IB Exam #1

globalization

the shift toward a more integrated and interdependent world economy

globalization of markets

moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture, toward a system in which national markets are merging into one global market; sold in the world over with very little modifications (Coca Cola, Starbucks)

commodities

a raw material or primary agricultural product that can be bought and sold,

globalization of production

refers to 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

World Trade Organization

reponsible for policing the world trading system and making sure nation state adhere to the rules laid down in trade treaties signed by WTO member states

International Monetary Fund

established to maintain order in the international monetary system

United Nations

an international organization made up of 193 countries headquartered in NYC formed to promote peace, security, and cooperation

Group of Twenty

comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the Eu and the European Central Bank

international trade

occurs when a firm exports goods or services to consumers in another country

foreign direct investment

direct investment in business operations in a foreign country

multinational enterprise

any business that has productive acitivities in two or more countries

international business

any firm that engages in international trade or investment

collectivism

a political system that emphasizes collective goals as opposed to individual goals

socialists

those who believe in public ownership of the means of prodcution for the common good of society

market economy

an economic system in which the interaction of supply and demand determines the quantity in which the goods and services are produced

legal system

system of rules that regulate behavior and the processes by which the laws of a country are enforced and through which redress of grievances is obtained

common law

a system of law based on tradition, precedent, and custom; when law courts interpret common law they do so with regard to these characteristics

civil law

a system of law based on a very detailed set of written laws and codes

theocratic law

a system of law based on religous teachings

contract

a document that specifies the conditions under which an exchange is to occur and details the rights and the obligations of the parties involved

contract law

the body of law that governs contract enforcement

property rights

refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource

private action

violation of property rights through theft, piracy, blackmail, and the like by private individuals or groups

Public action

the extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats

Foreign Corrupt Practices Act

US law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions

intellectual property

products of the mind, ideas (books, music software, designs, technological know how); intellectual property can be protected by patents, copyrights, and trademarks

patent

grants the inventor of a new product or process exclusive rights to manufacture, use, or sale, of that invention

copyrights

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

trademarks

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

product safety laws

set certain standards to which a product must adhere

product liability

involves holding a firm and its officers responsible when a product causes injury, death , or damage

gross national income

measures the total annual income received by residents of a nation

purchasing power parity

an adjustment in gross domestic product per capita to reflect differences in the cost of living

Amartya Sen

Nobel prize winning economist that has argued that economic development should be measured less by GNI and more by capabilities and opportunities that people enjoy, development is not only an economic development but a political one too

Human Development Index

an attempt by the UN to asses the impact of a number of factors, influenced by Amartya Sena; determines a country’s level of economic development

innovation

development of new products, processes, organizations, management practices and strategies

command economies

a type of economic system where the governmnet makes all the key decisions about production, prices, and distribution of goods and services; the government controls resources and directs economic activity

market based economies

a system where businesses and individuals make most economic decisions, like what to produce, how much to charge, and what to buy based on supply and demand; encourage free trade, foreign investments, and global competition

deregulation

removal of government restrictions concerning the conduct of a business

first-mover advantages

advantages accruing to the first to enter a market (loyalty and gain experience)

late mover disadvantages

handicaps experienced by being a late entrant in a market (lack brand loyalty and experience)

political risk

the likelihood that political forces will cause drastic changes in a country’s business environment that will adversely affect the profit and other goals of a particular business enterprise

Economic risk

the likelihood that events, including economic mismanagement will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a particular business enterprise

legal risk

the likelihood that a trading partner will opportunistically break a contract or expropiate property rights

cross cultural literacy

understanding how the culture of a country affects the way business is practiced

culture as defined by Geert Hofstede

“the collective programmind of the mind which distingushes the members of one human group from another"… Culture in this senses, includes systems of values; values are among the building blocks of culture”

values

abstract ideas about what a soecity believes to be good, right, and desirable

norms

social rules and guidelines that prescribe appropiate behavior in particular situtations

society

group of people who share a common set of values and norms

folkways

routine conventions of everyday life

mores

norms seen as central to the functioning of a society and to its social life

social structure

the basic social organization of a society

ethics

accepted principles of right or wronf that govern the conduct of a person, the members of a profession, or the actions of an organization

business ethics

accepted principles of right or wrong governing the conduct of business people

ethical strategy

a strategy or course of action that does not violate the accepted principles

Tragedy of Commons

occurs when a resource held in common by all but owned by no one is overused by individuals, resulting in its degradation; require international cooperation, long term thinking, effective governance mechanism

