Complete WGU D080 fully comprehensive Exam Questions Bank With Complete expert curated questions and answers + rationales

What is globalization?

When international integration arises from the interchange of world views, products, ideas and cultures.

What business opportunities are presented by globalization?

New and large international markets offers possible more revenues, lower costs, and access to advanced technology

What are the economic effects of globalization?

More trade, investment, information, technology, faster economic development and increased social well being

What are the political effects of globalization?

Positive: more cooperation among countries, formation of international or regional organizations. Negative: Reduces the importance of nation-states- loss of sovereignty and power of local government.

What are the cultural effects of globalization?

Positive: awareness of international community. Negative: Loss of uniqueness of a countrys culture

What are the arguments for globalization from a country's perspective?

More trade, investment, information, technology, faster economic development and increased social well being

What are the arguments against globalization from a country's perspective?

Needs to understand foreign legal and political policies, Benefits the rich at the expense of the poor, manufacturing job loss in developed countries, environmental damage, and unethical practices of labor

Explain the five stages of entering a global market.

1. First stage (market entry),

Companies enter new country's using business models similar to the ones in home market.

2. Second stage (product specialization),

Companies transfer the full production process of a product to a single location to save cost, to take advantages of other countries comparative advantages

3. Third stage (value chain disaggregation)

Desegregating the the production process and focus on completing each activity in a better location. (different areas)

4. Fourth stage (value chain reengineering),

Companies seek to further increase their cost savings by reengineering their production process to suit local market conditions by substituting lower cost labor for capital

5. Fifth stage (creation of new markets)

New demand allows companies to lower their sticker prices in both new and old markets because it will lower production cost

Explain Four drivers of globalization.

1. Market - explain convergence of needs,

Allows companies to lower their sticker prices in both new and old markets. Opportunity for scale and convergence of needs

2. Cost - define economies of scale and economies of scope

Refers to product development, manufacturing, and sourcing.

Economies of scale: A proportionate savings in costs gained by an increased level of production.

Economies of scope: To develop efficiencies in terms of variety not volume

3. Competition - New markets, increased level of trade.

4. Government - favorable policies and support for industry

What is the difference between the world is flat view and the CAGE analysis?

Flat View: The use of technology and internet has made it easier for businesses to conduct global operation.

CAGE analysis

1."C" is for culture - cultural differences could reduce countrys trade volume

2."A" is for administration -Administrative similar countries trade more and countries hold membership of the same trade bloc trade more

3."G" is for geography - Location

Geographic differences also include time zones, access to ocean ports, shared borders, topography, and climate impact trade volume

4."E" is for economic distance - differences in Socioeconomic and demiographic.

the most apparent economic difference between countries is size (compared with GDP: a measure of the goods produced and services provided by a country in one year). Another difference is per capita income. This distance is likely to have the most significant effect when the nature of demand varies with income level, economies of scale are limited, cost differences are significant, the distribution or business systems are different, or organizations have to be highly responsive to their customers' concerns.

What are the benefits of global expansion from MNCs' perspective?

Unsaturated demand for new product

Lower labor costs

Less expensive natural resources and other input to products

Higher revenue or lower structure cost

What are the costs of global expansion from MNCs' perspective?

Ethical business practice (ethical business practices in areas such as labor, product safety, environmental stewardship)

Organizational structure (incorporating new regions to the value chain and corporate structure)

Public relations( challenges effectively localizing the message and determining the capital expenditures necessary to create momentum.)

Leadership(difficult for businesses to find effective organizational leadership that have the appropriate knowledge and skills to approach a given geographic market successfully)

Legal and regulatory structure(MNCs need access to legal expertise that will help them understand in-country laws and comply with applicable regulations.)

List five different political systems and differentiate them.

Anarchy

Monarchy

Democracy

Oligarchy

Dictatorship

Anarchy or the absence of organized government

No govt is needed, individuals control the country- does not facilitate a desirable living environment for society, but it is much harder for individuals to agree upon the particulars of how a population should be governed.

Monarchy

King or Queen rules the country

A single person rules until he or she dies or abdicates the throne.

