WGU D080 2

What is globalization?

When international integration arises from the interchange of world views, products, ideas, and other aspects of cultures.

different types of Globalization

1. Economic

2. Political

3. Cultural

Advantages of Economic globalization

more trade, investments, information technology, faster economic development, and increased social being

Disadvantages of Economic globalization

benefits the rich at the expense of the poor, manufacturing job loss in developed countries, environmental damage, and unethical practices of labor

Advantages of Political globalization

more cooperation amount countries, formation of international or regional organizations, NGOs

Disadvantages of Political globalization

reduce the importance of nation-states, loss of sovereignty and power of local government

Advantages of Cultural globalization

awareness of international community

Disadvantages of Cultural globalization

loss of uniqueness of a country's culture

What is international business?

any situation where the production or distribution of goods or services crosses country borders

What are opportunities for international business?

New and large international markets offers possible more revenues, lower costs, and access to advanced technology

What are challenges for international business?

Ethical business practice concerns, organizational structure (create new division), public relations (build customer loyalty), leaderships, and legal and regulatory structure

What are the 5 stages of going global?

1. Market entry

2. product specialization

3. value chain disaggregation

4. value chain reengineering

5. creation of new markets

Market Entry

Companies enter new countries using business models similar to the ones deployed in their home markets

Product specialization

Companies transfer the full production process of a particular product line to a single, low-cost location and export the goods to various consumer markets

Value chain disaggregation

Companies disaggregate the production process and focus on completing each activity in the most advantageous location

Value chain reengineering

Companies seek to further increase their cost savings by reengineering their processes to suit local market conditions by substituting lower cost labor for capital

Creation of new markets

creates new demand due to the reduction of ticket price

What are the 4 drivers of Globalization?

1. Market

2. Cost

3. Competition

4. Government

Market

Opportunity for scale and convergence of needs (foreign consumers have the same demand as domestic consumer, no need to redesign)

Cost

- Economies of scale & scope: use same production facility for multiple procedures.

- Exploiting cost of factors of production: labor cost reductions, natural resources cost reduction

Competition

New markets & increased levels of trade

Government

Favorable policies, support for the industry ((can use tax bracket to attract FDI and subsidies (free money) can help domestic business reduce cost and charge lower price))

What did Thomas Friedman propose?

The world is flat view - the use of technology and internet has made it easier for businesses to conduct global operation

What did Ghemawat propose?

The world is a multi-domestic world

What is CAGE analysis?

Culture, Administration, Geography, and Economics

Culture (CAGE)

Cultural difference could reduce country's trade volume

Administration (CAGE)

Administrative similar countries trade more, countries hold membership of the same trade

Geography (CAGE)

geographical distance between countries impact trade volume

Economics (CAGE)

differences in demographics and socioeconomics conditions such as standard of living, factors of production costs, etc.

Anarchy

individuals country the country, no government needed

Monarchy

Royal power

Absolute monarchy

king/queen has absolute power

constitutional monarchy

queen is only symbol, prime minister has absolute admin. power

Oligarchy

Achieve power due to military, economic, or other powers, small group of elite members

Dictatorship

Single person

Democracy

Equal voice or vote in determining state policy

Economic systems

determines a county's economic production of goods and services

Traditional economy

- Farming

- centered around family

- everyone consumes the same goods

- relies on bartering

- no surplus

Command economy

- more sustainable

- controlling by the ruling class

- all resources are owned by the government

Market economy

- privately owned

- the market controls the distribution of resources

- minimum government control

Mixed Economy

- United states uses

- the market is the major determining power

- partial government regulation as needed

What are the legal systems?

1. civil law

2. common law

3. religious law

Civil law

Judge applies law code, rarely uses the jury (Continental Europe & Latin/Central America)

Common law

Judge interprets the law, the jury determines the facts (US, UK, Australia)

Religious law

religious guidelines, Islamic law, Talmudic law, Cannon law, customary law, etc. (middle-eastern, southeast Asia)

Talmudic law

Jewish

Cannon law

Christian

Customary law

no strong justice system, verbally transferred

What are the 3 international institutions

International Monetary Fund, World Bank, and World trade organization

What are the twin institutions

IMF & World bank

What was the INITIAL goal of the IMF

restore international payment system, oversee the fixed exchange rate system (Brenton Woods system)

What is the current goal of the IMF

monitor the exchange rate system and stabilize exchange rates, guide member countries to develop economic policies, correct the debt issue

IMF

financial stability, debt, currency, and exchange rate

Criticisms of the IMF

- imbalance of voting power (IMF policies heavily impacted by rich countries)

-conditionality causes the citizens of the borrowing countries to pay a heavy price

- requires borrowing countries to made structural adjustments like privatization and deregulation and can make conditions worse in a struggling country

- IMFs projects might hurt environmental quality

What was the initial goal of the world bank

reconstruct the Europe for infrastructure projects

What is the current goal of the world bank

support development of poor nations, fight poverty, improve life quality in developing areas

Criticisms of the world bank

- imbalance leadership

- enforced conditionality causes harm to developing countries

- privatization of healthcare

- environmental damage caused by funded projects

What is the World trade organization?

