Global Business 3200-08 Midterm

International Business

Business activities that involve the transfer of resources (raw materials,capital, and people), goods (semi-finished and finished assembly products),services, skills (including property rights), or information across national boundaries

What is a Multinational Corporation (MNC)

A firm that engages in foreign direct investment in at least one working affiliate (e.g., a factory or branch office) in another country

Globalization

the broadening and deepening of interactions and interdependencies among people and countries of the world

Localization

the segmentation and contraction of the interactions and interdependencies among people and countries of the world

Semi-Globalization

Flows of integration significant but not fully integrated

How do we measure semi-globalization and where do we start from, according to Ghemawat?

Four pillars of Global Connectedness in 4 levels

What is a Global Value Chain (GVC)

The set of production stages that convert raw inputs into a finished product, with multiple stages carried out in different countries.

First Unbundling:

Separation of production and consumption due to the decrease in transportation cost (e.g., locomotive, containerization)

Second Unbundling:

Separation of production system (activities) due to the decrease in communication cost (e.g., phone, internet)

Activities

required to transform raw material into final products: Pre-production, production, post-production, logistics

Actors (Economic)

Multinational Lead Firms• Ownership: Outsourcing, Self-Ownership Suppliers: Contract Manufacturers, Component Suppliers, Sourcing Agents, Logistic Providers

Location

•Onshoring, Offshoring• Location Choices: Comparative Advantage/Absolute advantage

Pre-Production

Product Definition and Design: What does the product do? Who designs its purpose and architecture?

Production

Material Inputs -What types of materials and components are needed to make the product? Where and how are they produced?• Manufacturing Process - How are the inputs transformed to produce the final product? Where does this activity take place across the word?

Post-Production

Sales/Services - How is the final product sold to the customer? Who is responsible for the product's long-term quality and effectiveness?

Logistics

Moving Goods: How are intermediate and final products moved to desired locations across the world? Who moves them?

Contract Manufacturers

Dedicated manufacturers who provide manufacturing on demand as a service to lead firms

Race to the Bottom

Firms relocate to low-cost/low-regulation areas

What is "Living Income"?

Is defined as sufficient income to afford a decent standard of living for all household members

National trade policies:

The primary tool that national governments hold to make rules and standards in global value chain

Mercantilism

Economic policy that assumes a nation's wealth depends on accumulated treasure (maximize export, minimize import)

Absolute Advantage

Theory proposed by Adam Smith that countries should specialize in what they are most efficient at producing and trade with countries for what they produce most efficiently.

comparative advantage

Theory proposed by David Ricardo saying that countries should specialize in what they can produce with the lowest opportunity cost and trade with other countries for what they produce with the lowest opportunity cost regardless of absolute advantage

Value dilemma

the tension between economic efficiency/benefit from free trade and societal and ethical standards. For example, Consumers generally appreciate the cheap garments made from Bangladeshi factories, but do not appreciate the standards and conditions these workers are subject to.

Distributional Dilemma

the tension between the benefits of free trade and the regional loss of jobs, workers, and opportunities as a result of the free trade. An example would be H1B visas, American business is able to save money on wages by bringing in workers on H1B visas from other countries. This causes American citizens and American born people to lose jobs, opportunities, and higher pay.

Security Dilemma

the tension between international integration in free trade and the threat of national security and potential dependency. For example, Huawei is a Chinese firm that gets subsidies from the Chinese government. Huawei is able to competitively price their products and popularity soared in the US; the US banned the sale of Huawei products as they feared the Chinese brand would soon become the backbone of the industry and threaten their national security.

Sovereignty Dilemma

The tension between a Countries ability to create and enforce thier own rules and the sacrifice of this autonomy for compliance with ethical standards and trade opportunities

Free Trade:

The ideal situation in which individuals and companies in different countries can buy and sell goods to and from each other without any interference from governments

Tariffs:

tax on an import to make a foreign product more expensive to buy than a domestically made one, upposed to encourage people to buy from their country's producers, insteadof imports.

Quotas:

hard limit on how much of a product a particular country can import. Sometimes instead of stopping all imports above the specified quantity ____will put a tariff on every product above a certain limit

Subsidies:

government programs that give money directly to domestic companies in certain industries. They can also come in the form of tax breaks or other financial benefits, advantaging a domestic industry at the expense of foreign competitors.

Export Controls:

The regulation of products the government decides are important for national security, economic security, or foreign policy. These exports include physical technology, but also intellectual property such as software and research. The export control might require a license to export a certain product, or could prevent the export altogether.

Sourcing Agents

specialize in connecting lead firms to contract manufacturers and/or component suppliers as well as negotiating contracts

What concepts are linked to the Rana Plaza (Bangladesh) Case?

Race to the Bottom, sovereignty dilemma, multinational responsibility.

Personal Tasks

require physical presence, personal interactions and/or situational adaptability

Impersonal Tasks

do not require physical co-location and therefore can be more easily transferred across borders

Routine tasks

can be accomplished by following a set of specific, well-defined rules

Non-routine tasks

require more complicated activities, like creative problem solving and decision making, that can not be completely specified in a clear algorithm

What are the 3 corners of the Kantian Triangle

International Organizations, Democracy, Economic interdependence

International Organizations role in the Kantian Triangle

Adherenceto international law and organizations

Democracy's role in the Kantian Triangle

Equal playing field with rule of law

Economic Interdependences role in the Kantian Triangle

Free and open markets

What are Multilateral organizations?

formed by three or more nations to work together on issues of common interest and global priority

What is GATT?

General Agreement on Tariffs and Trade, as established in 1947 to liberalize trade barriers

What was the primary purpose of GATT?

increase international trade by eliminating or reducing various tariffs, quotas and subsidies while maintaining meaningful regulations

What was GATT transformed into?

the World Trade Organization (WTO)

What is the goal of the WTO?

to ensure that trade flows as smoothly, predictably and freely as possible

What is the WTO's most important principle?

Most Favored Nation• Any preferential treatment offered to one member country must be extended to all other members (non-discrimination)

What is an exception to WTO?

Regional Trade Agreements (RTAs), countries just need to notify the WTO

What are the four pillars of semi-globalization according to Ghemwat

Trade, Capital, Information, and People