IB exam 1

What is international business?

Commercial activities that involve more than one country, including trade and investment.

What are the main forms of international business activities?

Trade (exports and imports), Foreign Direct Investment (FDI), and Foreign Portfolio Investment (FPI).

What percentage of all FDI is made by the world's largest 500 multinational enterprises (MNEs)?

80%.

Define a multinational firm.

A firm that has productive operations in more than one country.

What is Foreign Direct Investment (FDI)?

The purchase of assets in a foreign country by a firm, providing control over the use of those assets.

What is a foreign subsidiary?

An organization in the host country that extends a firm's operations for conducting business activities.

What are equity modes of international participation?

Foreign Direct Investment (FDI) methods such as acquisitions, wholly owned subsidiaries, and joint ventures.

What are non-equity modes of international participation?

Methods such as exporting, licensing, technology transfer, and non-equity strategic alliances.

What does globalization refer to?

The shift toward a more integrated and interdependent world economy.

What are the two main aspects of globalization?

Globalization of markets and globalization of production.

Name a key driver of globalization.

Reduction in trade barriers.

What is the General Agreement on Tariffs and Trade (GATT)?

An international treaty aimed at reducing trade barriers.

What is the role of the World Trade Organization (WTO)?

To regulate international trade and ensure that trade flows as smoothly and predictably as possible.

What technological innovations have facilitated globalization?

Communication technology (Internet, microprocessors) and transportation technology (commercial jets, containerization).

What are some global institutions involved in international business?

The IMF, World Bank, and United Nations.

What are the implications of globalization for firms?

Lower barriers to trade allow firms to view the world as their market and optimize production locations.

What are some benefits of globalization according to supporters?

Lower prices for goods, greater economic growth, higher consumer income, and more jobs.

What concerns do critics of globalization raise?

Job losses, environmental degradation, poor labor policies, cultural imperialism, and threats to national sovereignty.

How has FDI in China changed from 1983 to 2017?

It increased from less than $2 billion to $249.8 billion annually.

What challenges do managers face in international business?

Different country regulations, a wider range of problems, increased complexity, and currency conversion issues.

How do political, economic, and legal systems of a country interact?

They are interdependent and influence each other, affecting the level of economic well-being.

What are the two dimensions used to assess a country's political system?

The degree of Collectivism vs. Individualism and the degree of Democracy vs. Totalitarianism.

What does collectivism emphasize in a political system?

The primacy of collective goals over individual goals, often sacrificing individual rights for the common good.

Who is associated with the idea of collectivism and socialism?

Karl Marx, who argued that the few benefit at the expense of the many in a capitalist society.

What is individualism in the context of political systems?

The belief that individuals should have freedom in their economic and political pursuits, with their interests taking precedence over the state.

What did Adam Smith mean by 'an invisible hand'?

He suggested that individual economic and political freedom is the foundation of a prosperous society.

What characterizes a democracy?

A political system where government is by the people, exercised directly or through elected representatives, with freedoms such as expression and regular elections.

Define totalitarianism.

A form of government where one person or political party exercises absolute control over all aspects of life and prohibits opposing parties.

What are pseudo-democracies?

Political systems that lie between pure democracies and totalitarianism, where authoritarian elements restrict basic political and civil liberties.

What are the three types of economic systems?

Market economies, command economies, and mixed economies.

What defines a market economy?

All productive activities are privately owned, with production determined by supply and demand and government encouraging competition.

What characterizes a command economy?

The government plans and allocates goods and services for the 'good of society', with all businesses being state-owned.

What is a mixed economy?

An economic system where some sectors are privately owned and others are government-owned, often with government support for troubled firms.

What are the three types of legal systems?

Common law, civil law, and religious or theocratic law.

How does contract enforcement differ in common law and civil law systems?

Common law contracts are detailed, while civil law contracts are shorter and less specific.

What are property rights violations?

They can occur through private actions like theft or public actions like excessive taxation or bribery.

What does the Foreign Corrupt Practices Act (FCPA) prohibit?

