global business midterm class review

What is globalization of production

The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production

(the inputs into the productive process, including land, management, capital, as well as technological; Labor, Energy, Land, capital)

• May increase productivity

• May improve quality or functionality of a product to compete more effectively

What is infant industry argument

An industry should be protected until it can develop and be
viable and competitive internationally.
This argument has been criticized because:
• It is useless unless it makes the industry more efficient.
• If a country has the potential to develop a viable
competitive position, its firms should be capable of raising
necessary funds.

What is strategic trade policy

By appropriate actions, government can help raise national
income if it can ensure firms that gain first-mover advantages
in an industry are domestic.
Might be beneficial for a government to intervene in an
industry by helping domestic firms overcome barriers to entry
created by foreign firms with first-mover advantages.

What is administrative trade policy

bureaucratic rules designed
to make it difficult for imports to enter a country.
Governments of all types sometimes use informal or administrative policies to restrict imports and boost exports.

What is dumping?

selling goods in a foreign market below their cost
of production or below their “fair” market value

What are import quota?

a direct restriction on the quantity of some
good that may be imported into a country.

tariff break quota

hybrid of a quota and a tariff; a lower tariff
is applied to imports within the quota than those over the
quota

What are export tariffs?

tax placed on the export of a good.
• Goal is to discriminate against exporting to ensure supply.

What are specific tariffs?

levied as a fixed charge for each unit of
an imported good.

What is a tariff itself?

A tax levied on imports that effectively raises the cost of
imported products relative to domestic products

Ad valorem tariffs?

levied as a proportion of the value of
an imported good

Subsidies?

a government payment to a domestic producer.

help domestic producers:
• Compete against low-cost foreign imports.
• Gain export markets.

Consumers (individuals and corporations) typically absorb
the costs

Debatable if they generate worthwhile national benefits

What are first move advantages?

economic and strategic
advantages that accrue to early entrants into an industry.
Firms develop economies of scale and create barriers to
entry for other firms.
• Pattern of trade in world economy may be result of advantages and economies of scale.

What is the new trade theory?

• Emerged in 1970s when number of economists pointed out that ability of firms to obtain economies of skill might have important implications for international trade

Important points:

1. When looking at trade, it can increase variety of goods available

2. Can decrease cost of goods

• This is due to economies of scale - unit cost reductions associated with large scale output

Increase product variety and reducing costs

• Without trade

  • Small nation may not be able to support demand necessary for producers to realize required economies of scale

• With trade

  • A nation may be able to specialize in producing narrower range of products then buy goods that it does not make from other countries

  • Each nation increases variety of goods

World market can only support a limited number of firms in
some industries.
• Trade will skew toward countries that have firms that are
able to capture first-mover advantages.

justify limited and selective
government intervention to support development of certain
export-oriented industries.

Economies of scale

unit cost reductions associated with large scale output

When output required to attain it
represents a significant proportion of total world demand,
global market may only support a small number of firms

Factor endowments

• Capital, land, labor

• Ex of FE with resp to land: Prisons, or natural resource like oil

Hierarchies among factors:
• Basic: natural resources, climate, location, demographics.
• Advanced: communication infrastructure, skilled labor,
research facilities, technological know-how.
Basic factors can provide initial advantage that is extended
by investment in advanced factors.
Advanced factors are most significant for competitive
advantage.
• Example: Japan’s large pool of engineers.

Heckscher-Ohlin theory

Trade reflects the interplay between the proportions in
which the factors of production are available in different
countries and the proportions in which they are needed for
producing particular goods.

