Managing in a Global Business Environment Study Guide (FVC1 V4 & D080 V3) 2023

**Managing in a Global Business Environment Study Guide** **for FVC1 V4 and D080 V3**   **Unit 2 Globalization**- **Module 1: Political, Economic, and Legal Systems** (Lessons 1-6) 1. **Answer**: Globalization is when international integration arises from the interchange of world views, produ...

**Managing in a Global Business Environment Study Guide** **for FVC1 V4 and D080 V3**   **Unit 2 Globalization**- **Module 1: Political, Economic, and Legal Systems** (Lessons 1-6) 1. **Answer**: Globalization is when international integration arises from the interchange of world views, products, ideas, and other aspects of culture. 2. **Answer**: Firms have benefitted from globalization by being able to specialize and focus more on research and development, by having access to a broader market, and by gaining access to cheaper labor. - It has allowed corporations to outsource manufacturing and service jobs from high-cost locations to lower cost locations, where corporations can pay workers lower salaries and provide fewer (or no) benefits. 3. **Answer**: **[Cultural Globalization]**: refers to the transmission of ideas, meanings, and values around the world that extends and intensifies social relations. - Formation of shared norms and knowledge - There is a decrease in the uniqueness of once-isolated communities. - Anti-globalization movements have formed to the defense of once isolated countries [**Political Globalization**: ] - May reduce the importance of nation-states (negative). - Formation of international/regional organizations(positive) WTO, G8, EU, ICC. - Some countries have embraced isolationist policies due to globalization (North Korea) - (NGOs) influence public policy, including humanitarian aid and developmental efforts. [**Economic Globalization**:] refers to the widespread, international movement of goods, capital, services, technology, and information. - It is the increasing economic integration and interdependence of national, regional, and local economies across the world through an intensification of the cross-border movement of goods, services, technologies, and capital. Economic globalization primarily comprises the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labor. - More trade, investment, information tech, and faster economic development - Benefits the rich at the expense of the poor, manufacturing job loss in developed countries, environmental damage, unethical practices of labor. 4. **Answer**: Globalization has resulted in a widespread sharing of ideas. - Advocates for globalization feel that this sharing exposes people to more cultures and ideas, making them more tolerant. - Opponents to globalization worry that cultures are becoming homogenized, especially in the spread of Western culture throughout the world. 5. A picture containing graphical user interface Description automatically generated **Answer**: **Stage 1: Market Entry**: companies enter new countries using business models like the ones deployed in their home markets. **Stage 2: Product Specialization:** companies transfer the full production process of a particular product to a single, low-cost location and export the goods to various consumer markets. **Stage 3: Value Chain Disaggregation:** companies disaggregate the production process and focus on completing each activity in the most advantageous location. **Stage 4: Value Chain Reengineering**: companies seek to further increase their cost savings by reengineering their processes to suit local market conditions by substituting lower cost labor for capital. Changing the method to setup the production line. **Stage 5: Creation of New Markets**: The focus is on market expansion. This allows companies to substantially lower their sticker prices in both old and new markets and to expand demand. 6. **Answer**: [**The Benefits of Global Expansion**:] more extensive array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases **[The Challenges of Global Expansion:]** **Ethical business practices**: Arguably the most substantial of the challenges faced by MNCs---ethical business practices in areas such as labor, product safety, environmental stewardship, corruption, and regulatory compliance---has historically played a dramatic role in the success or failure of global players. - **Organizational structure**: is the ability to efficiently and effectively incorporate new regions into the value chain and corporate structure. - **Public relations**: Public image and branding are critical components of most businesses. - **Leadership**: It can be difficult for businesses to find effective organizational leadership that have the knowledge and skills to approach a given geographic market. - **Legal and regulatory structure**: MNCs need access to legal expertise that will help them understand in-country laws and comply with applicable regulations. For organizations operating in **[developing and less-developed countries]**, additional challenges can arise: - **Infrastructure**: Poor infrastructure makes it difficult for businesses to effectively operate because they must shoulder additional cost and risk to compensate for what the country does not provide. - **Technology**: challenges include training workers on unfamiliar equipment; inadequate transportation systems that increase production and distribution costs. 7. **Answer**: **Market:** steady convergence of customer needs. (Foreign consumers have same demand as domestic consumers) **Cost**: The globalization of customer needs and the opportunities for scale and standardization that globalization brings will fundamentally alter the economics of many industries. **Competitive**: High levels of trade, competitive diversity, and interdependence increase the potential for industry globalization. **Government**: Government globalization drivers---such as the presence or absence of favorable trade policies, technical standards, policies and regulations, and government-operated or subsidized competitors or customers---affect all other elements of a global strategy. 8. **Answer**: **The world is flat view**: The playing field between countries is becoming more level, and people, products, and ideas are more connected; since the world\'s flattening cannot be stopped, new workers and workers facing dislocation should refine their skills and capitalize on new opportunities. - One key to doing this is to become an expert in a job that cannot be delegated offshore. **Pankaj Ghemawat** disagrees with the view that the world is flat he characterizes as \"semi-globalized\" and \"multi-domestic\" world. If the world were flat, international business and global strategy would be easy. **The CAGE framework covers these four factors:** - **Culture**: Generally, cultural differences between two countries reduce their economic exchange. - **Administration**: Bilateral trade flows show that administratively similar countries trade much more with each other than dissimilar countries. - **Geography**: Geography is perhaps the clearest difference between countries. The market for a product in Los Angeles is separated from the market for the same product in Singapore by thousands of miles. - **Economics**: Economic distance refers to differences in demographic and socioeconomic conditions. 9. **Answer**: At one end of is **[anarchism]**: individuals should control political activities, and public government is both unnecessary and unwanted. At the other extreme is **[totalitarianism]**: every aspect of an individual\'s life should be controlled and dictated by a strong government. *Neither exist and a combination of both is what we see today.