Global Business and Society Midterm

Globalization

is the process by which the exchange of goods, services, capital, technology, and knowledge becomes increasingly interconnected across international borders

Key Characteristics of Globalization

• Political

• Economic

• Cultural

Political

Increased global political cooperation

Economic

Free trade, leading to both positive and negative effects

Cultural

Emergence of a “World Culture” due to varying languages, religions, and traditions

Competing Organizations (global organizations)

Enhanced communication, improved supply chains, reduced trade barriers, and centralized financial institutions

Motivations for International Business Investments

• Increased

• Access to materials and lower costs

• Cheaper labor

• Social and environmental concerns

Classical Trade Theories

• Mercantilism

• Absolute Advantage

• Comparative Advantage

• Factor Proportions Theory

Mercantilism

Wealth is determined by gold and silver reserves; countries should have a trade surplus by imposing restrictions on imports

Absolute Advantage

Countries should specialize in producing goods they can produce most efficiently

Comparative Advantage

Even if a country doesn’t have an absolute advantage, it can still specialize in producing goods where it has the most efficiency over other goods

Factor Proportions Theory

Countries export goods requiring abundant factors of production (land, labor, capital)

Leontief Paradox

The U.S., despite having abundant capital, exports labor-intensive goods, contradicting Factor Proportions Theory

Modern Trade Theories

• Country Similarity Theory

• Product Life Cycle Theory

• Global Strategic Rivalry Theory

• National Competitive Advantage Theory

Country Similarity Theory

Countries at similar development levels have similar product preferences, making them prime markets for trade

Product Life Cycle Theory

Products go through three stages—new, maturing, and standardized

Global Strategic Rivalry Theory

Barriers to entry and research & development help gain a competitive advantage

National Competitive Advantage Theory

Industry competitiveness relies on local resources, demand, suppliers, and firm characteristics

Ad Valorem Tariffs

Taxes on imports, which raise domestic prices, reduce imports, increase production, and cause consumer welfare loss. However, producer welfare increases, and government revenue grows

Import Quotas

Limits on imports which increase domestic prices, production, and reduce consumption. They can result in excess demand

Export Taxes

Decrease exports, push production towards domestic markets, and lower domestic prices

Export Subsidies

Governments may provide financial incentives to encourage exports, increasing foreign market share while raising domestic prices

Africa - Ease of Doing Business

Involves removing barriers to starting businesses, improving infrastructure, attracting investments, reduction of poverty, increased GDP growth

Africa - Challenges

High costs to start a business, lack of access to electricity, high taxes, low economic integration, poor infrastructure, high costs of getting electricity

South Africa - Economic Overview

• Highly developed economy and advanced economic infrastructure

• Rich in natural resources like platinum, coal, and gold

• Home to around ¾ of the largest African companies

• Recently- stabilization of power generation and formation of a reform-oriented government - led to increased confidence among consumers, businesses, and investors

• Real GDP projected to grow

South Africa - Challenges

Power shortages, disruptions to rail and port operations, limitations to GDP growth

South Africa: Agriculture Sector

• Seventh largest producer wine

• Continents largest corn and sugar producer

• Crops: grains, wheat, cereals

South Africa: Service Sector

• Finance

• Real estate and business services

• General government services

India: Economic Overview

Largest youth population and most populous country, strong manufacturing and agricultural sectors

India: Challenges

High inequalities of wealth, unemployment, yet a large IT services sector

India: Industry Sector

• Employs ¼ of the workforce

• Coal as main energy source

• World’s third largest producer of coal

• Manufacturing: textile and chemical

India: Agriculture Sector

• Important crops: wheat, rice, corn

• 5th largest producer of sheep

• Second largest in fishing production

India: Service Sector

• Key role of software sector

• Modernization of Indian economy led to large educated English-speaking population

• Major exporter of IT services, business outsourcing services, and software workers

Brazil: Economic Overview

• Large industrial power

• World’s second largest exporter of iron

• One of the world’s main producers of aluminum and coal

• Oil producer

• Textiles, aeronautics, pharmacy, automobile

Brazil: Industry Sector

• Many of the world’s large automobile manufacturers have set up production plants here

• Steel and chemical industry sectors

Brazil: Agriculture Sector

• Largest producer of coffee, sugar cane, and oranges

• One of the world’s largest producer of soya

• 4th largest exporter of timber

• Largest commercial livestock herd

• Several multinational groups in the food and biofuels industries

Brazil: Service Sector

• Employs most of the workforce

• Specialization in the production of high added value services in aeronautics and telecommunications

• Tourism - it has highly developed over recent years (important segment of the sector)

Free Trade Area (EU)

Removal of tariifs

Customs Union (EU)

Common external tariffs

Common Market (EU)

Free movement of goods, services, and labor

Economic Union (EU)

Harmonized policies

Political Union (EU)

Yet to be achieved

Treaty of Paris (1951)

• Established the European Coal and Steel community (ECSC)

• Removed coal and steel tariffs

• Signed by Belgium, The Netherlands, Luxembourg, Germany, France, and Italy - first time European states agreed to works towards integration

Treaty of Rome (1957)

• Created European Economic Community (EEC)

• Introduced common customs tariffs

• Established a common market based on the free movement of goods, people, services, and capital

The European Free Trade Area (1959)

An agreement between countries to promote free trade by removing tariffs and trade barriers among them

The Single European Act (1986)

• First major revision of the Treaty of Rome

• Set a timetable to create a single European market by 1993, ensuring the free movement of goods, services, capital, and people

The Treaty on European Union - Maastricht (1992)

Marked a turning point in European integration by establishing the European Union, creating a single market, and introducing the euro, while also outlining common policies on foreign affairs, defense, and justice

The Treaty of Amsterdam (1997)

Aimed to complete the goals of the Maastricht Treaty by enhancing European integration, improving the EU's decision-making process, and addressing issues like human rights, environmental protection, and justice cooperation

The Treaty of Nice (2001)

Aimed to reform the EU's institutional structure to accommodate an expanded membership, improve decision-making, and strengthen cooperation in areas like justice and defense

The Treaty of Lisbon (2007)

EU became a legal entity. Aimed to streamline EU decision-making, enhance the EU's global role, and create a more secure business environment and business-friendly environment