Comparative advantage reflects differences in national
factor endowments: extent to which a country is endowed
with resources such as land, labor, and capital.
Theory has commonsense appeal.
• Export goods that make intensive use of factors that are
locally abundant.
• Import goods that make intensive use of factors that are
locally scarce.
Poor predictor of real-world international trade patterns

• Emphasizes interplay between proportions in which trade factors of production are available

• Proposes that countries export what they can efficiently and plentifully produced, export of goods requiring factors of production that a country has in abundance

• Swedish economist Eli Hecksher in 1919 and Ohlin in 1933 put forward a different explanation of comparative advantage

  • Argued: when looking at comp adv, it reflects differences with regards to factor endowment

    • Capital, land, labor

    • Ex of FE with resp to land: Prisons, or natural resource like oil

  • When looking at theory, there was common sense appeal because they believed that you export goods with factors that are plentifully available, and import goods that are scarce in that country

  • Poor predictor of real world international trade patterns

Difference between absolute and comparative advantage

Absolute advantage

• When a country is more efficient than any other country in producing it 

• Adam Smith postulated that countries differ in their ability to produce goods efficiently

  • Trade is not a zero sum game

• Comparative advantage - countries should specialize in goods they produce more efficiently, buy products they produce less efficiently

• Trade is a positive-sum game in which all gain.
  • Potential world production is greater with unrestricted free
  trade than with restricted trade.
  • Provides a strong rationale for encouraging free trade

if trade as a zero sum game, gain in one is loss in another

positive sum is when all gain

Difference between zero sum game and positive sum game

What is a righteous moralist

use home country’s standards of ethics in foreign country

MNE’s home country standards of
ethics are appropriate for companies to follow in foreign
countries.
• Common among managers from developed nations.
• Critics say it is not always appropriate to adopt home-
country standards

What is mercantilism

(16th and 17th centuries) encouraged exports
and discouraged imports

• Era - saying it is in country’s best interest to maintain trade surplus, export more than import

• Advocating for gov intervention in order to achieve surplus w balance of trade

What is corporate social responsibility

Multinationals need to give something back to the societies
that enable them to prosper and grow.
Businesses should consider social consequences of
economic actions.
There should be a presumption in favor of decisions that
have both good economic and good social consequences.
Noblesse oblige

Cultural relativism

ethics are culturally determined, and
firms should adopt ethics of the cultures in which they
operate.
• “When in Rome, do as the Romans do.”
• Some universal ideas of morality are found across
cultures.

Friedman doctrine

states that the social responsibility of
business is to increase profits, so long as company stays
within rules of law.
• Companies should do only what is mandated by law and
what is required to run a business efficiently

named after Milton Friedman, noble prize winning economist

What is FCPA foreign corrupt practices act?

• Makes it illegal to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority

• All publicly traded companies must keep detailed records so it is clear whether a violation has occurred

• Facilitating or expediting payments - can also be called grease payments or speed money - to secure performance of routine government actions are permitted

• in 1970s, the US passed following revelations that US companies have bribed foreign officials in foreign countries in attempt to win lucrative contracts

What is the convention of combating bribery of foreign public officials in international business transactions

• went into force in 1999, obliges member states and other signatories to make bribery of foreign public officials a criminal offense

Facilitating payments, or speed money, excluded.
Some argue paying bribes might be price of doing greater good.
Others argue that corruption reduces returns on business
investment and leads to low economic growth.
Many multinationals have adopted a zero-tolerance policy.

What is the global tragedy of commons

• occurs when it is applied to resources or systems that are shared globally

  • Ex: atmosphere or ocean

Resources and systems shared globally, atmosphere and ocean

When something is considered unethical

an
organizational culture that
does not emphasize business
ethics. personal ethics.
• Decision-making processes.
• Organizational culture.
• Unrealistic performance goals.
• Leadership.
• Societal culture.
10

Businesspeople may
behave unethically
because they fail to ask
relevant questions.
Decisions do not
incorporate ethical
considerations into
business decision makingExpatriate managers may
face pressure to violate
personal ethics.
• Away from ordinary social
context and supporting
culture.
• Psychologically and
geographically distant from
parent company.