* - This combination is called **[pluralism]**, which asserts that both public and private groups are essential in a well-functioning political system. **[Authoritarian]** governments centralize all control in the hands of one strong leader or a strong small group of leaders who have full authority. They are not democratically elected and are not politically, economically, or socially accountable to the people in the country. - **[Capitalism]** is an economic system in which the means of production is owned and controlled privately. - **[Planned economy]** is one in which the government or state directs and controls the economy, including the means and decision-making for production.  - Democratic governments have supported capitalism, and authoritarian regimes have often used a state-controlled approach to managing the economy. 10. Graphical user interface, text, application Description automatically generated **Answer**: [Traditional Economy] It is [the oldest of the four economic systems] and can still be found in parts of South America, Africa, and Asia. **[Characteristics]**: 1. guided by tradition 2. Found in hunt-gatherer and nomadic societies 3. Eventually, the economy evolves to some form of currency **[Advantages]** - There is little or no friction between members. Each member depends on each other. - All members understand their position in society and what they are expected to do. - It is more sustainable. **[Disadvantages]** - It is at the mercy of the climate. - There is a lower standard of living. [Command Economy (centralized)] - economic effort is devoted to goals passed down from a ruler or a ruling class. - resources and businesses are owned by the government.  - North Korea and Cuba have command economies **[Advantages]** - Organizations can mobilize large amounts of resources without fear of lawsuits or environmental regulatory issues. - An entire economy can be transformed based on a leader\'s vision. **Disadvantages** - Rapid change can lead to the neglect of society\'s needs. - The production of goods and services are not tied to demand, and, if too little is produced, rationing is necessary. - Following the rules, not innovation, is rewarded. [Market Economy (decentralized)  ] - Goods and services are produced and distributed according to the rules of supply and demand. - Enterprises focus on selling their products at the highest price that consumers are willing to pay, while consumers look for the lowest available prices. - Capitalism requires a market economy. **[Characteristics]** 1. It is standard for all goods and services to be privately owned. The owners have the right to buy, sell, or lease their property and make a profit off of their assets. 2. Competition keeps prices low. Pricing follows the laws of supply and demand. 3. Government interference is at the minimum that is necessary to ensure the markets are functioning correctly **[Advantages]** - Consumers pay for the things they want the most, and businesses produce the goods and services that will earn them a profit. - Innovation is encouraged and rewarded. **[Disadvantages]** - Those who cannot compete as well, such as people with disabilities and their caretakers, may be at a competitive disadvantage. - Not all can reach their full potential due to their inability to access education [Mixed Economy]: mixed economy [borrows the following characteristics from a market economy]: - It protects private property, the laws of supply and demand determine prices in a free market, and it is driven by self-interest. - uses the federal government to protect the people and the market as well as oversee the military and international trade and national transportation **[Advantages]** - mirror those of the market economy in that goods and services are distributed where they are most needed. - capital is allocated to the businesses that are the most innovative and efficient. **[Disadvantages]** - too much government interference - too much or too little freedom of choice - the country going into debt because of government intervention   11. A picture containing text Description automatically generated **Answer:** **Common**: is based on traditions and precedence and can be traced to the English monarchy - Judges interpret the law, and judicial rulings can set precedent. - A jury may determine the facts, and a judge decides which law will be applied to the case. - Both prosecutors and defense attorneys have an active role. - Victims may serve as witnesses, but they are not a party in criminal cases (Justice). - The legal system of the United States---except Louisiana, which has a mix of civil and common laws---is a common law system - can also be found in Australia, Canada, England, and Wales - Approximately 80 countries have common law systems **Civil**: based on a detailed set of laws that constitute a code and focuses on how the law is applied to the facts.  - is an inquisitorial system where the investigating judge investigates the facts of the case. - Juries are rarely used. - The victim may participate in the trial and have rights. - It is the most widespread legal system in the world.  - 150 countries have a primarily civil law system, found in most of continental Europe, Central America, and South America **Religious**: also known as theocratic law and is based on religious guidelines. - **Talmudic law** 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. - **Islamic Law** - Sharia governs several Islamic nations and communities around the world and is the most widely accepted religious law system. They are found throughout Africa, the Middle East, Central Asia, and South Asia. - ***Customary law*** is found in countries without strong formal justice systems. It is generally found at the tribal or local level, and the laws can vary from community to community. It is based on longstanding local customs and is often transmitted orally. - Two additional religious law systems are the ***Jewish Halacha*** and the ***Christian Canon*** system, neither of which is practiced at the national level in a country. - **Canon law** is the body of laws and regulations made by the ecclesiastical authority governing Christian communities. It was the basis for much of the Western legal tradition used today. - The Christian Canon system is observed in Vatican City. **Module 2: Shaping the Economic Environment** (Lessons 7-9)  1. **Answer**: **Function**: The IMF currently describes itself as \"an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.\" - [is mandated to oversee the international monetary and financial system] **Goals**: The IMF\'s *initial primary purpose* was to help manage the: Fixed-Rate Currency Exchange System. It eventually evolved to help governments correct temporary trade imbalances (typically deficits) with (short-term) loans. **Conditionalities**: IMF conditionality is 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. - It is the most controversial aspect of IMF policies Conditions or policy commitments take four forms: prior actions, quantitative performance criteria, indicative targets, and structural benchmarks. - 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. - Quantitative performance criteria are specific and measurable conditions that a country must meet to complete a review. - Indicative targets are quantitative targets used to measure a country\'s progress in meeting the IMF\'s requirements. - Structural benchmarks are non-quantitative measures such as social safety nets  2. Table Description automatically generated **Answer**: - Requiring poor countries to reduce their government borrowing; demand higher interest rates to stabilize their currency; allow firms that are fiscally unstable to go bankrupt; and require structural adjustments such as privatization, deregulation, and reducing bureaucracy may make conditions worse in a struggling country - Voting shares are based on the size and \'openness\' of the countries\' economies, which results in poorer countries being under-represented in the decision-making process. - Criticized for biased and inconsistent policy decision-making. - Environmentalists cite exploitation of natural resources. Also, the struggle to pay back IMF loans can lead to practices which damage natural resources to get adequate capital to repay loans. 