Foreign Corrupt Practices Act

US law regulating behavior regarding the conduct of IB in the taking of bribes and other unethical actions

ethical dilemmas

a situation in which there is no ethically acceptable solution

organizational culture

the values and norms that are shared among employees of an organization

free trade

a situation in which a government does not attempt to influence through quotas and duties what its citizens can buy from another country or what they can produce or sell to another country

Theory of absolute advantage

created by Adam Smith, the invisible hand of the market mechanism, rather than government policy, should determine what a country imports and what it exports

New trade theory

created by Paul Krugman, in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments but because in certain industries the world market can support only a limited number of firms. also, that the observed patter of trade in the world economy may be due in part to the ability of firms in a given market to capture firstmover advantages.

Theory of national competitive advantage

created by Michael Porter, who believed that a nation could achieve international success and competitive advantages in particular industries by focusing on 4 main attributres; factor endowments, demand conditions, related and supporting industries, and firm strategy, culture and rivalry

mercantilism

an economic philosophy advocating that countries should simultaneously encourge exports and discourage imports

zero sum game

a situation in which an economic gain by one country results in an economic loss by another

neo mercantilism

equating political power with economic power and economic power with a balance-of-trade surplus

absolute advantage

when a country is more efficient than any other country at producing it

constant returns to specialization

the units of resources required to produce a good are assumed to remain constant no matter where one is on a country’s production possibility frontier

Paul Samuelson critique

focused on the idea that while trade can benefit economies overall, it can also creates winners and losers; free trade could lead to lower wages and job losses

factor endowments

a country’s endowment with resources such as land, labor, capital

Porters diamond

Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage: factor endowments, demand conditions, related and supported industries, firm strategy, structure and rivalry

regional economic integration

agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other

free trade area

a group of countries committed to removing all barriers to the free flow of goods and services between each other but pursuing independent external trade policies

customs union

a group of countries committed to removing all barrierts to the free flow of goods and services between each other and the pursuit of a common external trade policy

common market

a group of countries committed to removing all barriers to the free flow of goods, services, and factors of production between each other and the pursuit of a common external trade policy

economic union

a group of countries committed to removing all barriers to the free flow of goods, services, and factors of production between each other; the adoption of a common currecny; the harmonizatin of tax rates; and the pursuit of a common external trade policy

political union

a central political apparatus coordinates economic, social and foreign policy; answers the issue of how to make a coordinating bureacracy accountable to the citizens of member nations

trade creation

trade created due to regional economic integration; occurs when high cost domestic producers are replaced by low cost foreign producers within a free trade area

trade diversion

trade diverted due to regional economic integration; occurs when low cost foreign suppliers outside a free trade are replaced by higher cost suppliers within a free trade area; only benefit if the amount of trade it creates exceed the amount of trade it diverts

European Union

an economic and political union of 28 countries that are located in Europe

Treaty of Rome

the 1957 treaty that established the European Community; provided for the creation of a common market

European Commission

responsible for proposing EU legislation, implementing it, and monitoring compliance

European Council

the head of state of EU members and the president of the European Commission

Treaty of Lisbon

A European Union- sanctioned treaty that will allow the European Parliament to become the co equal legislator for almost all European laws

Court of Justice

Supreme appeals court for EU laws

tariff

a tax levied on imports; specific or ad valorem

import quota

a direct restricition on the quantity of a good that can be imported into a country

tariff rate quota

lower tariff rates applied to imports within the quota than those over the quota

voluntary export restraint

a quota on trade imposed from the exporting country’s side, instead of the importers; usually imposed at the resquest of the importing country’s govt

export tariff

a tax placed on the export of a good

export ban

a policy that partially or entirely restricts the export of a good

local content requirement

a requirement that some specific fraction of a good be produced domestically; provides protection for a domestic producer of parts by limiting foreign competition

administrative trade policies

administrative policies, typically adopted by government bureacracies , that can be used to restrict imports or boost exports

antidumping policies

designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition

countervailing duties

antidumping duties; special tariff

infant industry argument

new industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations

strategic trade policy

govt policy aimed at improving the competitive position of a domestic industry and or domestic firm in the world market

Smoot Hawley Act

enacted in 1930 by the US Congress, this act erected a wall of tariff barriers against imports into the US

multilateral or bilateral trade agreements

reciprocal trade agreements between two or more partners

Hofstede’s framework

1:1 ratio with country and culture