Power can vary by type: absolute, constitutional, or a mix of both.

ex: Constitutional: Canada, Great Britain, Japan

Absolute: Saudi Arabia, Qatar

Democracy

Citizens organize political parties. Equal voice or vote in determining policy but government is involved

EX: US

Oligarchy

Owned by a small group of elite people, achieves power due to military, economic or other powers

Status not achieved through noble ancestry

EX: Russia, Venezuela, and china

Dictatorship

Single person is in charge. Wields complete and absolute authority over a government and population

EX: North Korea

Anarchy

No countries are ruled by anarchy, but some regions in Afghanistan and Somalia

Absolute monarchy

a form of government where a single ruler, typically a king or queen, holds supreme and unlimited power, not bound by laws or a constitution

EX: United Kingdom

Constitutional monarchy

a system of government where a monarch (king or queen) serves as head of state, but their powers are limited by a constitution

EX: Australia

Oligarchy

Russia, S. Korea

Dictatorship

Libya or Germany during WWI and WWII

Democracy

United States of America

List four different economic systems

1. Traditional Economy

2. Market Economy

3. Command Economy

4. Mixed Economies

Traditional Economy

Centered around a family tradition, everyone consumes the same goods, relies on bartering, no surplus

Market Economy

The market controls the distribution of resources by supply and demand, minimum government control.

Command Economy

Controlled by the ruling class and all resources are owned by the government

Mixed Economies

The market is the major determining power, but partial government regulation as needed

Please provide three legal systems

1. Civil law

2. Common Law

3. Religious law

Civil law

The judge applies law code, rarely uses the jury. applied in continental europe and latin and central american countries

Common Law

The judge interprets the law, uses the jury to determine facts. Applied in the US, UK , wales, australia, canada

Religious Law

Also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, that is, Sharia, talmudic law, cannon law, customary law

Islamic law and prohibition of interest

The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. Sharia has clear guidelines for many aspects of life. For example, in Islamic law, business is directly impacted by the concept of interest; banks cannot charge or benefit from interest. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. Some banks will charge a hefty up-front fee. Many are permitted to engage in sale buyback or leaseback of an asset.

Christian Canon Law

The Christian Canon system is not practiced at the national level in any country. Canon law is the body of laws and regulations made by the ecclesiastical authority governing Christian communities. Canon law was the basis for much of the Western legal tradition used today. The Christian Canon system is observed in Vatican City.

Talmudic law

The Talmudic legal system relies on the written opinions of those well-trained in law. This applies in some countries and regions in which the Jewish population is heavily concentrated. The sources of law in this system are the written and oral Torah and the Talmud.

What are the International Monetary Fund (IMF) major functions?

primary purpose is to ensure the stability of the international monetary system - the system of exchange rates and international payments that enables countries and their citizens to transact with each other.

Its membership is comprised of countries working to promote global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.

EX: of the primary purpose is the fixed-rate currency exchange system

What are the International Monetary Fund (IMF) goals?

Initial goal: restore international payment system oversee the fixed exchange rate system (brenton wood system).

Current goal: Monitor the exchange rate system and stabilize exchange rates; guide member countries to develop economic polices; correct the debt issue (correct temporary trade imbalances with short term loans)

IMF is like a credit union that serves only the member nations

What are the IMF's conditionalities?

a set of policies or conditions that the IMF requires in exchange for financial resources. The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its financial practices that led to debt in the form of policy reform. If the conditions are not met, the funds are withheld.

These loan conditions ensure that the borrowing country will be able to repay the fund and that the country will not attempt to solve their balance of payment problems in a way that could negatively impact the international economy.

Conditions or policy commitments — explain the reason for loan conditions.

1. Prior actions are actions that a country agrees to before the IMF's executive board approves financing or completes a review. They are intended to verify that the country has a stable financial foundation before qualifying for a loan.

2. Quantitative performance are specific and measurable conditions that a country must meet to complete a review.

3. Indicative targets are quantitative targets used to measure a country's progress in meeting the IMF's requirements.

4. Structural benchmarks are non-quantitative measures such as social safety nets.

What is the IMF Quota System and its role in the Special Drawing Right?