3. Its formal name is [the International Bank for Reconstruction and Development] (IBRD) - The World Bank\'s first loan for postwar reconstruction was to France in 1947 **Answer**: **Function:** to promote economic and social progress in developing countries by [helping raise productivity so their people may live better and fuller lives.] **Goals:** The goals of the World Bank are to [reduce extreme poverty] and raise the incomes of the poorest 40% of each country\'s population. **Criticisms:** - Imbalance in leadership - Environmental damage - 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. [**The World Bank (2)** and World Bank Group (5)]: - **International Bank for Reconstruction and Development (IBRD)** - **189 members -- also members of the IMF** - **Can join other institutions within the bank group.** - **International Development Association (IDA).** - **173 members** - **Works with the poorest countries \$885 per capita income per year.** - International Finance Corporation (IFC) - Multilateral Investment Guarantee Agency (MIGA) - International Centre for Settlement of Investment Disputes (ICSID)  Table Description automatically generated5 4. **Answer**: **Functions**: - **Oversee Agreements: **Oversee the implementation and administration of the trade agreements between nations that are under the WTO\'s scope of authority. - **Transparency of Trade Policy: **All WTO members must publish, undergo a review of, and notify any changes in their trade regulations - **Assist Developing Nations: **Many developing countries and emerging markets lack the experience and technical expertise needed to deal with extensive and very comprehensive trade agreements. WTO provides them with critical training and support. - **Provide Outreach:** Maintain a dialogue with NGOS, the media, and the general public - **Settle Disputes: **Provide a forum for negotiations and the settling of disputes among nations. (WTO, n.d.). - **Ensure Non-discrimination: **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. **Rules**: The most favored nation principle is a core principle in the WTO rules. This policy can give multinational companies an unfair advantage. A multinational company with locations around the world can trade domestically in the countries in which it has subsidiaries and therefore avoid tariffs. **Rounds of Negotiations**: The Uruguay Round of trade negotiations is an agreement that dramatically lowers trade barriers worldwide. - Adopted in 1994 and has been signed by 148 nations. - reduced tariffs by one-third worldwide from an average of 22 percent in 1947 to 5 percent The Doha Round 2001 - has shown little progress. - Developing nations whose primary export are agricultural commodities -- are pushing for the reduction of farm subsidies in the United States, Europe, and Japan as they say they cannot compete on a global marketplace. **Criticisms**: If a country wants to institute rules and regulations to protect its workers, industries, or environment, these must be made available to the WTO. 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. **Module 3: International Agreements** (Lessons 10-12) 1. **Answer**: **Mercantilism**: Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an economic theory. This theory states that a country\'s wealth is determined by the amount of its gold and silver holdings. - Mercantilists believed that a country should increase its holdings of gold and silver by promoting exports 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] and is still used today to protect Infant Markets. **Neo-mercantilism**: promote a combination of protectionist policies and restrictions and domestic industry subsidies. Adam Smith offered a new trade theory called **absolute advantage**. - *A country has an absolute advantage in producing a good over another country if it uses fewer resources to create that good*. - Absolute advantage can be the result of a country\'s natural endowment. (Saudi Arabia and their oil) David Ricardo, a great British political economist, developed the concept of **comparative advantage** in the early nineteenth century. - *Comparative advantage is defined as having the ability to produce a good or service at the lowest opportunity cost.* *Comparative advantage focuses on relative productivity differences -- the country gives up less than the other country, whereas absolute advantage looks at absolute productivity -- a country can produce more.* [Heckscher--Ohlin Theory (Factor Endowment Theory):] Eli Heckshcer -- Bertil Ohlin -- Early 1900's - Their theory, also called the factor endowment theory, stated that countries would produce and export goods that required resources or factors that were in abundant supply and therefore cheaper. In contrast, countries would import goods that required resources that were in short supply but higher in demand. [Country Similarity Theory]: Swedish economist Steffan Linder - developed the country similarity theory in 1961. - Linder\'s theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences. - When they explore exporting, companies often find that markets that look similar to their domestic one and with similar per capita incomes, and intra-industry trade will be standard. [Global Strategic Rivalry Theory]: emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. - Their theory focused on multinational corporations and their efforts to gain a competitive advantage against other global firms in their industry. Firms will encounter global competition in their industries. 2. **Answer**: - Specialization -- one country will use all the resources to produce 1 product and import the other product from another country. (US specializes in corn. Brazil specializes in beans). - Economies of scale is achieved - Increased production efficiency - Win-win Specialization will lead to lower production time and cost due to a decrease in defective products 3. **Answer**: - Possible manufacturing job loss in developed nations due to cheaper products in other countries. - Labor rights in developing nations might be threatened. - Domestic businesses will be challenged. 4. **Answer**: **Import Tariffs**: are taxes on goods that are imported into a country. **Export Tariffs**: are taxes on goods that are leaving a country. [Tariffs may also be ***classified by their purpose***:] **Protective tariffs:** Tariffs that protect a domestic industry by making imported goods more expensive than equivalent goods produced domestically **Revenue tariffs:** Tariffs levied to raise revenue for the government [Tariffs can also be classified on how the duty amount is valued:] **Specific Tariffs**: are tariffs that 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. **Ad Valorem Tariffs**: are tariffs 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 Hyundai's are imported. **Compound Tariffs**: are tariffs that 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. 