Encourages international trade through the lowering of trade barriers and oversees trade agreements and facilitates disputes between member countries

The Uruguay Round

reduced tariff significantly and it also covers Intellectual Property rights (TRIPS)

The Doha Round

agriculture tariff

Criticisms of the world trade organization

-transparency requirement hurts national sovereignty

- trade rules protect developed countries more than developing countries

- the MFN rule gives multinational companies an advantage

- Agriculture product subsidy hurt developing countries (relating to Doha Round)

- the impact of free trade in the labor rights

- environmental concerns

export

sell products to foreign buyers

import

purchases from foreign producers

Mercantilism

Gold & silver are important to a country's wealth

TRADE SURPLUS: more export, less import

Neo-Mercantilism

countries promote a combination of protectionist policies, restrictions, and domestic industry subsidies (use trade banners/tariff & quotas to limit import and protect domestic industry)

Absolute advantage

- uses absolute cost

- determines specialization

- specialization then is determined by absolute advantage to increase production efficiency

Comparative advantage

- uses opportunity cost

- determines specialization

- limited resources lead to opportunity cost

- lower opportunity cost determines comparative advantage

Hectscher-Ohlin Theory (Factor endowment theory)

Factors of production: land, labor, natural resources, capital, and technology

Country Similarity theory

- Firm based theory that incorporate brand, customer loyalty, technology, and quality into the understanding of trade flows.

- consumers in countries that are in the same or similar stage of development would have similar preferences

- companies first product for domestic consumption

Global strategic rivalry theory

- focuses on the firms competitive advantage

- barriers to entry (r&d, IP rights, economies of scale, control of resources)

Negative impacts of free trade

- possible manufacturing job loss in developed countries

- labor standards and working conditions are concerned in developing nations

- domestic businesses faces challenged

What can governments use to limit trade

- sanctions (embargo), anti-dumping, protectionism, infant industry argument, health and safety, limiting outsourcing, global monopoly, and national security

Benefits of Multi national corps. (MNCs)

-often overcome barriers to trade, sidestep regulatory problems, shift production from one plant to another, tap new technology from around the around, save on labor cost.

Foreign Direct Investment (DIRECT)

1. done with the primary objective to manage the asses

2. direct in involvement and ownership control

3. more permanent in nature as it is difficult to sell off

Foreign Direct Investment (PORTFOLIO)

1. objective is to acquire an income stream without the operational control

2. no direct involvement in management

3. more liquid in nature as it is easy to sell

Why do host governments promote FDI?

- economic growth

-increased employment and reduced poverty

- improved human capital development

- new technologies and business knowledge

- increased tax revenues

FDI attractions

- tax incentives

- develop and modernize local infrastructure

- reduce bureaucracy and regulatory requirements

- education and job training

FDI restrictions

- protect local industry and critical resources

- preserve national and local culture

- maintain policies and economic independence

- manage economic growth

strategies to restrict or control FDI

- limit foreign ownership

- foreign investors required to get inputs from local businesses

- foreign investors required to partner with local businesses

What are the types of FDIs?

1. Horizontal

2. Vertical

3. Forward-vertical

4. Backward-vertical

Horizontal FDI

opens a new market or building in another country

Vertical FDI

invests internationally to provide input to its core operations

Backward-vertical FDI

brings goods or components back to its home country

Forward-vertical FDI

sells the surplus in the market

Regional Economic Integration

- involves agreement with nations in the same geographical area to reduce or eliminate trade barriers such as tariffs and quotas

- establishes a single political, economic, and trade policy

What are the 5 stages of integration

1. free trade

2. customs unions

3. common market

4. economic union

5. political union

NAFTA (North American Free Trade Agreement)

- free trade

- protection of IP rights

- expand trade thru elimination of trade barriers

- protect labor rights and environment quality

- automobiles must have 75% components manufactured in US, Canada, or Mexico.

- 40-45% must be made by workers earning a minimum of $16/hour.

Mercosur (Common Market of the South)

- customs union

- creating the common market of the south (Brazil, Argentina, Paraguay, Uruguay)

ASEAN (Association of Southeast Asian Nations)

- Common market but labor movement is restricted

- accelerate economic growth, social progress, and cultural development in the region

- promote regional peace

EU

- coal and steel community

- Economic Union

-antitrust loans

-establish unified policy for energy

Eurozone

-subset of EU members that adopted the EU as their official currency

- monetary policy set by the European Central Bank

Signed treaty of Lisbon

- makes EU more democratic, efficient, and transparent

floating exchange rates

-freely fluctuates

-based on supply/demand

- US(NAFTA), EU countries

Pegged Exchange rate

fixed exchange rate

Pegged float exchange rate (fixed float)

set of range or bang within the currency's value may freely float

Perfect competition

-lots of buyers & sellers

- no barriers to entry or exit

- perfect competition (information)

- firms and consumers are price takers

- no market power

Monopolies

- 1 firm or product

- price maker

- consumers are price takers

-smaller quantity of goods

-higher prices

How to prevent monopolies

1. Anti-trust laws

2. Sherman Anti-trust act

3. Clayton anti-trust act

4. federal trade commission act

Worst Forms of Child Labour Convention, 1999

Convention (1999) that aimed to eliminate all practices of child slavery or those similar to slavery

The Maritime Labour Convention (MLC)

Convention (2006) that set out a bill of rights for all seafarers - decent work conditions