D270 The Global Environments of Business - Garcia - Final Exam 2023

The Economic Center of Gravity

- approximate center of total economic production

- shifting from west to east

China's One Belt One Road

- modernizes silk road

- improves connectivity, promotes cooperation, expands commerce

OECD and EU stand for..

Organization for Economic Cooperation & Development

European Union

- consist of mostly developed countries

Developed Countries

- focus on service-oriented activities

- offshoring is a key to success

Economic Freedom

- holds that one has the right to produce, consume, save, & invest in a way they prefer

- ease of doing business

- directly correlates with standard of living

What does economic freedom measure?

government constraint on production, distribution, & consumption

> freedom = > stability

Is state capitalism detour or destination?

both

The three economic systems are:

1) command

2) mixed

3) market

What is the broadest measure of a countries economic performance?

gross national income

Gross National Income (GNI)

- market value of g + s produced by domestically owned firms at home & abroad

example: Ford production in U.S. & Mexico

Gross National Product (GNP)

total value of all final goods & services produced within a country in a given year

Purchasing Power Parity (PPP)

the amount of money needed in one country to purchase the same goods and services in another country

Shadow Economy

economy representing illegal activities that fall beyond initial statistics

World Competitiveness Index (WCI)

a nation's ability to set & sustain a business environment that allows enterprises to prosper

Western markets make up how much of the population and how much of the GDP?

14% of population

40% of GDP

- since 2008 financial crisis, cumulative economic growth has slowed

Full/Flawed Democracy in the United States

the U.S. fell from a full to a flawed democracy in 2017

Free/Mostly Free in the United States

the U.S. fell from free to mostly free on 2016

Industrial Revolution I

- start: 1784

- catalyst: water & steam-powered production equipment

- result: transition from agrarian to industrial economy

Industrial Revolution II

start: 1870

catalyst: electricity, division of labor, large-scale production

result: more jobs, rise of the middle class, & democracy

Industrial Revolution III

start: 1970

catalyst: electronics & information technology opened a digital world

result: connectivity resets standards, emergence of knowledge workers & the creative class

Industrial Revolution IV

start: 2020

catalyst: connectivity, AI, big data, robotic tech

result: transformed production, revolutionary efficiency drives a new cycle of global activity

China vs. India

- population pyramid will turn into a funnel

- India overtook China in April 2023 as the most populous country (leads to a problem with job creation)

Base of Economic Pyramid

- 4 billion people (2/3 of people worldwide)

- largest & poorest economic group in the world

Relationship between population and exports

a decrease in population leads to a decrease in exports

What shapes a nation's economic system?

culture, political, & legal systems

Overall Economic System Factors for Firms

- country type & development

- economic system

- role of government

Macroeconomic Factors for Firms

- size of economy

- rate of growth

- population size

- degree of stability

The Economic Measurement involves 4 categories..

1) system complexity

2) market dynamism

3) market interdependence

4) data overload

System Complexity

between 188-214 economies and each one functions uniquely

Market Dynamism

- external and internal conditions are constantly changing

- yesterday's explanations may not hold today

Market Interdependence

no country is isolated

3 Types of Economy Stages

1) developed economies

2) developing economies

3) emerging economies

Hans Rosling

- used real data to cut at people trying to bash globalization

- found that trade results in positive sums (microeconomics)

Index of Economic Freedom

- determines the extent of governmental intervention in a country

- the lower score the better

Heritage Index of Economic Freedom

- scores economies 0-100, 100 is the best

- freedom has been increasing in the past 2 decades

- dimensions are rule of law, limited gov, regulatory efficiency, and open markets

Countries Degree of Freedom Ranking Highest - Lowest

Norway -> Australia -> Chile -> United States -> India -> China

Mostly Unfree vs. Repressed

- avg income of unfree < avg income of repressed

- a few repressed countries are rich in resources, which skews the results

Human Development Index (HDI)

- indicator of level of development for each country, constructed by United Nations

- combines income, literacy, education, and life expectancy

Gross Domestic Product (GDP)

- market value of all production that takes place within a nation's boundaries

- example: Mitsubishi production in U.S.

Which country is #1 in purchasing power parity?

China

G20 Types of Economies

- 10 emerging, 10 advanced economies

- commonalities: large territories, large populations, market growth, liberalization

- advanced economies rely on emerging economies

What does GATT stand for?

General Agreement on Tariffs and Trade

GATT and WTO

- GATT formed in 1947, governing international trade

- led to the world trade organization in 1994 at the Uruguay round of trade organizations

WTO (World Trade Organization)

the only international body dealing with the rules of trade between nations

Why doesn't the world have completely free trade?

1) countries prefer domestic firms over international

2) safety

3) sovereignty

Key Problems to the Catfish Intervention

- huge cost to U.S. government

- Vietnam retaliates towards beef

- consumer ends up paying higher prices

2018 Steel & Aluminum Tariffs

- China retaliated against tariffs, impacted agriculture negatively

- two towns, one very positive from tariff, one very negative

Chinese carmakers under scrutiny in Europe..

- Chinese electric vehicles are dumping in Europe

- EU implemented an anti-subsidy investigation

What does a subsidy do in trade?

it encourages trade by offering a cash infusion

Ford & the chicken tax

- EU implements a 25% tariff on U.S. chickens in 1963

- U.S. retaliates with a 25% tariff on several products (including work vehicles)

How did Ford try to avoid the tariffs?