5. **Answer**: - Government: Extra Tax Revenue - Import prices: Higher - Quantity of product: Lower - Consumers: End up paying more - Domestic business: Make more money and can sell more 6. **Answer**: **Absolute Quota**: A quota that strictly limits the quantity of goods that may enter a country. - Once the quota has been fulfilled, no other goods may be imported into the country. **Tariff- Rate Quota**: is a two-tier quota system that combines characteristics of tariffs and quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter the country at a lower duty rate. Once the initial quota is surpassed, imports are not stopped; instead, more of the good may be imported, but at a higher tariff rate. 7. **Answer**: - 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 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. (Basically, same as tariffs) 8. **Answer**: [Sanctions:] are laws passed that restrict or abolish trade with certain countries. [Embargos]: 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. [Infant Industry]: Need protection. Newer industries are inherently competitive and are highly vulnerable to their more developed counterparts. [Anti-Dumping:] 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. [Mergers, Acquisitions, and Market Dominance:] Another threat leading to unfair competition is the emergence of global monopolies. [Outsourcing]: is often a result of cheaper labor and easier systems of governance in those regions. [Health & Safety]: 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. **Module 4: Relationships, Foreign Investment, and Trade** (Lessons 13-19) 1. **Answer**: **Portfolio investment** - 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 diversify investment risk through multiple markets. *They intend to be investors, not managers.* **Foreign direct investment (FDI)** - refers to a [long-term investment] in or the acquisition of [foreign assets] [with the intent to control] and manage them. Long-term strategy. - Investing in foreign companies. - New property facilities and equipment in foreign companies. - Participating in some type of partnership with a foreign company. 2.  **Answer**: **Reason**: 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. **Strategy**: - Host countries offer businesses a combination of tax incentives and loans to invest.  - Host governments improve or enhance local infrastructure---energy, transportation, and communications---to encourage specific industries to invest.  - Host-country governments streamline the process of establishing offices or production in their countries. - Countries seek to improve their workforce through education and job training. - Governments can create export processing zones or special economic zones to attract FDI.  3. Graphical user interface, table Description automatically generated with medium confidence **Answer**: **Reason**: Governments seek to limit or control FDI to protect local industries and critical resources (oil, minerals, etc.), preserve the national and local culture, protect segments of the domestic population, maintain political and economic independence, and manage or control economic growth.  **Strategy**: - Host governments can specify ownership restrictions if they want to keep control of local markets or industries in their citizens\' hands. - A company\'s home government usually imposes taxes and sanctions to persuade companies to invest in the domestic market rather than a foreign one. - Foreign investors may be required to purchase a certain percentage of intermediate goods from the host countries. - 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.  4. **Answer**: **Horizontal FDI** occurs when a company is trying to open a new market---a retailer, for example, that builds a store in a new country to sell to the local market. **Vertical FDI** is when a company invests internationally to provide input into its core operations---usually in its home country. - China has replaced the United States as the highest-ranked country for FDI of capital. - Western Europe provided 44% of global FDI. - Overall, capital investment grew by 120% to \$54.3 billion, but since 2015, there has been a 50% decrease in capital investment from companies locating their headquarters in the United Kingdom. - Brazil had a 77% increase in FDI, and Argentina had a 78% increase. [Benefits of Foreign Direct Investment] - An inflow of capital can benefit the global and local economy. - Invested capital goes to businesses with the highest potential for growth. - The profit motive is color blind, and investments are made regardless of religion or politics. - Investors can decrease their risk by diversifying. - Investing in capital for firms can lead to growth and, subsequently, increased jobs in the host country. [Challenges of Foreign Direct Investment] - Governments are careful not to allow foreign ownership of strategically important industries as this could lower the competitive advantage of the nation. - Foreign investors could also take advantage of the company they are investing in, take away all valuable assets, and then leave the country  5. **Answer**: A firm may invest in production facilities in another country. When a firm brings the goods or components back to its home country (i.e., acting as a supplier), this is referred to as **backward vertical FDI.** When a firm sells the goods into the local or regional market (i.e., acting as a distributor), this is termed **forward vertical FDI**. 6. **Answer**: **Greenfield FDIs** occur when multinational corporations enter developing countries to build new factories or stores. These new facilities are built new---usually in an area where no previous facilities existed. **Brownfield FDI** is when a company or government entity purchases or leases existing production facilities to launch a new production activity. Brownfield investment is usually less expensive and can be implemented faster; however, a company may have to deal with many challenges, including existing employees, outdated equipment, entrenched processes, and cultural differences.  *All investments carry risk. According to the World Bank, the characteristics listed in the graphic are the those that influence multinational corporations most on whether to invest in a venture in a developing country.* 7. **Answer**: [Multinational Companies]: Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located. [Benefits]: - MNCs can often overcome trade problems.  - Ability to sidestep regulatory problems. - Multinationals can also shift production from one plant to another as market conditions change.  - Multinationals can also tap new technology from around the world.  - Multinationals can often save a lot in labor costs, even in highly unionized countries.  - can have a powerful influence in local economies and even the world economy and - [Impacts]: - can also have a significant impact on government policy through the threat of market withdrawal. 8. **Answer**: Regional economic integration includes a multitude of economic steps that can be made by member nations to increase their competitive advantage.  - Regional economic integration among nations in a geographic region, helps all nations in the group attain a higher living standard by encouraging specialization, lowering prices, providing more choices on goods and services, increasing productivity, and allowing for more efficient use of natural resources  9. Timeline Description automatically generated **Answer**: - The **free trade area** is the most basic form of economic cooperation. 1. Member countries remove all barriers to trade such as tariffs, quotas, and nontariff barriers while keeping their own external trade policies with nonmember countries. 1. An example is the North American Free Trade Agreement comprised of Canada, Mexico, and the United States, which came into effect in 1994 (NAFTA). NAFTA was revised in 2019 as the United States Mexico Canada Agreement (USMCA). A free trade area can increase trade volume among member countries but can cause nonmember countries to lose export business with member countries. This will lead to a Customs Union. - **Customs union** in which all members of the economic integration will use the same external tariff with nonmember countries. 