global business midterm

Self-contained

• Economy that has significant barriers to trade and produce all goods domestically

World economy today:

• Fewer self contained national economies

• More integrated global economic system with lower barriers to trade and investment

globalization

Transformation is called

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

• Temu, Alibaba, AliExpress

examples of globalization

• Globalization of markets

• Globalization of production

• Two facets of globalization:

The globalization of markets

the merging of historically distinct and separate national markets into one huge global market place

Why are markets globalized

• Because of fallen barriers to cross border trade and investment has made it easier to sell internationally

• The decline in barriers to selling in countries other than home country

mcdonalds, coca cola

examples of global market

ex: aluminum, oil, wheat, microprocessors

Examples of global of markets for industrial goods and materials that serve universal needs around the world

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)

What are the benefits of the globalization of production

• May increase productivity

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

Early outsourcing was primarily for _

manufacturing

Today, modern communications technology allows companies to _

outsource services

Impediments to globalization

• Formal and informal trade barriers

• Barriers to foreign direct investment (exclusion of foreign investors for certain economic activities)

• Transportation costs

• Economic and political risk

• Coordinating a globally dispersed supply chain

Over past half century, a number of global institutions have been created to help perform these functions:

WTO, IMF, World Bank, United Nations, G20

WTO

1. regulates, and facilitates, trade between nations and was established in 1995

GATT

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

IMF

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

2. they look at state organization and reduce amount of employees

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

1. World Bank 

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

2. Seen as less controversial than IMF

Difference between IMF and World Bank:

1. IMF oversees World system stability, while World Bank goal is to reduce poverty by offering assistance to low-middle income countries

United Nations

1. Committed to maintaining international peace and security on basis of UN Charter:

   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

How does a country get into UN

state admitted to membership by decision of general assembly upon recommendation of Security Council

G20 - Group of 20

1. Manage, regulate, and police the global marketplace

2. Promote the establishment of multinational treaties to govern the global business system

3. Created by voluntary agreement between individual national states

4. Comprised of finance ministers and central bank governors of the 19 largest world economies plus the EU and European Central Bank

1. How? Became forum because finance crisis of 2008-2009

2. founded in 1999 after Asian financial crisis as a forum for finance ministers and central bank governors to discuss global and financial issues

Two macro factors toward greater globalization

1. Decline in barriers to free flow of goods, services, and capital

2. Technological changes

Uruguay Round

1. Reduce agricultural subsidies

2. Lift restrictions on foreign investment

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

International trade

1. Consumer goods, clothing, electronics

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

Declining trade and investment barriers

• Some firms finding home markets under attack from foreign competitors

Role of technological change

• Communications

• Since WWII, development of microprocessors

• Created explosive growth of high power, lost cost computing

• Microprocessors also advanced telecommunications

moores 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

Implications for the globalization of production

1. Fuel cost

2. Customer duties

3. Insurance cost

Implications for the globalization of markets

1. Low cost communication networks (internet, mobile networks, 5G, cloud computing)

2. Low cost transportation (sea, rail, road)

3. Reduced cultural distance (low cost jet travel)

Change in foreign direct investment picture

Increase in outward stock of foreign direct investment (total cumulative value of foreign investment by firms domiciled in a nation outside of that nation’s borders)

In 2024, the leading country for FDI inflows were

Luxembourg, US, Germany, India, Brazil, Mexico

Multinational enterprise (MNE

any business that has productive activities in two or more countries

MNE examples

Coca Cola, Nike, Reebok, Sony, BMW, LG, Samsung

Cross border flows

occurring or perform between two countries

Collapse of communism throughout Eastern Europe

• Favoring blind obedience to authority and concentration of power in one leader or elite family

Liberal economic ideology

a political ideology based on strong support for a market economy, private property, and means of production and opposition to government intervention in economy

Endemic corruption

a situation where corruption is a normal part of society’s political, social, and economic system

Black swan

A highly improbable with severe consequences that is difficult to predict but explicable in hindsight

International business

• More complicated than domestic

• Differing political, legal, economic systems, vary in economic development and growth trajectories

• Political system assessed in terms of degree which they:

Emphasize collectivism as opposed to individualism

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

collectivism In few countries:

Japan, China, Korea, Taiwan, Venezuela, Guatemala, Ecuador, Brazil, India

• Cultures in , , , and _ tend to be more collectivistic

• Asia, Central America, South America, Africa

individualism

prioritizing yourself over the group

Socialism

the government operates the means of production; ex: land, natural resources; equal share in profit and property; 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

5 main countries with socialism

North Korea, China, Vietnam, Laos, Cuba

Political, economic, and legal systems are known as the

political economy

Communists

• believed socialism could only be achieved through violent revolution and totalitarian dictatorship

communist countries

China, Cuba, North Korea, Laos, Vietnam

Social democrats

• work to achieve same goals by democratic means

Totalitarian

• government that excerpts total control over government, regulate nearly every aspect of public and private behavior

