RCC Midterm

Host Countries - FDI Promotion

tax incentives, low-interest loans, infrastructure improvements

Host Countries - FDI Restriction

ownership restrictions, performance demands

Home Countries - FDI Promotion

insurance, loans, tax breaks, political pressure

Home Countries - FDI Restriction

differential tax rates, sanctions

current account

Records transactions involving the export and import of goods and services, income receipts on assets abroad, and income payments on foreign assets inside the country

capital account

A national account that records transactions involving the purchase and sale of assets

Foreign direct investment (FDI)

Purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control

portfolio investment

An investment that does not involve obtaining a degree of control in a company

Greenfield Investment

purchase of land in another country and construction of new facilities or an entire subsidiary from the ground up

Eclectic Theory

A theory stating that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for investment

Market Power

theory stating that a firm tries to establish a dominant market presence in an industry by undertaking foreign direct investment

Vertical Integration

extension of company activities into stages of production that provide a firm's inputs (backward integration) or that absorb its output (forward integration)

Following Rivals

FDI decisions frequently resemble a "follow the leader" scenario in industries that have a limited number of large firms. In other words, many of these firms believe that choosing not to make a move parallel to that of the "first mover" might result in being shut out of a potentially lucrative market.

Free trade

pattern of imports and exports that occurs in the absence of trade barriers

Why do governments intervene in trade?

Political Motives, Economic Motives, Cultural Motives

Political Motives

protect jobs, preserve national security, respond to unfair trade, and gain influence

Economic Motives

Protect infant industries, pursue strategic trade policy

Cultural Motives

Achieve Cultural Objectives, Protection of National Identity

Instruments of trade promotions

subsidies, export financing, foreign trade zones, and special government agencies

subsidy

Financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or other forms

managed trade

Government efforts to achieve trade objectives pertaining to market shares or quantities of specific products

Export Assistance

low-interest-rate loans, loan guarantee

Export assistance in the US

Export-Import Bank of the United States, International Development Finance Corporation

Foreign Trade Zones (FTZ)

designated geographic region through which merchandise is allowed to pass with lower customs duties (taxes) and/or fewer customs procedures

Instruments of Trade Restriction

tariffs, quotas, embargoes, local content requirements, administrative delays, currency controls

General Agreement on Tariffs and Trade (GATT)

A treaty designed to promote free trade by reducing both tariffs and non-tariff barriers to international trade

uruguay round of negotiations (1986-1994)

agreement on services, agreement on intellectual property, agreement on agricultural subsidies, and creation of the WTO

World Trade Organization (WTO)

The International organization that regulates trade among nations

individulaism

A belief that individual rights and responsibilities should be placed above the group's welfare

Collectivism

Stresses the relative importance of a group's welfare over that of the individual

political system

Structures, processes, and activities by which a nation governs itself

Theocracy

A government controlled by religious leaders

Theocratic Totalitarianism

A political system under the control of totalitarian religious leaders (iran)

secular totalitarianism

A political system in which leaders maintain control through military and bureaucratic power

Examples of secular totalitarianism

Communism, Socialism, Tribal Totalitarianism, Right-wing totalitarianism

Democracy

A political system in which government leaders are elected directly by the wide participation of the people or by their representatives

representative democracy

democracy in which citizens elect individuals from their groups to represent their political views

Representative democracy strives for:

freedom of expression, periodic elections, full civil and property rights, minority rights, nonpolitical bureaucracies

economic system

structure and processes that a country uses to allocate its resources and conduct its commercial activities

Range of Economic Systems

state capitalism

An economic system in which the state plays the role of leading economic actor and uses markets primarily for political gain (China)

mixed economy

An economic system in which land, factories, and other economic resources are split relatively equally between private and government ownership

Privatization

To change from government or public ownership or control to private ownership or control.