• Ex: Anron, energy company collapsed in 2001, due to massive fraud, due to lack of accountability, misaligned incentives, and aggressive profit driven goals

Mudarabah

(rather than charging interest on loan, banks take share in profit on investment),

Murabaha

• (most widely used, includes price marker)

islamic banking methods

Mudarabah and Murabaha

What is the sullivan principles

• principles named after Liam Sullivan, a member of GM’s board of directors; argued that it was ethically justified for GM to operate in South Africa under two conditions: The company should not obey apartheid laws in its South African operations; 2: the company should do everything in its power to promote abolition of apartheid laws

What are the accepted principles of right and wrong

Ethics

• accepted principles that govern conduct of a person, members of a profession, or actions of an organization

  • Honesty, fairness, integrity, trustworthiness, loyalty, concern for others

Economic risk, legal risk, political risk

Different types of risk

economic risk

likelihood that economic mismanagement will
cause drastic changes in a country's business environment that
adversely affects profit and other goals of a business enterprise

• Partner who breaks contract

• Exchange rate

• Government regulation

• Fiscal crisis

• Unemployment

political risk

likelihood that political forces will cause drastic
changes in a country's business environment that adversely
affects profit and other goals of a business enterprise

• Taxes

• Regulations

• Currency valuation

• Tariffs

legal risk

likelihood that a trading partner will opportunistically
break a contract or expropriate property rights

• Customer disputes

• Discrimination

• Harassment

• Unfair treatment

Confucianism

• shapes culture in many parts of Asia, teaches importance of attaining personal salvation through right action, official ethical system of China until 1949

economic implications:

loyalty, reciprocal
obligations, and honesty.
• Guanxi means relationships, or in business, connections.
• May lead to a lowering of the cost of doing business

class

position a person has by birth but can change throughout achievement or luck

• Poor

• Working

• Lower middle

• Upper middle

• Upper class

caste

social position determined by family into which person is born, change in that position is unlikely

What is class consciousness

• people perceive themselves in terms of class background

  • Ex: Country club - only people from generational wealth can join

people perceive themselves in terms
of class background.
Shapes relationships with members of other classes.
• Evident in the United Kingdom and India.
• May be emerging in urban China.
Antagonism between labor and management classes can
raise the costs of doing business

What is social mobility

Extend to which individuals can move out of strata they are born into

folkways

• routine conventions of everyday life

  • Ex: Appropriate dress code, good social manners, eating with correct utensils

mores

• norms that are central to the functioning of a society and its social life

  • Ex: lying, stealing, gossiping, bullying, trespassing

What is a norm

• the social rules that govern the actions of people towards one another

What are values

•  ideas about what a group believes to be good, right, and desirable

What is cross cultural literacy

• how cultural differences across and within nations can affect the way business is practiced

  • Relationship between culture and benefits, cost, risks of doing business in country or region

  • Culture not static, it evolves

    • Multinational enterprises can be engines of cultural change

• Firms that are ill-informed about practices of another culture
  are unlikely to succeed in that culture

Late mover disadvantages

late entrants; handicap experienced by being a late entrant to a market; gaining market share to imitation is difficult  (ex: kodak in the inkjet printer market)

What is deregulation

• Removing legal restrictions in direct investment by foreign enterprises and international trade

• Establishment of private enterprise

• Removing price controls

• ex: in US, entire national transportation sector was deregulated; mail delivery

What is privatization

• Transfers ownership of state to private ownership

• First seen in Great Britain with Margaret Thatcher

• Does not guarantee economic growth

• state of Washington before 2012 controlled and operated liquor sales, deregulated

Mixed economy

1. combination of market and command economy

   1. There are certain firms that got in trouble, government takes away firms because they are too big to fail, can have effect on entire industry

   2. Less common today

   3. Governments take over troubled firms considered vital to
      national interests, sometimes promoting the development
      of public and private sectors it believes to be important for
      the future economic development of the nation.

