It reduces funding for social programs.

AAA ratings

The highest possible rating that may be assigned by a credit rating agency for a bond

debt instruments

A tool used by a company or any other entity to raise money or capital

What is a common name for the International Bank for Reconstruction and Development?

World Bank

What was the first loan that the World Bank made after the end of World War II?

To France to rebuild its infrastructure

Which criticism is associated with the World Bank?

The developed countries such as the U.S. and Europe have too much control over its decisions.

Which criticism is made about the World Bank?

It does not consider how funding projects will affect the environment.

The World Bank provides

low-interest loans, interest-free credits, and conditional grants to developing countries in which a government (or sovereign) guarantees repayment.

The World Bank Group is comprised of

private lending banks as well as the World Bank.

Some criticisms of the World Bank include:

an imbalance of leadership power, enforced conditionality, and environmental impacts.

The Functions of the WTO

~ Oversee Agreements

~ Transparency of Trade Policy

~ Assist Developing Nations

~ Provide Outreach

~ Settle Disputes

~ Ensure Non-discrimination

TRIPS (Trade-Related Aspects of Intellectual Property Rights)

A WTO agreement that governs all IP laws and protects intellectual property rights for global businesses.

commodities

A raw material or primary agricultural product that can be bought or sold

What was one of the results of the Uruguay Round of the World Trade Organization negotiations?

Decrease in tariffs

Which strategic network was established to work towards decreasing tariff rates and protecting commerce and intellectual property globally?

World Trade Organization (WTO)

Which organization was formed after World War II to encourage international commerce?

World Trade Organization

Which criticism is made about the World Trade Organization (WTO)?

It protects developed countries more than developing countries.

WTO supports developing nations by

providing both training and support.

The WTO reviews the trade policies of

all nations to ensure that each country is treated fairly and equally under the most favored nation requirement.

Criticisms of the WTO Include

a lack of equal trade, ensuring adoption of labor standards and rights, and ignoring environmental concerns.

embargos

An order of a government prohibiting the departure of commercial ships from its ports

mercantilism

One of the earliest economic theories, which stated that a country's wealth was determined by the amount of gold and silver they had in their possession

trade surplus

When the value of a country's exports is greater than the value of goods being imported

government subsidies

Money paid by the government to help an organization or industry reduce its costs

Free trade

International trade left to its natural course without tariffs, quotas, or other restrictions

Country A exports more goods to Country B than it imports from Country B. Country A receives more monetary gain by using this practice.

Which relationship does Country A have with Country B?

Trade surplus

Country A has been criticized by other countries for giving generous tax credits to its corn farmers, which enables the country's farmers to sell corn on the international markets for cheaper than all other countries.

Which term is used by other countries to describe this practice?

Government subsidies

barriers to entry

The obstacles that make it difficult for a new company to enter a given market. These barriers may include technology challenges, high start-up costs, or government regulations

Economies of scale

A proportionate savings in costs gained by an increased level of production

Comparative advantage states that

a country should specialize in the production of goods it can produce relatively more efficient than another country. This allows countries to focus on the products for which they have the lowest opportunity costs. However, many assumptions are made in this theory.

Protective tariffs

Tariffs that protect a domestic industry by making imported goods more expensive than equivalent goods produced domestically

Revenue tariffs

Tariffs levied to raise revenue for the government

Specific tariffs

Import taxes expressed in an amount of money per unit imported

Ad valorem tariffs

Import taxes based on a fixed percentage of the assessed commercial value of imported goods

Compound tariffs

Taxes on imported goods that are a combination of a fixed amount and an amount based on the value of the goods

absolute quota

A quota that strictly limits the quantity of goods that may enter a country.

tariff-rate quota

A quota that permits a specified quantity of imported goods to enter a country at a reduced rate during the quota period.

Voluntary export restrictions

A trade restriction on the quantity of a good that an exporting country is allowed to export to another country

Government procurement programs

The process of buying goods and services by a government agency through a specific process of issuing bid proposals and seeking responses from companies.

What is a benefit of implementing a system of free trade?

Reduced tariffs would result in lower costs of imported raw materials.

How are free trade agreements handled differently than treaties in the United States?

Treaties must be approved by the Senate, whereas a free trade agreement must pass both houses of Congress.

Dumping

the practice of charging a lower price for a product (perhaps below cost) in foreign markets than in the firm's home market.

How do antidumping laws protect a domestic market?

They prevent foreign companies from selling goods and services at or below cost.

A small clothing company based in California decided that it needed to have an application (app) and an updated website. Because this is a small company, it did not have the technological expertise to handle this improvement. The company hired a company based in Pakistan to handle its technology needs. Which common practice among companies is this an example of?

Outsourcing

Which strategy is used by governments to limit the foreign direct investment in a country?

Creating foreign ownership restrictions in the country

Which activity is considered a foreign direct investment (FDI) by a multinational corporation?

Setting up manufacturing plants in the host country

market capitalization

The total dollar value of a company's outstanding shares of stock

Two forms of FDI

horizontal and vertical

different kinds of FDI

~ greenfield

~ brownfield

What is a reason for companies to engage in foreign direct investments?

To take advantage of tax exemptions offered by the host country

Which country characteristic is most important to foreign direct investors according to a study by the World Bank?

~ Political stability

~ security

What is a benefit of foreign direct investment?

The inflow of capital benefits global and local economies

What is the result of the existence of multinational businesses?

Economic integration among countries

What is a potential influence of the existence of multinational corporations (MNCs) on international relations?

Improves relations between countries where the MNC operates

What is an accurate characterization of the relationships between multinational corporations (MNCs) and the host country governments in which they operate?

The relationships are mixed because MNCs can cause, but also solve, problems for the host country.

Which level of economic integration presents an alliance of all policies by a common organization?

Political union

Which level of economic integration is formed when trade barriers are removed between member countries but there is no mutual policy on trading with nonmember countries?

Free trade area

Which level of economic integration permits the free movement of capital, labor and technology from member countries?

Common market