The IMF Quota System is a foundational element of the International Monetary Fund (IMF), determining member countries' financial contributions, access to financing, and voting power within the institution. Each member is assigned a quota, which is a financial commitment reflecting its relative standing in the global economy

SDRs were created in 1969 by the IMF in response to the Triffin paradox. The Triffin paradox occurs when there is a conflict of economic interests between the short-term goals of the country and the long-term goals of the international community

Each country has two accounts: its SDR holdings and SDR allocations. The country earns interest on its holdings and pays interest on its allocation. If the country does not borrow any money, its interest earned equals its interest paid. If a country exchanges SDRs for freely usable currency, the countries holdings fall below its allocation, and it must pay interest. The opposite is also true. Countries in a strong financial position can lend SDRs to countries in a weaker position

What are the four criticisms on the IMF?

1. Blaming IMF loans for the exploitation of natural resources. Some say that the IMF does not consider the effect of its projects on the environment. Also, the struggle to pay back IMF loans can lead to practices which damage natural resources in order to get adequate capital to repay loans

2. biased and inconsistent policy decision-making. Two examples include support for dictatorships and monetary support for Greece. Critics say that the loan to Greece was to bail-out its debt holders, other European countries, instead of relief for Greek citizens (Bretton Woods Project, 2019).

3. Austerity policies- The IMF often requires borrowing countries to implement austerity measures, such as reducing government spending and raising taxes, as well as structural adjustment programs, like privatization and deregulation. These policies can lead to job losses, cuts in social services, and increased inequality, particularly in already vulnerable populations

4. Imbalance of power- can lead to requirements for loans that undermine the local government. In addition, an untoward comment from the IMF about a country's governing process may make it more challenging for that country to get loans from more traditional sources

*Imbalance of voting power- poorer countries are underrepresented. IMF policies are significantly impacted by rich countries

*Conditionally causes the citizens of the borrowing country to pay a heavy price in the might. Requiring borrowing countries to make structural adjustment such as privatization or deregulation can make structural worse in a struggling country

*IMF projects might hurt environmental quality

What are the World Bank's major functions?

Support development of poor nations; fight improve improve life quality in developing area

Set up criteria for long term loans

Part TWO - What are the World Bank's major functions?

1. Reduction of extreme poverty

For impoverished developing countries, the bank's assistance plans are based on poverty reduction strategies. By combining a cross-section of local groups with an extensive analysis of the country's financial and economic situation, the World Bank develops a strategy uniquely designed for the country in need. The government then identifies the country's priorities and targets for the reduction of poverty.

2. Long-term, low interest loans for development projects

In the real world, the World Bank provides loans for development. The World Bank has loan programs for developed countries to develop further and rebuild after a natural disaster and specific programs to aid developing nations.

What are the World Bank's three criticisms?

1 Imbalance of power—voting share

2. Enforced Conditionality and austerity measures causes harm to developing countries

3. Impact on environment damage caused by funded projects

Explain the World Bank's criticisms - Imbalance of power

The hegemony or power imbalance in the leadership of both organizations. Since voting shares are determined based on the size and "openness" of the countries, the power is in the United States, European countries, and Japan.

Explain the World Bank's criticisms - Conditionality and austerity measures

Enforced conditionality or structural reforms, causing harm, not help to developing countries. For the World Bank, conditionality most directly comes from its Development Policy Operations, where loans are issued after completion of prior actions.

Explain the World Bank's criticisms - Impact on environment

Not considering how funding projects will adversely affect the environment. One example of how funding a project can negatively impact the environment was the Western Poverty Reduction Project in China that required resettling 37,000 ethnic Chinese in Tibet. Another example is the Baku-Ceyhan pipeline, which critics say will increase regional pollution, increase dependency on fossil fuels, lead to environmental damage, and contribute to human rights abuses.

What are the WTO's TWO major functions?

1. Oversee agreements- Oversee the implementation and administration of the trade agreements between nations that are under the WTO's scope of authority. The WTO trade agreements cover goods, services, and intellectual property.