- tried to avoid the tariffs in 2013 by adding seats in the back of the Ford Transit Connect

- were fined as a result

What did Ford & the chicken tax do?

led to the dominance of American truck companies

Countervailing Measures (tariff)

tariff that is retaliatory

What are some negative impacts that happen many times when a tariff is implemented?

- tariff ends up hurting the companies it was trying to help

- tariffs are hard to eliminate

Which U.S. political party is usually in favor of freer trade?

republican party

Walmart vs. India

- Walmart stopped opening future stores in India

- Reason: India government requiring foreign retailers to source 30% of products from small - medium sized businesses

Why did India implement the 30% of products rule? (Walmart case)

- to fight unemployment

- maintain essential industries

(did this by domestic content legislation)

Domestic Content Legislation

prevents cheating; requires that products must contain a minimum value added in the country of origin in order to be free of customs duties

Boeing vs. Airbus Challenge

aircrafts are expensive (R&D $$$)

Gov. Rationale & Method Boeing vs. Airbus

- maintain an essential industry

- fight unemployment (created jobs during pandemic)

implemented subsidy to combat

Boeing and Airbus make up what % of all commercial plane orders?

99%

What % of global chips do U.S. and China consume?

25% each

The CHIPS Act - Amount, Method, & Why

- amount: $52 billion

- method: subsidies & export control towards China

- why: fight unemployment, essential industry

3 Effects of a Tariff

1) tariff raises price importers pay to bring a product into their country

2) may raise price businesses charge

3) leads customers to buy fewer or less expensive, domestic products

Custom Duty

money collected from a tariff

Why should a tariff be implemented?

1) raise money

2) protect domestic industries

Protectionism

economic policy of shielding an economy from imports (protecting domestic firms)

Who wins by protectionism?

- import competing industries (sales & prices increase)

- government (tariff revenue and political appeasement)

- domestic producers

- some stakeholders & special interest groups

Who loses by protectionism?

- consumers

- foreign producers

- internal economy (efficiency loss, encourages lobbying)

- global economy (retaliation, loss of specialization)

5 Reasons to not Influence Trade

1) expensive

2) ineffective

3) encourages retaliation

4) encourages lobbying

5) damages competition

The Ecomagination Initiative

- General Electric (GE)

- motto "green is green" (global greening initiative)

- goal is to reduce greenhouse emissions, increase energy efficiency, and reduce global use of water

What does Anglo American do and what do they combat?

- one of the world's largest mining companies

- combats AIDS by providing free antiviral therapy to HIV-infected employees

What have been some critiques of the Anglo American HIV/AIDS initiative in South Africa?

- huge trade off between cost of program and profitability

- HIV/AIDS has devastated South Africa

UNAIDS 90-90-90 Initiative

By 2030..

- 90% of all people living with AIDS will know their status

- 90% will receive ART

- 90% receiving ART will have viral suppression

ART stands for..

antiretroviral therapy (HIV/AIDS treatment)

Where is the catfish industry mainly at in the U.S.?

Mississippi and Alabama

U.S. Spending on Healthcare and Life Expectancy

- U.S. per capita spending is the highest in the world for healthcare & pharmaceuticals

- BUT U.S. is 31st in life expectancy

- FDA regulates drugs

How much less do Canadian drugs cost than U.S.?

40-60% less

4 Problems Comparing U.S. - Canada drug prices

1) U.S. per capita expenditures are skewed

2) 80% of U.S. volume is for generic products, which make up 28% of the market

3) Pharmacy drug prices vary

4) Consumers rarely pay listed drug price

Coke Globalization Ads

- 1970 ad was very successful

- tried to repeat ad with 2014 America the Beautiful Super Bowl ad

- met with backlash from home & abroad

Monoculteralization

active preservation of a country's national culture in the exclusion of external influences

By invading Iraq, what did President Busch create?

preventative warfare

Does Europe Hate U.S.

reporter took French to U.S. restaurant Mcdonald's (ironic)

- hate our foreign policy, love our products

- people felt alienated by some policies

"Pizza for Pesos" Video

- people thought that "accepting pesos undermines American culture" & "promotes illegal immigration"

* many Americans were not opposed to accepting Canadian dollars

What was the original name of Pizza Patron

Pizza Pizza

Barbie Comes to Russia

- Warner bros boycotts film release in Russia -> makes it to Russia anyway in pirated form -> Russia bans it anyway

- "the film does not promote traditional values"

Infant-industry argument

holds that a government should shield an emerging industry from foreign competition by guaranteeing it a large share of the domestic market until it can compete on its own

Terms of trade may deteriorate because

- demand for primary products grows more slowly than manufactured ones

- production cost savings for primary products will be passed on to consumers

Dumping

exporting below cost or below home-country price

optimum tariff

an import tariff that leads a foreign producer to lower its export price

Essential Industry Argument

nations apply trade restrictions to protect crucial domestic industries so that they are not dependent on foreign supplies during hostile political periods

Quota

quantity limit on amount of imports

Embargo

type of quota limiting all trade

The Balance of Payments in terms of capital flows

usually..

- positive for the host country initially and negative for the home country

- negative for host country and positive for the home country later

Relativism

ethical truths depend on the groups holding them

Normativism

there are universal standards of behavior that all cultures should follow

US Foreign Corrupt Practices Act

- makes bribery illegal

- applies to domestic or foreign operations