Global Business Exam 1 (Ch. 1-4)

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globalization of markets

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cr: allie_rodusky32

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globalization of markets

merging of historically distinct and separate national markets into one huge global marketplace

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globalization of production

sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production

- hope to lower overall cost structure/improve quality or functioning of product offering

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World Trade Organization (WTO)

policing the world trading system and making sure nation-states adhere to rules laid down in treaties signed by the WTO states

- facilitating the establishment of multinational agreements among WTO states

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International Monetary Fund (IMF)

maintain order in international monetary system, seen as lender of last-resort to nation-states who are in economic turmoil and currencies are losing value

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World Bank

set up to promote economic development, focused on making low-interest loans to cash-strapped governments in poor nations that want to invest in infrastructure

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United Nations (UN)

promote peace, security, cooperation

- maintain international peace and security

- develop friendly relations among nations

- cooperate in solving international problems and in promoting respect for human rights

- be a center for harmonizing actions of nations

- promoting high standards of living, full employment, conditions of economic and social progress/development

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Group of Twenty (G20)

finance ministers and central bank governors of 19 largest economies in the world and representatives from the EU and European Central Bank

- coordinated response to financial crises in developing nations

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foreign direct investment

when a firm invests in resources in business activities outside its home country

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facilitator of international trade

- lowering barriers to international trade, investment

- increased number of trade agreements

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world trade increasing faster than GDP

- dispersing production process to different locations

- economies more intertwined, becoming dependent on each other

- world has become wealthier

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role of technological change

communications, internet, transportation technology

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implications for globalization of markets

- low-cost global communication networks creating electronic global marketplaces

- more economical to ship around the world

- mass movement of people between countries reduces cultural distances

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implications for globalization of production

- more economical to send products to different geographic locations

- costs of information processing and communication have fallen

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consequences of changes in FDI

- invest more outside our home country

- growth in cross-border flows of FDI

- increasing importance of developing nations as a destination of FDI

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multinational enterprise

any business that has productive activities in two or more countries

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antiglobalization protests

- protest job loss, wage rates, etc.

- negative impact on living standards, wages, environment

- loss of time and distance

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globalization, jobs and income

- concern that international trade ruined jobs in wealthy economics and causing increased unemployment rates with lower standards of living in their home country

- can be refuted because benefits outweigh the costs

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globalization, labor policies and the environment

- argue that following labor and environmental regulations will increase the cost of manufacturing enterprises

- by improving economic wealth, will strengthen environmental and labor laws and decrease pollution

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economic stagnation

- usually totalitarian government

- economic policies destroyed wealth instead of creating it

- little protection for property rights

- endemic corruption

- prolonged civil war

- debt burdens leave little left to invest in other important projects

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debt relief movement

- allows chance to restructure economies

- relief must be matched by investment in public projects that boost economic growth and adoption of economic policies that facilitate investment and trade

- rich nations can reduce barriers to importation of products from poor nations so the poor nations can export more agricultural production

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international business differences

- countries are different

- range of problems that are more complex

- find ways to work within the limits imposed by government intervention in international trade and investments

- international transactions involves converting currencies

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collective goals over individual goals

- needs of a society more important

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public ownership of means of production for common good of society

- if state owned the means of production, state could ensure that workers were fully compensated for their labor

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socialism only achieved only through violent revolution and totalitarian dictatorship

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social democrats

achieving socialism by democratic means

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individual should have freedom in their own economic and political pursuits

- interests of individual over collective good

- emphasis on importance of guaranteeing individual freedom and self-expression

- welfare of society is best served by letting people pursue own economic self-interest

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a political system in which government is by the people

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one person or party exercises complete control over all aspects of life and prohibits opposing parties

- all constitutional guarantees that representative democracy has are denied

- political repression, no free/fair elections, censored media, no basic civil liberties, unable to question rulers

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communist totalitarianism

version of collectivism advocating that socialism can be achieved only through totalitarian dictatorship

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theocratic totalitarianism

political power monopolized by a party, group or individual that governs according to religious principles

- Islamic states limiting freedom of political and religious expression with laws based on Islamic principles

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tribal totalitarianism

party, group or individual that represents the interests of a certain tribe monopolizes political power

- politicians from a certain tribe dominating political system in Kenya

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right-wing totalitarianism

political power monopolized by a party, group or individual that permits economic freedom but restricts individual political freedom on the grounds that it would lead to communism