1. An example of a customs union is Mercosur, which consists of Argentina, Brazil, Paraguay, Uruguay, and Venezuela. The customs union might cause business and job opportunities to flow to member countries that have higher labor productiveness and lower labor costs. This creates the need to remove all barriers among member nations to allow free movement of factors of production such as labor, capital, technology, etc. Trade barriers are removed, as are any restrictions on the movement of labor, technology, and capital between member countries. - The primary advantage for workers is that they no longer need a visa or work permit to work in another member country of a ***common market***. A common market requires cooperation from all member countries when making policies about economics and labor practices. A potential drawback is that labor may move to the country that offers the highest wages, and investment capital may be transferred to the country that offers the highest return on investment. 1. An example is the Common Market for Eastern and Southern Africa (COMESA). - An ***economic union*** is created when countries enter into an economic agreement, removing barriers to trade and adopting common economic policies. The members may use a common currency, harmonized taxes, and monetary and fiscal policies.^2^ 2. An example is the Eurozone, which is a group of EU members who have adopted the euro as their official currency. The European Central Bank is responsible for setting the monetary policy for the Eurozone. Because member countries of an economic union work closely on all major business and economic issues, eventually the urge to create common political and foreign policies may lead to the creation of a political union. - **Political Union**: when member countries will behave as a single country. There is a unification of all policies by a common organization. 1. An example: UAE 10. **Answer**: [The Benefits of Regional Economic Integration] - Trade agreements create more opportunities for countries to trade with one another by removing the barriers to trade and investment. Increased efficiency can lead to lower prices and subsequently higher consumer demand, which results in increased production and trade - Studies indicate that regional economic integration significantly contributes to the relatively high growth rates in less-developed countries. - By removing restrictions on the labor movement, economic integration can help expand job opportunities. [The Drawbacks of Regional Economic Integration] - Trade diversion. Member countries may trade more with each other rather than with nonmember nations. Increased exclusive internal trade may mean increased trade with a less efficient or more expensive producer because it is a member country. - Countries may move production to cheaper labor markets, which might cause job loss in certain member countries. - Countries may see a sacrifice of their cultural uniqueness. - Nations may find that they must give up more of their political and economic rights.  - Regional integration may encourage mergers and acquisitions within the bloc to create large rivals. Economic power will tend to go to these large conglomerates in the union. Large external firms can also overwhelm and overshadow small local firms. These small firms no longer enjoy tariff protection and could be eliminated.  11. **Answer**: **N[AFTA -- North American Free-Trade Agreement]** 1988, the United States and Canada signed the Canada--United States Free Trade Agreement. -- - Shortly after it was approved and implemented, the United States started to negotiate a similar agreement with Mexico. - Canada asked to be party to any negotiations to preserve its rights under the most favored nation clause (MFN) - NAFTA was signed in 1992 and implemented in 1994. - NAFTA includes Canada, the United States, and Mexico - combined population of 450 million and an economy of over \$20.8 trillion. **[USMCA -- United States-Mexico-Canada Agreement]** - It is an agreement to provide protection and enforcement of intellectual property rights. The new intellectual property agreement will provide ten years of data protection for biological drugs. - U.S. creators are given the same intellectual protection rights in domestic markets as they are given in foreign markets. - The agreement will continue to provide strong patent protection. - The agreement requires a minimum copyright term of the life of the author plus 70 years. - [The country-of-origin rule that states that automobiles must have 75% of their components manufactured in the United States, Canada, or Mexico to qualify for a zero-tariff rate]. - Labor provisions for wages state that 40-45% of automobile parts must be made by workers earning a minimum of \$16 per hour by 2023. - The Canadian dairy market is more accessible to U.S. farmers. - A sunset clause that states the agreement expires in 16 years and is subject to review every six years  **[CAFTA-DR - Central America Free Trade Agreement]** - was passed in 2005. - Besides the United States, the agreement includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. - All tariffs on U.S. consumer and industrial exports were removed as of 2015, and it is expected that tariffs will be removed on agricultural products by 2020 There are two key benefits to CAFTA-DR: a reduction in barriers to the United States, their largest export market, and an increased attraction for foreign direct investors **[South America: Mercosur]** - was initially established in 1988 as a regional trade agreement between *Brazil* and *Argentina* and was then expanded in 1991 to include *Uruguay* and *Paraguay* - Today Mercosur is comprised of *Argentina, Brazil, Paraguay, Uruguay, and Venezuela*. - Venezuela has been suspended indefinitely in 2016 - Paraguay was suspended in 2012 - Bolivia, Chile, Columbia, Ecuador, Guyana, Peru, and Suriname are [associate members]. Mercosur recently signed a trade deal with the EU, which could become the largest free trade agreement in the world if it is ratified  **[The European Union: History and Purpose]** The EU originally began in 1950 to end the frequent wars between neighboring countries in Europe. - The six founding nations were France, West Germany, Italy, and the Benelux countries (Belgium, Luxembourg, and the Netherlands), all of which signed a treaty to run their coal and steel industries under common management. - In 1957, the six nations signed the Treaty of Rome, which established the European Economic Community (EEC) and created a common market between the members. - Over the next 50 years, the EEC added nine more members and changed its name twice---to European Community (EC) in the 1970s, then to the EU in 1993. The [Treaty of Maastricht in 1993] is as an important moment. - it was when the most formal economic union was created. With this treaty, the EU identified three aims: - The first was to establish a single, common currency, which went into effect in 1999. - The second was to create monetary and fiscal targets for member countries. - Third, the treaty called for a political union, which would include the development of a common foreign and defense policy and common citizenship. Challenges & Opportunities: 1. The most significant advantage of EU membership is the monetary union. a. Today, 19 member countries use the euro b. It is the second largest reserve currency behind the U.S. dollar 2. The European single market is the foremost advantage of being a member of the EU. c. EU member states have formed a single market with more than five hundred million people, representing 7% of the world\'s population. d. This permits the free flow of goods, services, capital, and people in the EU. e. Once a product is in the market, no additional tariffs or taxes can be levied on the goods. 