   4. Ex: the US government took action on AIG General Motors and City Group to stop institutions from collapsing, once they got back on good footing the government sold them to private investors

planned economy

 state of government makes economic decisions

What is innovation

• new products, processes, organizations, management practices, strategies

What is the human development index

• based on life expectancy, education attainment, and whether average incomes are sufficient to meet basic needs of life in a country 

• Measures quality of human life in different nations 

• Life expectancy = Life expectancy at birth which is a function of health care 

• Education = Enrollment in primary, secondary, or tertiary education 

• Necessities = Adequate food, shelter, & healthcare 

• to measure the quality of human life in different nations

  • Based on 3 measures: life expectancy, education attainment, and if income is sufficient to meet basic needs

  • Life expectancy - at birth, a function of healthcare

  • Education attainment - enrollment of primary, secondary, tertiary education

  • Income - adequate food, shelter, healthcare

Gross national income

measures total amount of income received by resident of nation

type of totalitarianism: right wing

•  individual economic freedom allowed, but not individual political freedom; ex: many governments backed by military and in some cases the government is made up of military offices, South Korea, Taiwan, Singapore, Indonesia, Philippines

type of totalitarianism: communism (countries?)

• achieving socialism through totalitarian dictatorship

  • China, Vietnam, Laos, North Korea, Cuba

What is totalitarianism

government that excerpts total control over government, regulate nearly every aspect of public and private behavior; 
opposing political parties are prohibited

• Ex: North Korea, Eritrea, Turkmenistan

• No free and fair elections

• Media cannot say anything negative about government

• No basic civil liberties

• Cannot challenge regime, can be jailed or killed

• Widespread political oppression

Communist, theocratic, tribal, right wing

forms of totalitarianism

Representative democracy

elected reps vote on behalf of constituents 

collectivism

• prioritizing group as a whole rather than the individual; system that stresses the primacy of collective goals over individual goals

  • Plato: argued that individual rights should be sacrificed for the good of the majority

  • In some circumstances, individual rights to do something may be restricted under ground that its counter to good of society or common good

  • In few countries, included Japan, China, Korea, Taiwan, Venezuela, Guatemala, Ecuador, Brazil, India

individualism

the individual as opposed to the group

• individuals should have freedom over economic & political pursuits 

• Ex: when you support yourself financially & don’t depend on anyone else for your needs 

• Traces back to Aristotle 

• 3 characteristics: 

• Freedom & self expression 

• Allowed to pursue self interests 

• Democratic system with free markets 

What is a social democrat

• work to achieve same goals by democratic means

  • In social democracy, people have a say in gov action

  • It supports a competitive economy with money while also helping people whose jobs don't pay a lot

What is a socialist

• the government operates the means of production; ex: land, natural resources

• equal share in profit and property

• 1818-1883

  • Government owns means of production

  • citizens have wage but only receive what they need

  • Aim: equality among all people

  • According to Marx, the pay of workers did not reflect full value of labor; advocated for state ownership with respect to basic needs for production and exchange

  • If state owns means of production, workers can be fully compensated for labor

  • State will manage enterprises in order to benefit society as a whole

  • Countries: China, Cuba, Laos, North Korea, Tanzania, Vietnam, Venezuela, Bolivia, Nigeria, Nicaragua

  • 5 main countries: North Korea, China, Vietnam, Laos, Cuba

What is a legal system

• The rules or laws of that country; regulate behavior as well as process by which laws are enforced

• is important because:

  • They regulate business practices

  • Gives businesses definition of how they will act

  • Sets down rights and obligations for those in transaction 

  • influenced by prevailing political system

What is foreign direct investment

• occurs when a firm invests resources in business activities outside its home country

What is responsibility of world bank

1. Known for low interest loans to government, better than IMF

2. Seen as less controversial than IMF

 goal is to reduce poverty by offering assistance to low-middle income countries

What is moore’s law

• as costs of microprocessors fall, their power increases. Was named after cofounder of Intel Gordon E. Moore, states that the number of transistors on a microchip doubles every 2 years with minimum cost increase; Predicts that the power of microprocessor tech doubles as its costs of production fall in half every 18 months 

• Has over 5 billion users 

Stock of foreign direct investment FDI

• occurs when a firm invests resources in business activities outside its home country

