BUS& 101 - The Development of the Global Economy

What is globalization?

Globalization is the increasing connectivity and interdependence of the world’s economies, societies, and cultures.

How was globalization achieved?

Through advances in communication, technology, trade, international investment, currency movement, and migration.

Basically anything that had to do with trading or economically dealing with other countries.

What is free trade?

The movement of goods and services among nations without political or economic restrictions.

How was free trade achieved?

After communism in Eastern Europe collapsed (strict government regulation) and many countries began deregulating their economies.

How is the internet helping the global market?

The interconnectedness of the internet is shaping our separate national markets into one giant global market.

What is the global economy?

The increasing interaction of the world’s economies as a single market instead of many national markets.

What are multinational corporations?

Organizations with multinational management and ownership that manufacture and market products in many different countries.

Free trade and global economy are based on a constant stream of what?

Imports and exports.

What are imports?

Goods that are bought outside the country and resold domestically within the country.

What are exports?

Domestic goods that are produced within one’s country and sold outside the country.

Does a country usually import and export the same item?

No, they usually import and export different items, although they can be from similar categories (such as different types of jewels).

What are some positive effects of globalization?

1. More jobs and economic growth

2. Information is traded between countries which can help other nations grow economically

3. More companies and governments are working together to solve environmental issues

4. More companies have access to worldwide market and non-native resources

What are some negative effects of globalization?

1. Outsourcing (jobs outside of the country) are more popular in the U.S. This has cost millions of people in the U.S. manufacturing jobs.

2. Income disparities are more pronounced between the poor and the wealthy.

3. Trade secrets can be stolen and sold to foreign competitors.

4. Globalization can lead to exploitation of child labor in other countries.

What are the three reasons that countries engage in free trade?

1. No country is self-sufficient. (No single country can produce all the products and services that it needs or wants)

2. Some countries have natural resources that other countries want. (I.E. not every country has oil, and some countries sell their oil to non-oil countries)

3. Some countries have technology that other countries want.

What does self-sufficiency mean?

A country’s ability to produce all of the products and services it needs or that its people want; no country is self-sufficient.

What are the two important ideas about unequal distribution of natural resources?

That some countries have an absolute advantage, and others have a comparative advantage.

What is an absolute advantage?

An advantage a country has when they can produce a product more cheaply or efficiently than any other country can. Usually a monopoly country in this resource.

What is a comparative advantage?

An economic principle stating that if a country has an absolute advantage, it sells the products and services it cheaply produces. Then, it buys the products from the other countries that it does NOT produce cheaply or efficiently.

What is the balance of trade?

The value of a country’s exports compared to the value of its imports over a particular period of time.

What are the two terms a balance of trade can be classified as?

A trade surplus or a trade deficit.

What is a trade surplus (also called a favorable balance of trade)?

When the value of a country’s total exports exceeds the value of its total imports.

What is a trade deficit?

When the value of a country’s total imports exceeds the value of its total exports.

What is countertrading? When is it used?

Countertrading is when countries barter goods for goods (or services). This is used when some countries lack the currency to pay for certain goods from other countries.

What are the five ways that companies enter foreign markets (from low risk to high risk)?

1. Importing and exporting

2. Franchising and foreign licensing

3. Global outsourcing

4. Join ventures

5. Foreign subsidiaries

What is the easiest way for a company to enter a global market?

Through importing or exporting merchandise. Companies can either import items to resell, or export items.

Sometimes, an exported item can be indirect (a company produces a part of another product that is exported by another company) or direct (the company sells its product in markets in other countries).

What is franchising?

When a company allows a foreign company to pay it a fee and a share of the profit in return for using a brand name and package of materials and services.

What is foreign licensing?

When a company gives a foreign company permission, in return for a fee, to make or distribute the licensing company’s product or service.

What is outsourcing (or contract manufacturing)?

When a company uses suppliers outside the company to provide goods and services.

What is global outsourcing (offshoring)?

When suppliers outside of the United States provide labor, goods, or services for a company.

What are the three reasons a company uses outsourcing?

1. Special resources (foreign supplier has resources unavailable in the outsourcing country)

2. Special expertise (the supplier has a special expertise not found in the outsourcing country)

3. Labor costs (the supplier’s labor is cheaper than U.S. labor. This is the main reason for outsourcing).

What is a join venture (also known as strategic alliance)?

When a U.S. firm shares the risk and rewards of starting a new enterprise (a project, undertaking, business, company) with a foreign company in a foreign country.

What is a foreign subsidiary?

A company in a foreign country that is totally owned and controlled by the parent company.

What is culture?

The shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people.

What is culture shock?

The feelings of discomfort and disorientation associated with being in an unfamiliar culture.

What are the three cross-cultural differences?

1. Verbal and nonverbal communication

2. Time orientation and length of workweek

3. Religion

What is nonverbal communication?

Messages sent outside of the written or spoken word, such as what constitutes permissible interpersonal space. (Personal space, eye contact, facial expressions, body movements and gestures, and touch).

What is infrastructure?

The set of physical facilities (including telecommunications, roads, and airports) that form the basis for a country’s level of economic development.

What are two important economic conditions that can affect international business dealings?

Infrastructure and currency issues.

What are developed countries?

Countries with a high level of economic development and a generally high average income level among their citizens.

What are less-developed countries?

Countries with low economic development and low average incomes.

What is the currency exchange rate?

The rate at which one country’s currency can be exchanged for the currency of another country.

What is devaluation?

When the value of a nation’s currency is lowered relative to the value of other countries’ currencies.

What are the two general categories of political systems?

Democratic political systems and totalitarian political systems.

What are democratic political systems?

Political systems that rely on free elections and representative assemblies.

What are totalitarian political systems?

Political systems ruled by a dictator, a single political party, or a special-membership group, such as a handful of ruling families or a military junta.