3. Protectionist Policies 4. Antitrust enforcer **[ASEAN -- The Association of Southeast Asian Nations ]** - Was created in 1967 by five founding-member countries: Malaysia, Thailand, Indonesia, Singapore and the Philippines. - Since inception, Myanmar, Vietnam, Cambodia, Laos, and Brunei have since joined. ASEAN\'s primary focus is on economic, social, cultural, and technical cooperation as well as on promoting regional peace and stability. - Although less emphasized today, one of the early primary missions of ASEAN was to prevent the domination of Southeast Asia by external powers---specifically China, Japan, India, and the United States. In 2002, ASEAN and China signed a free trade agreement that went into effect in 2010 as the ASEAN-China Free Trade Area (ACFTA). In 2009, ASEAN and India also signed the ASEAN-India Free Trade Agreement (AIFTA). In 2009, ASEAN signed a free trade agreement with New Zealand and Australia. 12. **Answer**: In foreign exchange markets, demand and supply become closely interrelated because a person or firm who demands one currency must, at the same time, supply another currency---and vice versa.  13.  **Answer**: When the exchange rate for a currency ***rises*** so the currency exchanges for more of other currencies, this is referred to as ***appreciating*** or ***strengthening***. When the exchange rate for currency ***falls*** so a currency trades for less of other currencies, this is referred to as ***depreciating*** or ***weakening*** A stronger dollar injures the prospects of a U.S. financial investor who has already invested money in another country. - A U.S. financial investor abroad must first convert U.S. dollars to a foreign currency, invest in a foreign country, and then later convert that foreign currency back to U.S. dollars. If in the meantime the U.S. dollar becomes stronger and the foreign currency becomes weaker, then when the investor converts back to U.S. dollars, the rate of return on that investment will be less than initially expected at the time it was made. 14. **Answer**: - A **[floating exchange rate]**, or fluctuating exchange rate, is a type of exchange rate regime wherein a currency\'s value is allowed to fluctuate according to the supply and demand of this currency in the foreign exchange market. - A currency that uses a floating exchange rate is known as a floating currency. - The dollar is an example of a floating currency. - A **[fixed exchange rate system OR pegged exchange rate system]**, is a currency system in which governments try to maintain a constant currency value against a specific currency or good. - In a fixed exchange rate system, a country\'s government decides the worth of its currency in terms of either a fixed weight of an asset, another currency, or a basket of other currencies.  - The **[Pegged Float Exchange Rate]**, pegged floating currencies are pegged to some band or value, which is either fixed or periodically adjusted. They are a hybrid of fixed and floating regimes. There are three types of pegged float regimes: - **Crawling bands**: The market value of a national currency is permitted to fluctuate within a range specified by a band of fluctuation. This band is determined by international agreements or by a unilateral decision by a central bank. - The bands are adjusted periodically by the country\'s central bank, generally in response to economic circumstances and indicators. - **Crawling pegs**: A crawling peg is an exchange rate regime, usually seen as a part of fixed exchange rate regimes, that allows gradual depreciation or appreciation in an exchange rate. The system is a method to fully utilize the peg under a fixed exchange regime and the flexibility under a floating exchange rate regime. - The system is designed to peg at a specific value but, at the same time, to \"glide\" in response to external market uncertainties. - In dealing with external pressure to appreciate or depreciate the exchange rate (such as interest rate differentials or changes in foreign exchange reserves), the system can meet frequent but moderate exchange rate changes to ensure that the economic dislocation is minimized. - **Pegged with horizontal bands**: This system is like crawling bands, but the currency is allowed to fluctuate within a larger band of greater than 1% of the currency\'s value. **Glossary Terms for Unit 2**: **Globalization**: Worldwide interconnections in virtually every sphere of activity including the spread of products, technology, information, and job opportunities. Globalization can result in blurred boundaries between nations, organizations, and investors **Trade**: The action of buying and selling goods and services. **Capital**: Financial assets such as funds but also equipment, facilities, and other means of production. **Outsource**: To obtain goods or services from an outside or foreign supplier **Nongovernmental Organizations (NGO's)**: Not for profit organizations that are independent of the government and are active in humanitarian causes. **Patents**: Protects inventions and improvements to existing inventions for a limited period of time in exchange for detailed public disclosure of those inventions. **Copyrights**: A government authority or license giving the owner of an invention the right to exclude others from making or selling the invention for a set period of time **Trademarks**: Protection for any word, name, symbol, device, or any combination used in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others **Assets**: A useful or valuable thing; something you own such as building, inventory, or cash **Liabilities**: Being responsible for a debt or financial obligation, something you owe **Financial Instrument**: A monetary contract between parties **Multinational Firms**: A large corporation incorporated in one country which produces or sells goods or services in various countries. **Supply Chain**: The sequence of processes involved in the production and distribution of a commodity **Economies of Scale:** A proportionate savings in costs gained by an increased level of production (massive production of one product) **Economies of Scope**: To develop efficiencies in terms of variety not volume. This refers to the concept that the unit cost to produce a product will decline as the variety of products increases. (Multiple products) **Six Sigma:** A method that provides tools for organizations to increase performance and decrease process variation **Human Capital**: The education and skills of workers **Gini coefficient**: Measures the inequality among values of a frequency distribution such as levels of income **Happy Planet Index:** Measures how well nations are doing at achieving long, happy, sustainable lives **Gross Domestic Product**: The total value of goods and services provided in a country in a one-year period **Gross National Product**: The total value of goods and services provided by a country, both inside and outside of its borders, in a one-year period **Underground Economies**: Economic transactions that are deemed illegal  **Balance of Payments**: The difference in total value between payments into and out of the country over a period of time **Fixed-rate Currency Exchange System**: When a country\'s currency value is fixed or pegged by a monetary authority against the value of another currency, a basket of currencies, or another measure of value **Renminbi**: The renminbi is the official currency of the People's Republic of China and translates to "people money." The yuan is the name of the unit of account or denomination of the country's economic and financial system **Collateral**: Something pledged as security for repayment of a loan to be forfeited in the event of a default **Privatization**: Selling government holdings to private companies **Deregulation**: The removal of regulations or restrictions in a particular industry **AAA ratings**: The highest possible rating that may be assigned by a credit rating agency for a bond **Debt Instruments**: A tool used by a company or any other entity to raise money or capital **TRIPS (Trade-Related Aspects of Intellectual Property Rights)**: A WTO agreement that governs all IP laws and protects intellectual property rights for global businesses. **Commodities**: A raw material or primary agricultural product that can be bought or sold **Embargos**: An order of a government prohibiting the departure of commercial ships from its ports **Mercantilism**: One of the earliest economic theories, which stated that a country\'s wealth was determined by the amount of gold and silver they had in their possession **Exports**: A commodity, good, or service sold abroad **Imports**: Bringing goods or services into the country from abroad for the purpose of selling **Trade Surplus**: When the value of a country\'s exports is greater than the value of goods being imported **Protectionism**: The theory or practice of protecting a country\'s domestic industries from foreign competition by taxing imports **Government Subsidies**: Money paid by the government to help an organization or industry reduce its costs **Free Trade**: International trade left to its natural course without tariffs, quotas, or other restrictions **Opportunity Cost**: The loss of potential gain from other alternatives when one alternative is chosen **Barriers to Entry**: The obstacles that make it difficult for a new company to enter a given market. These barriers may include technology challenges, high start-up costs, or government regulations **Import Tariffs**: are taxes on goods that are imported into a country. **Export Tariffs**: are taxes on goods that are leaving a country. **Protective tariffs:** Tariffs that protect a domestic industry by making imported goods more expensive than equivalent goods produced domestically **Revenue tariffs:** Tariffs levied to raise revenue for the government **Specific Tariffs**: are tariffs that 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. **Ad Valorem Tariffs**: are tariffs 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 Hyundai's are imported. **Compound Tariffs**: are tariffs that 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. **Absolute Quota**: A quota that strictly limits the quantity of goods that may enter a country. - Once the quota has been fulfilled, no other goods may be imported into the country. **Tariff- Rate Quota**: is a two-tier quota system that combines characteristics of tariffs and quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter the country at a lower duty rate. Once the initial quota is surpassed, imports are not stopped; instead, more of the good may be imported, but at a higher tariff rate. **Voluntary Export Restrictions**: A trade restriction on the quantity of a good that an exporting country is allowed to export to another country **Government Procurement Programs**: The process of buying goods and services by a government agency through a specific process of issuing bid proposals and seeking responses from companies. **Autarky**: A political or economic system that becomes self-sufficient to survive. **Free Trade Agreement**: Economic agreement between countries to allow free trade between members **Colonialism**: The policy or practice of acquiring full or partial political control over another country to exploit it economically **Portfolio Investment**: An investment in another country is purely financial and does not involve any management responsibility **Foreign direct investment (FDI)**: refers to an investment in or the acquisition of foreign assets with the intent to control and manage them. **Diversifying**: The process of allocating capital in a way that reduces the exposure to any one particular asset or risk **Dividend Repatriation**: The return of earnings from foreign subsidiaries to their parent companies back in the home country **Market Capitalization**: The total dollar value of a company\'s outstanding shares of stock **Preferential Tariff**: A tariff that is lower for some nations than others **Free-Trade Zone**: An area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone **Foreign Exchange Market**: The market in which people use one currency to buy another currency **Exchange Rate Regime**: The way in which an authority manages its currency in relation to other currencies and the foreign exchange market **Floating Exchange Rate**: A system where the value of currency in relation to others is allowed to freely fluctuate subject to market forces. - Known as floating currency **Fixed Exchange Rate System**: A system where a currency\'s value is tied to the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold **Pegged Exchange Rate System**: A currency system that fixes an exchange rate around a certain value, but still allows fluctuations, usually within certain values, to occur **Unit 3: Legal and Ethical Consideration - Module 5: The global Regulatory Environment** (Lessons 20-24) 1. **Answer**: Monopoly is a market in which single producer is a price maker that can determine the price level by deciding what quantity of a good to produce. - Monopolies are characterized by a lack of economic competition in the production of a good or service and a lack of viable substitutes for that good or service. - The producer determines the price by deciding the quantity of the good or service to produce. - Consumers really have no other choice but to go with the monopoly producer. **[Antitrust enforcement]** in the United States is considered a matter of criminal law. - penalties are placed against private individuals, and victims of anticompetitive crimes can sue for the full amount of damage suffered. - In the United States, you could personally be accused of a criminal act, such as property crime, and not only face personal financial penalties but also criminal sanctions such as imprisonment. The [Sherman Antitrust Act] dealt with limiting the power of price-controlling cartels. This act was expanded upon in 1914 with two more competitive laws: the [Clayton Antitrust Act] and the [Federal Trade Commission] Act. Both acts sought to organize a governmental body equipped to protect consumers from unfair competitive practices. 2. **Answer**: The 1997 **Kyoto Protocol** was a binding resolution to reduce greenhouse gases. Although the United States initially supported the resolution, the Senate failed to ratify the treaty. By 2001, the resolution was opposed by President Bush because the treaty seriously threatened the U.S. economy and did not require developing nations to lower their emissions at the same rate as developed countries.  During December 2015, 195 countries adopted the first ever legally binding, universal global climate deal known as the **Paris Agreement**. - This agreement set out concrete steps to keep long-term global temperature increases below 2°C. - Other key points included the need to reduce global emissions, international support for developing countries, and a requirement that countries submit national climate action plans and publicly report on their implementation and success. - The agreement was formally ratified in October 2016; however, it is important to note that 13 nations have yet to ratify, including some major emitters such as Iran and Iraq. 3. **Answer:** **National Environmental Policy Act (NEPA)**: American environmental act from the 1970s that requires federal agencies to prepare environmental impact statements for every recommendation or report. - Signed into law by President Nixon on 1/1/1970 4. **Answer:** - **Worst Forms of Child Labour Convention, 1999**: This convention defines a *child* as a person under 18 years of age and aims to eliminate all practices of slavery or those similar to slavery, such as the sale and trafficking of children, debt bondage, forced or compulsory recruitment of children for use in armed conflict, child prostitution, and so on. - **The Maritime Labour Convention (MLC), 2006**: This convention sets out seafarers\' rights to decent work conditions. Sometimes referred to as the \"Seafarers\' Bill of Rights,\" this international agreement applies to all seafarers, including those who provide passenger services on cruise ships and commercial yachts. - In 2013, the MLC became binding law for 30 countries. - **Domestic Workers Convention, 2011**: This convention details specific rights and protections for domestic workers working both in their home country and as migrant workers. 