2. Settle dispute- Provide a forum for negotiations and the settling of disputes among nations.

The World Trade Organization serves as trade moderator in the world, enforcing rules and reviewing each government's trade policies to evaluate them for fairness and transparency

What are the WTO's TWO rules?

1. Transparency of trade policy- All WTO members must publish, undergo a review of, and notify any changes in their trade regulations.

2. Ensure non-discrimination and the most favored nation (MFN) status- Most-favored-nation (MFN) status requires that a WTO member must apply the same terms and conditions to trade with all other WTO members. In other words, if a country grants another country (even a non-WTO member) a special favor, then every other WTO member must get the same treatment.

What are the WTO's TWO rounds of negotiations?

1. Uruguay Round- is an agreement that dramatically lowers trade barriers (tariffs) worldwide. has started the protection on the intellectual property rights for global business.

2. Doha Round- Emerging countries say that subsidies stimulate overproduction, which drives down global agricultural prices. Because developing nations' primary exports are agricultural commodities

Criticisms of the WTO (World trade organization)

i. Transparency policy criticism- If a country wants to institute rules and regulations to protect its workers, industries, or environment, these must be made available to the WTO. Critics say that this required review compromises national sovereignty. On the other hand, the negotiations of the WTO are not transparent and tend to progress slowly. asks if it is fair to criticize the WTO for requiring transparency when each country agreed to abide by the requirements of the WTO when they joined the organization.

*Transparency requirement hurts national sovereignty

ii. The MFN rule criticism- have been accused of ignoring environmental concerns. Critics say environmental protection should also be a goal (Pettinger, 2017). The inability to restrict imports from countries that do not have high worker protection standards and high environmental protection laws encourages a downgrade of overall standards and does not force countries with lower standards to be motivated to improve.

iii. Criticism on the adoption of the labor standard- requires member countries to adopt appropriate labor standards to protect labor rights. Many developing countries state that maintaining labor standards acts as to a "barrier to free trade" for countries whose competitive advantage is cheap labor. The WTO response is that developing country members resist including labor standards in the WTO because they see it as a cover for protectionism for developed countries. The WTO argues that better working conditions and improved labor rights are brought about by economic growth, not by protectionism.

* The impact of free trade on the labor rights

Continued Criticisms of the WTO (World trade organization)

iv. Criticism on trade rules that protect developed nations- Most developed countries used a system of tariff protections in their development phase. The WTO trade rules prohibit this. For this reason, critics feel that the WTO trade rules protect developed countries more than developing countries. In addition, these policies, which do not allow some protectionism of developing countries, limit diversification. It is challenging to build a new industry or product without some tariff protection.

*The trade rules protect developed countries more than developing countries

i. Criticism on free trade's impact on environmental quality- WTO countries have the right to take actions to protect the environment. The WTO does not have to permit them to exercise this right. Any country is free to exercise the right to follow its legislature.

* WTO has been ignoring environmental concerns

ii. Criticism on the use of agriculture subsidy-Free trade is not equal across all industries. Developed nations such as the U.S. and Japan urge developing nations to reduce agriculture tariffs while the developed nations have high tariffs on importing foreign made agricultural products.

*Agriculture product subsidy hurt developing countries--related to doha round

List seven international trade theories.

Mercantilism

Neo-mercantilism

Absolute advantage

Comparative advantage

Heckscher-Ohlin Theory

Country Similarity Theory

Global Strategic Rivalry Theory

Define and explain international trade theory - Mercantilism

- a country's wealth was determined by the amount of gold and silver they had in their possession (trade surplus: more export, less import)

- believed that a country should increase its holdings of gold and silver by promoting export and discouraging imports . The objective of each country was to have a trade surplus. Nations promote a trade surplus by imposing restrictions on imports. This strategy is called protectionism.

- mercantilism's protectionist policies only benefit select industries at the expense of both consumers and other companies inside and outside the industry

Define and explain international trade theory - Neo-mercantilism

the countries promote a combination of protectionist policies and restrictions and domestic industry subsidies. Nearly every country at one point or another has implemented some form of protectionist policy to guard critical industries in its economy.