Ex: North Korea, Eritrea, Turkmenistan

Dictatorship

• used to describe govs due to concentration of power and lack of democratic identity

  • Ex: North Korea, Syria, Eritrea, Turkmenistan

Universal adult suffrage

principal that all adult citizens regardless of race, gender, wealth, social status, or education have the right to vote in public elections

Totalitarianism

• 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 totalitarianism

achieving socialism through totalitarian dictatorship

China, Vietnam, Laos, North Korea, Cuba

Theocratic

• political power is monopolized by a party, group, individual, that governs according to religious principals; most common form is based on Islam and is exemplified by states such as Iran and Saudi Arabia

Tribal totalitarianism 

 tribe in power benefits; ex: in African countries such as Zimbabwe, Tanzania, Uganda, Kenya

Right wing totalitarianism

•  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

Pseudodemocracies

• Totalitarian elements, denies basic political and civil liberties

• Ex: Russia under Putin, Hungary under Orban

Types of economic systems

Market economy

Command economy

Mixed economy

Traditional economy

Market economy

1. more democratic, can have individual goals

   1. Goods and services a country produces is determined by supply and demand

   2. Ex: prices in a market economy is set by forces of supply and demand; credit in financial system whereby financing such as loans is based on supply and demand and competition between banks

   3. Gov encourages free and fair competition between private producers and supply is not restricted

   4. Always incentive to improve product and processes

Command economy

1.  the gov plans goods and services country produces, how and when produced, and prices sold; objective is for gov to allocate resources for good of society

   1. Most business are state owned; incentive to control efficiency

   2. Little incentive to serve best interest of consumer

   3. Innovation is absent

   4. Dynamism - vigorous activity and progress as well as innovation is absent

   5. Command economy is a key feature of any communist society

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. 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

Restrictive market

a market for a currency which is not determined by free market

• A country’s legal system is important because:

• They regulate business practices

• Gives businesses definition of how they will act

• Sets down rights and obligations for those in transaction 

• Legal system influenced by prevailing political system

Common law

based on tradition, precedent, custom

Civil law

based on detailed set of laws organized by codes

Theocratic law:

 based on religious teachings; Islamic law most widely practiced

Property rights

right to use which resource is put and over se made of any income derived from that resource

You have right to have apartment, landlord has right to get income from apartment

Private action

• theft, piracy, blackmail, and like by private individuals and groups; includes organized crime

  • Ex: mafia

Public action

• public officials extort income or resources from property holders

  • Excessive taxation, requiring expensive licenses or permits from property holders, or taking assets into state ownership 

• Corruption is present in all countries to some degree, three possible outcomes:

• Foreign direct investment reductions

• International trade reductions

• Economic growth reductions

Most corrupted:

• Yemen, South Sudan, Syria, Somalia, Venezuela

Least corrupted:

Finland, Denmark, Norway, New Zealand, Switzerland, Singapore

• Foreign Corrupt Practices Act (FCPA)

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

Intellectual property

property of intellectual activity such as computer software, screenplay, music score, or chemical formula for a new product or drug

Patents

gives inventor of new product exclusive rights to manufacture and sell

Copyrights

 exclusive legal rights of authors, composers, playwrights, artists, publishers to publish and dispose of their work as they see fit

Trademarks

designs and names, often officially register, by which merchants or manufacturers designate and differentiate their products

Product safety laws

• both civil and criminal liability laws exist; civil laws call for payment and monetary damages; criminal liability laws results in fines and imprisonment

GDP sectors

1. Agriculture

2. Manufacturing

3. Services

• Amartya Sen - economist

Argues development should be assessed less by material output

Economic progress

in America we are driven by entrepreneurship and innovation

innovation

new products, processes, organizations, management practices, strategies

entrepreneurship

• first to commercialize innovative new products and processes

• In order for a country to have sustained economic growth, they must have innovation and entrepreneurship

Market economy

The prices of goods and services are guided solely by interactions of citizens and businesses

market economy countries

• Hong Kong, Switzerland, Singapore, US, Canada, and Germany

countries ranked in economic freedom

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

Hernando de Soto

much of developing world would not benefit from capitalism until property rights are better defined and protected

fastest growing economies

China, South Korea, Taiwan, Singapore, Hong Kong

Three trends in political economy since late 1980s

1. A wave of democratic revolutions swept the world and many previous totalitarian regimes fell

2. A move away from centrally planned (states or government make economic decisions) and mixed economies towards free markets

3. A shift back toward greater authoritarianism in some nations and signs of a retreat from the free market

Mixed economy

 An economic system combining private and public enterprise

Centrally planned

state of government makes economic decisions

Authoritarian

 focuses on individual power

Totalitarian

has best interest of people or state in mind

Spread of democracy happens when

1. When totalitarian regimes fail

2.  Communication around the world ex: whatsapp

3. Economic advances have led to working class becoming more prosperous