- usually backed by military

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nations between pure democracies and complete totalitarian systems

- authoritarian elements captured some/all of machinery of state and use it in an attempt to deny basic political and civil liberties

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market economy

all productive activities are privately owned

- production determined by interaction of supply and demand

- supply cannot be restricted

- government to encourage free and fair competition between private producers (ban restrictive business practices designed to monopolize a market)

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command economy

government plans goods and services produced, quantity and prices

- collectivist, for good of society

- all businesses are state-owned so government can direct them

- intent to mobilize economic resources for public good but has had opposite effect

- state-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business

- no dynamism and innovation

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mixed economy

certain parts are left to private ownership and free market mechanisms while others have state ownership and government planning

- governments tend to take in firms whose operation is vital to national interests

- US government prefers market-oriented solutions to economic problems

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legal system

rules that regulate behavior along with the processes by which they are enforced

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common law

based on tradition, precedent and custom

- tradition is legal history

- precedent is past cases

- custom is how laws are applied in situations

- degree of flexibility because judge interprets the law

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civil law

detailed set of laws organized into codes

- judges only have power to apply the law

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theocratic law

law is based on religious teachings

- basic foundations cannot be changed if coming from a holy document

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contract law

body of law that governs contract enforcement

- normally for when one party feels that the other has violated the agreement

- very detailed when in common law (more $ but greater flexibility)

- in civil law contracts are shorter

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United Nations Convention on Contracts for the International Sale of Goods

uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have business in different nations

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private action

theft, piracy, blackmail etc by private individuals or groups

- Mafia

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public action

public officials extort income, resources or property itself from property holders

- corruption, demanding bribes, levying excessive taxation, taking assets without redistributing to property owners

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Foreign Corrupt Practices Act

illegal to bribe a foreign government official to obtain or maintain business over which the foreign official has authority

- requires all publicly traded companies to keep detailed record

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intellectual property

product of intellectual activity (computer software, screenplay, chemical formula)

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grants inventor exclusive rights for a defined period to the manufacture, use or sale of the invention

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

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designs and names that are officially registered where merchants and manufacturers designate and differentiate their products

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World Intellectual Property Organization

An international organization whose members sign treaties to agree to protect intellectual property

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Paris Convention for the Protection of Industrial Property

International agreement to protect intellectual property

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product safety laws

safety standards to which a product must adhere

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product liability

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

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civil liability

payment, monetary damages

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criminal liability

fines, imprisonment

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gross national income (GNI)

total income received by residents in a nation

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purchasing power parity

adjustment in gross domestic product/capita to reflect differences in the cost of living with US as a baseline

- more direct comparison for standard of living/cost of living

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new products, processes, management practices and strategies

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economic freedom

innovation and entrepreneurship require market economy that gives greater incentives for innovation

- people can try to make money out of their idea by starting a business

- businesses can improve operations through innovation

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strong property rights

need to be given profit for innovative ideas

- without strong property rights, profits can be taken and reduce economic growth rates

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need right political system

representative democracy associated with market economic system

- totalitarian systems can have success but only if committed to market system and have strong protection of property rights

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geography, education and economic development


- coastal states support more market institutions

- temperate climates usually neglect market-based trade and reject an extensive division of labor

- soil, disease, climate can affect development


- with higher education, will have higher growth rate

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spread of democracy

not all democracies are free because some still restrict civil and political liberties

- totalitarian regimes failed to deliver economic progress

- new information and communication technologies reduce state's ability to control access to uncensored information

- economic advances led to emergence of prosperous middle and working classes that push for democratic reforms

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global terrorism and the new world order

universal civilization

- free market capitalism, democratic regimes

- different visions of a world in different civilizations, each with own value systems and ideology

- terrorism is clash of value systems and ideology

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removing legal restrictions to free play of markets, establishment of private enterprises and how private enterprises operate

- removing price controls, relaxing/removing restrictions on FDI (command)

- state set prices, owned businesses, limited private enterprise, restricted investment by foreigners, restricted international trade (mixed)

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transfers ownership of state property into hands of private individuals

- stimulate gains in economic efficiency by giving private owners incentive to increase productivity, enter new markets and leave losing ones

- fails if newly privatized firms receive subsidies from the state and are protected from foreign competition by trade barriers and FDI