-Taxpayers pay for government subsidies of select exports in the form of higher taxes. Import restrictions lead to higher prices for consumers, who pay more for foreign-made goods or services. Free trade advocates highlight how free trade benefits all members of the global community,

Define and explain international trade theory - Absolute advantage

focused on the ability of a country to produce a good more efficiently than another nation. Smith reasoned that trade between countries should not be regulated or restricted by government policy or intervention. He stated that trade should flow naturally according to market forces. In a hypothetical two-country world, if country A could produce a good cheaper or faster (or both) than country B, then country A had the advantage and could focus on specializing in the production of that good.

-A country has an absolute advantage in producing a good over another country if it uses fewer resources to create that good.

Define and explain international trade theory - Comparative advantage

having the ability to produce a good or service at the lowest opportunity cost. Opportunity cost is the sacrifice of the next best alternative - when you produce more of one good or service, you give up production of another good or service. Comparative advantage occurs when a country might not be able to produce a product more efficiently than the other country, but it can produce that product better and more efficiently than it does for other goods.

Define and explain international trade theory - Heckscher-Ohlin Theory

how a country could gain a comparative advantage by producing products that used factors that were in abundance in the country. Their theory is based on a country's natural resources and technology—land, labor, and capital, which provide the funds for investment in plants and equipment. They determined that the cost of any factor or resource was a function of supply and demand. Factors that were in abundant supply relative to demand would be cheaper; factors in high demand relative to supply would be more expensive

- AKA factor endowment theory

Define and explain international trade theory - Country Similarity Theory

most trade in manufactured goods will be between countries with similar per capita incomes, and intra-industry trade will be standard. This theory is often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyers' decision-making and purchasing processes.

Define and explain international trade theory - Global Strategic Rivalry Theory

focuses on companies' efforts to gain competitive advantages by setting up barriers to entry to new firms by going global, IP rights, economies of scale, and control of resources

What is specialization?

Specialization: The country can only produce one product not both, it is determined by the absolute advantage of that country. "Economies of scale can result from the ability to divide labor into smaller parts, which allows for increased specialization. If a task is divided into smaller tasks and each of these tasks is assigned to a person who has a comparative advantage in completing this task, then the overall efficiency of production should improve. The division of labor can extend to the inputs of production other than labor and can extend across borders.

What are the three concerns on free trade's impact on manufacturing jobs in developed nations and labor rights in developing nations?

1. The cost is going to vary based on how the country is doing. If the country is already developed and has a system, the cost will be a lot lower to produce a product than those that are still developing because they haven't found the very best product yet because they are still improving themselves. So those still developing aren't going to have as many benefits and help and their cost to manufacture goods will be higher, therefore, the price consumers pay will be higher than those in already developed countries.

*Possible manufacturing job loss in developed nations

2. Vietnam may be able to produce at a lower cost than the U.S. because maybe Vietnam has lower wages for the employees, or maybe Vietnam has to pay less for an item because of some agreement or less shipping fees. There are many reason's why one country may spend less than another.

*Labor standards and working conditions are concerned in developing nations

3. When a foreign supplier can produce a product, such as steel, at a lower price, domestic suppliers will need to offer the same price to compete in the domestic market as they face global competition due to free trade. At this lower price, the quantity produced by the domestic steel producer falls, however, the quantity demanded by the consumer will increase.

*domestic business faces challenges

List seven types of tariffs.

1. Import tariff

2. Export tariff

3. Revenue tariff

4. Protective tariff

5. Specific tariff

6. Ad valorem tariff

7. Compound tariff

1. Import tariff

Taxes on goods that are imported into a country. They are more common than export tariffs.

2. Export tariff

Taxes on goods that are leaving a country. Taxing exports may be implemented to raise tariff revenue or restrict the world supply of a good.

3. Revenue tariff

Tariffs levied to raise revenue for the government.

4. Protective tariff

Tariffs are levied to reduce imports of a product and protect domestic businesses

5. Specific tariff

Tariffs levy a flat rate on each item imported. For example, a specific tariff would be a fixed $1,000 duty on every car imported into a country, regardless of how much the car costs.