It makes it illegal for U.S. companies to bribe foreign governments to obtain or maintain business.

What is the role of the World Intellectual Property Organization?

To protect intellectual property rights internationally, including through agreements like the Paris Convention.

What implications do national differences in political, economic, and legal systems have for managers?

They affect the opportunities available for multinational businesses and how firms conduct international business.

What is meant by the culture of a society?

Culture is the collection of values, beliefs, behaviors, customs, and attitudes that distinguish one society from another.

What is cross-cultural literacy?

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

How can culture impact business opportunities?

Culture may create opportunities or challenges for multinational enterprises (MNEs).

What are the two dimensions that explain differences in social structure?

The basic unit of social organization (individual vs. group) and social stratification (class or caste system).

What is the difference between individualistic and collectivistic societies?

Individualistic societies emphasize individual achievement, while collectivistic societies prioritize group membership and identification.

What are folkways and mores in social norms?

Folkways are social rules with minor significance, while mores have greater moral significance.

What is social stratification?

The hierarchical organization of society into social categories or strata, affecting individuals' life chances.

What is social mobility?

The extent to which individuals can move out of the strata into which they are born, varying among societies.

What are the four dominant religions that shape ethical systems?

Christianity, Islam, Hinduism, and Buddhism.

What economic implications are associated with Christianity?

Christianity emphasizes hard work, wealth creation, and frugality, influencing modern capitalism.

What is the significance of Islam in economic terms?

Islam promotes pro-free enterprise principles and social justice, while prohibiting interest payments.

How does Hinduism influence economic behavior?

Hinduism values spiritual achievements over material ones, affecting promotion and responsibility in the workplace.

What are the economic implications of Buddhism?

Buddhism does not emphasize wealth creation but allows for some entrepreneurial behavior and social mobility.

What are the key teachings of Confucianism?

Loyalty, reciprocal obligations, and honesty, which can lower business costs in Confucian societies.

How does language affect culture?

Language structures perceptions of the world and can indicate the presence of multiple cultures within a country.

What role does formal education play in culture?

Formal education socializes individuals into the values and norms of a society and provides a national competitive advantage.

What are Hofstede's dimensions of culture?

Power distance, uncertainty avoidance, individualism vs. collectivism, masculinity vs. femininity, and time orientation.

What criticisms exist regarding Hofstede's research?

It assumes a one-to-one correspondence between culture and nation-states and may be culturally bound.

What is the Global Leadership and Organizational Behavior Effectiveness (GLOBE) Instrument?

It assesses a leader's effectiveness based on societal and organizational norms, values, and beliefs.

What is the connection between culture and competitive advantage?

Cultural literacy can enhance a company's ability to operate successfully in different cultural contexts.

What is ethnocentrism?

The belief in the superiority of one's own culture, which can hinder successful business practices in other cultures.

What is the importance of hiring local citizens in international business?

Hiring local citizens can enhance understanding of cultural practices and improve business success in foreign markets.

What are the implications of cultural differences for managers?

Managers must develop cross-cultural literacy to avoid misunderstandings and to succeed in diverse cultural environments.

What are the accepted principles that govern the conduct of individuals and organizations?

Ethics

What is the focus of business ethics?

The ethical strategy and conduct of businesses.

What are common ethical issues faced by international businesses?

Employment practices, human rights, environmental regulations, corruption, and moral obligations.

What should firms establish to guard against ethical abuses in employment practices?

Minimal acceptable standards to safeguard employee rights and regular audits of foreign subsidiaries.

What are some basic human rights that may not be universally accepted?

Freedom of association, speech, assembly, movement, and freedom from political repression.

What ethical concerns arose from the apartheid system in South Africa?

Businesses questioned the ethics of operating in a segregated society that violated basic human rights.

What is the 'tragedy of the commons' in relation to environmental pollution?

Overuse of a shared resource leads to its degradation, particularly when regulations differ between nations.

What does the U.S. Foreign Corrupt Practices Act (FCPA) address?