- must be accomplished by general deregulation and opening of the economy

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legal systems

without a legal system that protects property rights and enforces the system, incentive to engage in economic activity can be reduced by private and public entities that expropriate profits

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benefits of international business

- market size, purchasing power, future wealth

- investing early allows brand loyalty and experience with the country

- first-move advantage

- economic system, property rights and market size will tell long-term benefits of international business

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costs of international business


- paying off political entities before allowing business


- sophistication of country's economy

- if no infrastructure, can be costly because you will need to provide one and create supporting businesses


- costly to do business in a country where local laws and regulations set strict standards with regard to product safety, workplace safety, pollution

- liability rates

- no way to settle contract disputes

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risks of international business


- likelihood that political forces will cause drastic changes in a country's business environment that affect profit and business goals

- greater where there is social unrest, multiple nationalities


- likelihood that economic mismanagement will cause changes in a country's business environment that affect profit and business goals

- economic issues can cause political risks


- legal system fails to provide adequate safeguards in case of violation or protecting property rights

- if weak, more likely to steal intellectual property or break contracts

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system of values and norms that are shared among a group of people and that constitute a design for living

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

- shared assumptions

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social rules and guidelines that prescribe appropriate behavior in particular situations

- guide actions towards each other

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a group of people sharing a common set of values and norms

- societies and subcultures

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routine conventions of everyday life

- dress, manners, behavior, rituals, symbolic behavior

- attitudes towards time

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widely observes norms that are central to the functioning of a society and its life

- can be laws against things like theft, adultery

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determinants of culture

religion, social structure, political philosophy, economic philosophy, language

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association of two or more people with a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's behavior

- social status determined by group

- strong group identity creates mutual self-help

- lack of dynamism

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basic building block of social organization

- emphasize individual achievement and can build personal brand

- entrepreneurship leads to new products and innovations

- sense of individualism creates job moving which is detrimental to the company

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social stratification

hierarchical categories based on background, occupation, income

- trait of society, not reflection of individual differences

- carries over generations

- generally universal but variable

- involves beliefs and inequality

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social mobility

extent to which individuals can move out of the strata that they are born in

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caste system

social position based on family

- change not possible

- sometimes associated with different occupations

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class system

less rigid form of social stratification in which social mobility is possible

- can change through achievements but varies in societies

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class consciousness

condition where people tend to perceive themselves in terms of their class background and shapes relationships with members of other classes

- shapes relationships with others

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system of shared beliefs and rituals that are concerned with the realm of the sacred

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ethical system

moral principles used to guide and shape behavior

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religions ranked

Christianity, Islam, Hinduism, Buddhism

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- Protestant ethics value hard work, which helps with the creation of capitalism

- should invest in expansion of capitalist enterprises

- freedom to develop relationships with God can transfer to emphasis on economic and political freedoms and lead to individualism

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- pro-free enterprise and earning legitimate profit through trade and commerce

- property rights as a gift from Allah but must be justly earned

- businesses should be receptive to Islam

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bank takes a share in profits and deposit is used as an equity investment, so depositor receives a share in the profit from the investment

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when a firm wants to buy something with a loan, the firm tells the bank after negotiating a price and the bank buys the equipment with the borrower buying it back later on

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Muslim-majority countries should return to the fundamentals of an Islamic state

- radicals use it to further political and violent ends

- response to social pressures and modernization

- demand commitment to traditional beliefs and rituals

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- judged by spiritual agreements, not materials

- strong self-control and self-reliance means less likely to engage in entrepreneurial behavior

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- no stress on entrepreneurial activity

- economies more localized

- growing economy makes it difficult to understand effects that people have on the natural world

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- personal salvation through right action and built around an ethical code that sets guidelines for relationships

- loyalty, reciprocal obligations, honesty

- lowering costs of business helps economic success

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- Confucian ethic referring to relationship networks supported by reciprocal obligations

- good for building long-term business relationships

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spoken language

- way we perceive the world and define culture

- tensions between languages in the same culture

- Mandarin largest mother tongue and English is most widely spoken

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unspoken language

- nonverbals, usually culture-based

- personal space and lack of respecting can lead to weak rapport

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education and international business

- determinant of national competitive advantage

- factor in guiding business locations

- good index of products that can sell and what promo materials to use

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power distance

how society deals with the fact that people are unequal in physical and intellectual capabilities

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