6. Ad valorem tariff

Tariffs are based on a percentage of the value of each item. The United States currently levies a 2.5% ad valorem tariff on imported automobiles. Thus, if $100,000 worth of automobiles is imported, the U.S. government collects $2,500 in tariff revenue. In this case, $2,500 is collected whether two $50,000 BMWs or ten $10,000 Hyundais are imported.

7. Compound tariff

Tariffs are a combination of specific tariffs and ad valorem tariffs. For example, a compound tariff might consist of a fixed $100 duty plus 10% of the value of every imported car.

How does tariff impact import prices, quantity of imported product, consumers, domestic businesses, and the government? What will be the impact of the U.S. government imposing a tariff on lower-priced, foreign-manufactured products

The tariff raises the price of imported steel. The price will not go as high as the original domestic price, but will be higher than the price with free trade — the new price is shown as the blue line in the figure below. At this higher price, the domestic steel producers will produce more steel and gain back part of the domestic steel market, which will lead to better jobs and salaries for steelworkers.

How does tariff impact import prices, quantity of imported product, consumers, domestic businesses, and the government? Who will benefit, and who will lose when a tariff is imposed?

The government also benefits from the tariff by collecting the tax on imports. The domestic consumers now pay a higher price and therefore will demand less steel. Notice the imports with the tariff are also lower than they were with free trade.

What is quota?

Quotas are limitations on imported goods.

A quota can be a limit on the number of items that can be imported, or it can be a limit on the value of items that can be imported.

Define absolute quota and provide an example.

A quota that strictly limits the quantity of goods that may enter a country.

EX: suppose an absolute, global quota for pens is set at 50 million. The government is setting a limit that, in total, only 50 million pens can be imported.

Define tariff-rate quota and provide an example?

A quota that permits a specified quantity of imported goods to enter a country at a reduced rate during the quota period.

For example, under a tariff-rate quota system, a country may allow 50 million pens to be imported at the low tariff rate of $1 each. Any pen that is imported after this first-tier quota has been reached would be charged a higher tariff, say, $3 each.

How does quota impact import prices, quantity of imported product, consumers, and domestic businesses?

Like with a tariff, with a quota, the domestic producer sells more steel than if there was free trade, so its revenues will go up. The increased revenue may trickle down to the workers in the steel industry in the form of increased wages and jobs. The government earns additional income if it sells quota licenses or with a tariff-rate quota The foreign producer sells less under a quota than they would have had under free trade. Since the quota decreases the foreign supply which increases the price, the domestic consumer also loses.

Explain sanctions and embargoes?

Sanctions: are laws passed that restrict or abolish trade with certain Countries.

Embargoes: are prohibitions on trade that ban imports or exports and may apply to certain categories of products or strictly to goods supplied by certain countries.

Describe what are infant industries how governments protect them.

The primary purpose of the infant industry argument is as the name implies: protection. Newer industries are inherently competitive and are highly vulnerable to their more developed counterparts in other countries for a variety of reasons. Countries that get a late start in a particular industry need protection for a period of time until they have become efficient enough to compete in the world market.

Describe dumping and explain countervailing and anti-dumping duties/policies.

Dumping is the practice of charging a lower price for a product (perhaps below cost) in foreign markets than in the firm's home market. The government can use antidumping tariff to restrict dumping

Countervailing and anti-dumping duties, or anti-subsidy duties, are extra duties levied on imports to neutralize an export subsidy. If a country discovers that a foreign country subsidizes its exports, and domestic producers are injured as a result, a countervailing duty can be imposed to reduce the export subsidy advantage.

Explain how governments can offset the effects of mergers, acquisitions and market dominance.

Another threat leading to unfair competition is the emergence of global monopolies. Some of the larger ones attain enough global power and geographic diversification to be difficult to break up via domestic antitrust laws.

On the domestic level, monopolies are fairly easily seen as being addressed. On a global scale, however, it is difficult to regulate monopolies, as the size and scale of these companies often extend beyond the power of the governments where these companies are located. Monopolies are addressed through international standards and trade agreements, standardizing governmental policy on a global level to reduce the risk of monopoly and unfair consolidation toward market dominance.