It addresses corruption and allows for 'facilitating payments' under certain conditions.

What are some ethical implications of corruption in business?

Bribes may be seen as necessary for business, but they can reduce investment incentives and create ethical dilemmas.

What factors contribute to unethical behavior in organizations?

Personal ethics, decision-making processes, organizational culture, unrealistic performance goals, and leadership.

How can personal ethics influence business behavior?

Individuals with strong personal ethics are less likely to act unethically, even under pressure.

What role does leadership play in establishing organizational ethics?

Leaders set the ethical tone and culture of an organization, influencing employee behavior.

What challenges do expatriate managers face regarding ethics?

They may encounter pressure to violate personal ethics due to different local standards and unrealistic goals.

What is a key question businesspeople should ask when making decisions?

Is this decision or action ethical?

What is the impact of organizational culture on ethical behavior?

A culture that does not prioritize ethical considerations can lead to unethical decision-making.

What is the significance of societal culture in ethical behavior?

Cultures emphasizing individualism and uncertainty avoidance tend to stress ethical behavior more than those emphasizing power distance.

What is an ethical dilemma in the context of international business?

Situations where ethical obligations are unclear, such as employment practices or dealing with repressive regimes.

What are the United Nations Sustainable Development Goals 2030?

A global agenda aimed at addressing various social, economic, and environmental challenges, including human rights.

What is the ethical debate surrounding multinational corporations and repressive regimes?

Whether investment in such regimes can foster change and improve living standards or if it is unjustifiable.

What does the term 'facilitating payments' refer to in the context of the FCPA?

Payments made to expedite routine governmental actions, which are allowed under certain conditions.

What is the role of audits in maintaining ethical standards in international business?

Regular audits help ensure compliance with established ethical standards and protect employee rights.

What ethical considerations arise from global environmental pollution?

The ethics of relocating production to countries with lax environmental regulations to avoid stricter home country laws.

What is the Friedman Doctrine?

The social responsibility of business is to increase profits, as long as the company adheres to the law.

What does cultural relativism imply in ethics?

Ethics are a reflection of culture, suggesting that one should follow local customs, such as 'When in Rome, do as the Romans.'

What is the righteous moralist approach to ethics?

It asserts that home-country ethical standards should be followed in foreign countries, typically associated with managers from developed nations.

What does the naïve immoralist perspective suggest?

If a manager observes that firms in a host nation are not following ethical norms, they should not feel compelled to do so either.

What is the core idea of utilitarian ethics?

Actions are desirable if they lead to the best balance of good consequences over bad consequences, aiming for the greatest good for the greatest number.

What are some drawbacks of utilitarian ethics?

It is difficult to measure benefits, costs, and risks, and it fails to consider justice.

What is the foundation of Kantian ethics?

It is based on the philosophy of Immanuel Kant, emphasizing that people should be treated as ends in themselves and not merely as means to an end.

What do rights theories establish in ethical decision making?

Rights establish a minimum level of morally acceptable behavior, with fundamental human rights serving as a moral compass.

What is the significance of the Universal Declaration of Human Rights?

It outlines fundamental rights and obligations that guide ethical behavior for individuals and institutions.

What is the focus of justice theories?

They emphasize achieving a just distribution of economic goods and services, as argued by John Rawls.

What is the 'veil of ignorance' in justice theories?

It is a method for determining the justice of a situation by considering what rules one would agree to if unaware of their own social status.

What is a key step in making ethical decisions internationally?

Hire and promote individuals with a strong sense of personal ethics.

How can organizations build an ethical culture?

By articulating values that emphasize ethical behavior and implementing a code of ethics.

What is a five-step process for ethical decision making?

1) Identify stakeholders, 2) Determine rights violations, 3) Establish moral intent, 4) Engage in ethical behavior, 5) Audit decisions.

What role do ethical officers play in organizations?

They assess ethics program needs, develop codes of ethics, conduct training, and monitor compliance.

What is moral courage in the context of ethical decision making?

The ability to resist unethical decisions and speak out against wrongdoing.