Market Economy (Capitalism)

An economic system in which most of a nation's land, factories, and other economic resources are privately owned by either individuals or businesses

Supply

the quantity of a good or service that producers are willing to provide at a specific selling price

demand

the quantity of a good or service that buyers are willing to purchase at a specific selling price

Laissez-faire

a type of economic system in which transactions between private individuals are free from any form of economic interventionism.

antitrust (antimonopoly) laws

laws designed to prevent companies from fixing prices, sharing markets, and gaining unfair monopoly advantages

property rights

legal rights to resources and the income they generate

legal system

The country's set of laws and regulations, how its laws are enacted and enforced, and how its courts hold parties accountable. influenced by political moods and upsurges of nationalism. (india)

Types of Legal Systems

common law, civil law, theocratic law

Elements of Common law

tradition, precedent, usage

Civil Law

A legal system based on a written code of laws

Theocratic law

legal system based on religious teachings

Cloud Computing

delivery of computing services over the internet, or the cloud

industrial property

Intellectual property consisting of patents and trademarks

patent

A property right granted to the inventor of a product or process that excludes others from making, using, or selling the invention

Trademark

property right in the form of words or symbols that distinguish a product and its manufacturer

Copyright

•Property right giving creators of an original work the freedom to publish or dispose of it as they choose

product liability

Responsibility of manufacturers, sellers, individuals, and others for damage, injury, or death caused by defective products

Value-added tax (VAT)

A tax levied on each party that adds value to a product throughout its production and distribution

International Business

commercial transaction that crosses the borders of two or more nations

Imports

goods and services purchased from other countries

Exports

Goods and Services sold to other countries

multinational corporation (MNC)

business that has direct investments abroad in multiple countries

Foreign Direct Investment (FDI)

Purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control

Born Global Firm

A company that adopts a global perspective and engages in international business from or near its inception and quickly gains a competitive advantage

Features of born global firms

innovation and knowledge-based organizational capabilities (tiktok, spotify, uber, airbnb)

Globalization

The trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies.

–Characterized by denationalization

–Different from internationalization

Gross Domestic Product (GDP)

the value of all goods and services produced within a country in a single year

Gross National Product (GNP)

The total value of goods and services, including income received from abroad, produced by the residents of a country within a year.

GDP or GNP per capita

Nation's GDP or GNP divided by its population

Globalization of Markets

Convergence in buyer preferences in markets around the world

benefits of globalization of markets

reduces marketing costs, creates new market opportunities, levels uneven income streams, local buyers' needs, global sustainability

Globalization of Production

Dispersal of production activities worldwide to minimize costs or maximize quality

Benefits of globalization of production

Access to lower-cost workers, technical expertise, and production inputs.

General Agreement on Tariffs and Trade (GATT)

a treaty designed to promote free trade by reducing tariffs and nontariff barriers to international trade

Tariffs

taxes on traded goods

nontariff barriers

limits on the quantity of an imported product

World Trade Organization (WTO)

international organization that enforces the rules of international trade

Regional Trade Agreements

- United States-Mexico-Canada Agreement (USMCA)

- European Union (EU)

- Asia Pacific Economic Cooperation (APEC)

World Bank

An agency created to provide financing for national economic development efforts

International Monetary Fund

An agency created to regulate fixed exchange rates and to enforce the rules of the international monetary system.

e-commerce

the use of computer networks to purchase, sell, or exchange products; to service customers; and to collaborate with partners

Internet of Things (IoT)

All devices and equipment that are readable, recognizable, locatable, addressable, and/or controllable via the internet.

Digitization

The process of changing information from analog to digital form for use by computers and other information technologies.

Digitalization

The use of digital data and technology to develop new business operations, strategies, or business models.

Digital Transformation

Fundamental change in which digital technologies penetrate all areas of operations, strategy, and culture to produce customer-focused competitive advantage

Employability Skills

application of knowledge, reflective (critical) thinking, communication skills, ethical understanding, and social responsibility

International Trade

purchase, sale, or exchange of goods and services across national borders

Primary benefits of international trade

A greater choice of goods and services, job creation, greater consumption possibilities, and higher standards of living

blockchain

A distributed digital database that stores information and creates a secure record of transactions

trade surplus

condition that results when the value of a nation's exports is greater than the value of its imports

trade deficit

condition that results when the value of a country's imports is greater than the value of its exports

zero-sum game

belief that a nation could increase its share of wealth only at the expense of others (restricts international trade)

absolute advantage

The ability of a nation to produce a good more efficiently than any other nation

Positve- Sum Game

The belief that both countries can benefit from an exchange, such as international trade

comparative advantage

Inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently than it does any other good

Factor Proportions Theory

trade theory stating that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply

Leontief Paradox

US exports were less capital intensive than US imports