With global expansion, mergers, and acquisitions, monopolies have become more powerful and difficult to control as their market power increases

Explain how and why governments intervene to limit outsourcing.

This idea of limiting outsourcing in the light of the protectionist jobs argument has resulted in governmental subsidies that work to offset the costs of manufacturing domestically (in the United States particularly). These subsidies are essentially grants or tax breaks for companies operating domestically and creating jobs, driving up employment rates via protectionist strategies.

Explain health and safety measures. Add a description of sanitary phytosanitary measures.

Governments can ban trade of products for reasons of health and safety. One of the functions of government in most countries is to oversee the safety of products, both generally and more specifically in terms of health risks. In the United States, the Food and Drug Administration certifies factories and food processing and oversees the approval of pharmaceuticals.

Sanitary and phytosanitary measures: These are health standards for plants, animals, and other products, and are designed to protect humans, animals, and plants from pests or diseases.

Define and compare portfolio investment and foreign direct investment.

Portfolio investment refers to act of investing in a company's stocks, bonds, or assets, but not to control or direct the firm's operations or management. Typically, investors in this category are looking for a financial rate of return, and to diversifying investment risk through multiple markets.

Foreign direct investment (FDI) refers to an investment in or the acquisition of foreign assets with the intent to control and manage them.

Identify the reasons that governments promote FDI.

Governments seek to promote FDI when they are eager to expand their domestic economy and attract new technologies, business knowledge, and capital to their country.

Identify the five strategies that governments promote FDI.

1. Government incentives

International investment agreements ensure that foreign investors are treated fairly and equally to their domestic counterparts. Host countries offer businesses a combination of tax incentives and loans to invest. Home-country governments may also provide a combination of insurance, loans, and tax breaks to promote their companies' overseas investments.

2. Local infrastructure

Host governments improve or enhance local infrastructure energy, transportation, and communications to encourage specific industries to invest. This also serves to improve the local conditions for domestic firms.

3. Reduce bureaucracy

Host-country governments streamline the process of establishing offices or production in their countries. By reducing bureaucracy and regulatory environments, these countries appear more attractive to foreign firms. They seek to reassure businesses that the local operating conditions are stable, transparent (i.e., policies are clearly stated and in the public domain), and unlikely to change.

4. Workforce

Countries seek to improve their workforce through education and job training. An educated and skilled workforce is an important investment criterion for many global businesses.

5. Export processing zones

Governments can create export processing zones or special economic zones to attract FDI. Export processing zones or special economic zones are usually a distinct geographic area near a port that is ready to promote export industries. There are nearly 5,400 zones across 147 economies. These zones can attract investment, create jobs, and boost exports. Export processing zones frequently have different regulations than the rest of the country which helps encourage investment.

Identify the reasons that governments restrict FDI.

Governments want to be able to control and regulate the flow of FDI so that local political and economic concerns are addressed. Global businesses are most interested in using FDI to benefit their companies. As a result, these two players governments and companies can at times be at odds. It is essential to understand why companies use FDI as a business strategy and how governments regulate and manage FDI.

Identify the strategies that governments restrict FDI.

1. Host governments can specify ownership restrictions if they want to keep control of local markets or industries in their citizens' hands. Some countries, such as Malaysia, go even further and encourage that ownership is maintained by a person of Malay origin, known locally as Bumiputera. Although the country's foreign investment committee guidelines are being relaxed, most foreign businesses understand that having a Bumiputera partner will improve their chances of obtaining favorable contracts in Malaysia.

2. A company's home government usually imposes taxes and sanctions to persuade companies to invest in the domestic market rather than a foreign one.

3. Foreign investors may be required to purchase a certain percentage of intermediate goods from the host countries.

4. Changes in governments or changes in policies may lead to governments choosing to expropriate foreign assets to nationalize critical industries such as oil, electric power, mines, and telecommunications. When this occurs, the foreign investor generally receives little to no compensation.

Define horizontal FDI.

Horizontal FDI occurs when a company is trying to open a new market and establishes the same type of business operation in that foreign market—a retailer, for example, that builds a store in a new country to sell to the local market.