• total cumulative value of foreign investments by firms
  domiciled in a nation outside of that nation’s borders

Multinational enterprise

any business that has productive activities in two or more countries; Coca Cola, Nike, Reebok, Sony, BMW, LG, Samsung

• In last 50 years there has been rise in number of non US multinationals and growth of mini multinationals

non-US: in 1960s global business activity was dominated by large US multinational corporations; today world economy is shifting away from North America and western Europe; Volkswagen, Michelin, Nestle, Renaud

mini:  LIXI; small US manufacturer of xray industrial equipment

International trade

•  occurs when a firm exports goods or services to consumers in another country

• Consumer goods, clothing, electronics

• Capital goods; machinery and equipment imported and exported to support manufacturing and production in different countries

What is the responsibility of world trade organization

polices the world trading system and ensures nations adhere to the rules established in WTO treaties 

Succeeded the General Agreement on Tariffs and Trade
(GATT).
• 164 member nations accounted for 98 percent of world
trade (2023)

What is purpose of UN charter

1. Committed to maintaining international peace and security on basis

   1. Develops friendly relations among nations

   2. Promotes cooperation in solving international problems

   3. Promotes respect for human rights

   4. A center for harmonizing the actions of nations

   5. Includes 193 member countries

What is globalization

A shift toward a more integrated and interdependent world; a process of interaction and integration among people, companies, and government of different nations; a process driven by international trade and investment

• Ex: Temu, Alibaba, AliExpress

• Singapore ranked #1, Switzerland #2, Ireland #3, Taiwan #4, Luxembourg #5

4 most free countries

What is the UN development index

• based on life expectancy, education attainment, and whether average incomes are sufficient to meet basic needs of life in a country 

• Measures quality of human life in different nations 

• Life expectancy = Life expectancy at birth which is a function of health care 

• Education = Enrollment in primary, secondary, or tertiary education 

• Necessities = Adequate food, shelter, & healthcare 

islamic law

What is the most common form of theocratic totalitarianism

In few countries, included Japan, China, Korea, Taiwan, Venezuela, Guatemala, Ecuador, Brazil, India

• Cultures in Asia, Central America, South America, and Africa tend to be more collectivistic

Which countries are considered collectivistic

What is the UN convention on contracts for the international sale of goods

• Purpose of CISG to provide modern uniform and fair regime for contracts for international sale of goods

• When contract dispute arises in international trade there's always a question of which country’s law to apply; to resolve issue number of countries including USA have ratified this agreement

China, Cuba, North Korea, Laos, Vietnam

Remaining communist countries as of 2020

IMF

Oversees World system stability

• international monetary fund 

• Promotes order in the international monetary system 

• lender of last resort 

• helps to reduce global poverty 

• provides debt relief 

• promotes international financial stability 

1. Weakness: policy is one size fits all, instead of adapting policies they use same for many different countries

2. Maintains order in the international monetary system

3. Lender of last resort

4. Requires nation-states to adopt specific economic policies in return for loans; they look at state organization and reduce amount of employees

5. They say they help to reduce global poverty; also provide debt relief and promote international financial stability

6. Ex: gives Haiti 100mil loan, politicians take 40% of loan (corruption); the IMF should make sure they have policies where politicians don’t take money

world bank

Goal is to reduce poverty by offering assistance to low-middle income countries

• Promoted economic development using low-interest loans 

1. Known for low interest loans to government, better than IMF

2. Seen as less controversial than IMF

What is the uruguay round

1. Reduce agricultural subsidies

2. Lift restrictions on foreign investment

3. Start the process of opening trading services like bank and insurance

What is general agreement on tariff and trade

1. Created in 1948 and is an international treaty that committed signatories to lower barriers to free flow of goods and services across national barries

What are factors of production

labor, energy, land, and capital

Papua New Guinea, Indonesia, Nigeria, China, India

5 countries that speak most languages

christianity

2.2 billion, Considered widely practiced religion