Define vertical FDI. Give an example for each.

Vertical FDI is when a company invests internationally within the supply chain of the company. The company could invest in the supplier field or distributor field. A firm may invest in establishing production facilities in another country to produce parts for the final production.

Define and differentiate backward vertical FDI and forward vertical FDI?

Backwards Vertical FDI:A firm may invest in establishing production facilities in another country to produce parts for the final production. Since the supply field is one step back in the supply chain of the final production. . The auto, oil, and infrastructure (which includes industries related to enhancing the infrastructure of a country—i.e., energy, communications, and transportation) industries are good examples of firms engaging in backward vertical FDI. Firms from these industries invest in production or plant facilities in a country to supply raw materials, parts.

Forward vertical FDI: When a firm invests internationally in the distribution field, i.e. sells the goods or distributes goods into a foreign market (i.e., acting as a distributor), this is termed forward vertical FDI as this is one step moving forward in the supply chain after the final production is done.

Define greenfield FDIs.

Greenfield FDIs: when multinational corporations enter into host countries to build new facilities where none previously existed.

Coca-Cola, McDonald's and Starbucks are great examples of U.S. firms that have invested in greenfield projects around the world.

Define brownfield FDIs.

Brownfield FDI: when a company or government entity purchases or leases existing production facilities to launch a new production activity.

Example, a company that makes hammers may buy a factory that previously made screwdrivers in order to expand their hammer-making operations.

Explain what is a Multinational Corporation MNC.

Multinational companies are corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located.

Multinational corporations are change agents that drive trade and investment flows that allow for economic growth.

Provide explanations and examples for Overcome trade problems.

Benefits: brings in more money and job, can often overcome trade problems, economic integration among countries, ability to sidestep regulatory problems, shift production from one plant to another as market conditions change, tap new technology from around the world, save a lot in labor costs.

Example - Taiwan and South Korea have long had an embargo against Japanese cars for political reasons and to help domestic automakers. Yet, Honda USA, a Japanese-owned company based in the United States, sends Accords to Taiwan and Korea. A second example, when the environmentally-conscious Green movement challenged the biotechnology research conducted by BASF, a prominent German chemical and drug manufacturer, BASF moved its cancer and immune-system research to Cambridge, Massachusetts.

Provide explanations and examples for Sidestep regulatory problems.

Ability to sidestep regulatory problems. Shift production from one plant to another as market conditions change. Tap new technology from around the world. Save a lot in labor costs.

U.S. drug maker SmithKline and Britain's Beecham decided to merge, in part, so that they could avoid licensing and regulatory hassles in their largest markets. The merged company can say it's an insider in both Europe and the United States.

Provide explanations and examples for Expand market.

The need for businesses to expand their markets is perhaps the most fundamental reason for the growth in world trade. The limited size of domestic markets often motivates managers to seek markets beyond their national frontiers. The economies of large-scale manufacturing demand big markets. Domestic markets, particularly in smaller countries like Denmark and the Netherlands, cannot generate enough demand. Nestlé was one of the first businesses to "go global" because its home country, Switzerland, is so tiny. Nestlé was shipping milk to Sixteen different countries as early as 1875.

Provide explanations and examples for Shift production.

When European demand for a particular solvent declined, Dow Chemical instructed its German plant to switch to manufacturing a chemical that had been imported from Louisiana and Texas. Computer models help Dow make decisions like these so it can run its plants more efficiently and keep costs down.

Provide explanations and examples for Tap new technology.

In the United States, Xerox has introduced some 80 different office copiers that were designed and built by Fuji Xerox, its joint venture with a Japanese company. Versions of the super-concentrated detergent that Procter & Gamble first formulated in Japan in response to a rival's product are now being sold under the Ariel brand name in Europe and under the Cheer and Tide labels in the United States.

Provide explanations and examples for Save on labor cost.

For example, when Xerox started moving copier rebuilding work to Mexico to take advantage of the lower wages, its union in Rochester, New York, objected because it saw that members' jobs were at risk. Eventually, the union agreed to change work styles and to improve productivity to keep the jobs at home.