5. **Answer:  **A contract is a legally enforceable promise 6. **Answer:** **Vertical Structure of Law**: A structure of law where those at the top govern those at the bottom. **Horizontal Structure:** Structure of law where neither party is in a legally dominant position over the other. 7. **Answer: Intellectual Property** (IP): A work or invention that is the result of creativity to which one has rights, and for which one may apply for a patent, copyright, or trademark. **Patents**: Protects inventions and improvements to existing inventions for a limited period of time in exchange for detailed public disclosure of those inventions. - the company must reveal the details of the invention. - can be granted within a single country or internationally - give the owner the right to defend the invention in court **Copyrights**: A government authority or license giving the owner of an invention the right to exclude others from making or selling the invention for a set period of time **Trademarks**: Protection for any word, name, symbol, device, or any combination used in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others 8. **Answer: World Intellectual Property Organization (WIPO):** Established by the United Nations to implement global policy related to intellectual property - is focused on developing a global IP infrastructure, building international respect for IP, and implementing global policy related to IP. - Created in 1967 **Module 6: Ethical Considerations** (Lessons 25-28) 1. **Answer**: **Business Ethics**: The contemporary standards or sets of values that govern the actions and behavior of individuals in the business organization and the actions of the business itself **[Ethical Consumerism]**: A movement in which consumers make purchasing decisions based on a company\'s ethical profile 2. **Answer**: **Corporate social responsibility (CSR)** can be defined as a company's obligations to society, including a wide range of stakeholders: people and places affected by company activities. - The aim of CSR is to increase long-term profits and shareholder trust through positive public relations and high ethical standards. 3. **Answer**: Cultural difference makes it very difficult to legislate ethical codes, as what is acceptable in one context may be illegal in another. Social norms are not identical in different countries, and ethical standards can vary as well. A business may operate in a country that permits actions that would be considered unethical under that business\'s ethical code.  Western cultures are primarily rule-based, most of the world\'s cultures are relationship-based.  4. **Answer**: Odebrecht was a Brazilian construction firm involved in the building of multiple public projects. In 2014, it became known that the company had paid kickbacks to politicians across Latin America to secure lucrative contracts. In fact, by 2016, it was estimated that the company had paid nearly \$788 million in bribes in connection with more than 100 projects in 12 countries between 2001 and 2006 1. **Answer**: **Sarbanes-Oxley Act of 2002**: Law aimed at increasing the level of ethical transparency within corporate America. 2. **Answer**: It is important that workers feel safe enough to come forward with information regarding illegal practices. 3. **Answer**: **Internal Controls**: That redundancies that are built into a system to make certain that it accurately maintains material statements. - A system of rules and procedures designed to ensure the accuracy and reliability of financial and accounting information is called internal controls. 4. **Answer**: **Discrepancies**: Accounting errors that are not intentional - Shrinkage can also occur, including petty theft, mismanaged inventory, perishable goods going unrecorded, and a wide variety of other factors. **Irregularities**: Misrepresentations of accounting data with the intent to defraud. 5. **Answer**: [Preventing Irregularities] 1. [Segregating employee duties]: Someone other than the employee responsible for safeguarding an asset maintains the accounting records for that asset. 2. [Assigning specific duties to each employee]: Every employee is accountable for a specific task and if a problem occurs the company can quickly identify the responsible person. 3. [Rotating job assignments]: discourages employees from theft and schemes as the next employee may catch the theft.Companies may also encourage vacation. 4. [Use mechanical devices]: this will make it difficult for employees to alter certain company documents 5. [Keeping Records]: maintaining complete and accurate records will make it more difficult for dishonest employees to commit fraud or theft.   **Glossary Terms for Unit 3:** **Antitrust Laws:** Consumer protection policy used to limit unfair business practices related to competition and control of prices. **Perfectly Competitive Market**: A market in which no individual economic actor can affect the price of the good. **Monopoly**: Market in which single producer is a price maker that can determine the price level by deciding what quantity of a good to produce. **Sherman Antitrust Act:** The first American antitrust policy. Established in 1890, it dealt with limiting the power of price-controlling cartels. **Apple Inc. vs. Pepper**: Antitrust court case in which a group of iPhone users have accused Apple of monopolistic practices via the App store **Collective Environment**: Understanding that the environment not only belongs to everyone to enjoy but is also everyone's shared responsibility. **United Nations Environment Programme (UNEP)**: branch of the United Nations that deals specifically with worldwide environmental problems. **Paris Agreement**: universal global climate deal aimed at keeping long-term global temperature increase at below 2°C **National Environmental Policy Act (NEPA)**: American environmental act from the 1970s that requires federal agencies to prepare environmental impact statements for every recommendation or report. - Signed into law by President Nixon on 1/1/1970 **Environmental Protection Agency (EPA):** Created in 1970 - American agency established in the 1970s with the goal of monitoring the environmental practices of industry. **Deep Water Horizon Oil Spill**: A 2010 industrial accident that is considered the largest oil spill in history. **Oil Pollution Act of 1990**: US law that strengthen the environmental protection agency's ability to prevent and respond to oil spills. **The Clean Water Act**: A US federal law governing water pollution. **Sweatshop**: A factory that is guilty of some sort of labor abuse or violation such as unsafe working conditions, employment of children, mandatory overtime, unsafe working conditions, and so on. **National Labor Committee**: A non-governmental organization involved in anti-sweatshop activities and the implementation of labor laws **Worst Forms of Child Labor Convention, 1999**: Convention 1999 that aimed to eliminate all practices of child slavery or those similar to slavery. **The Maritime Labour Convention (MLC), 2006**: Convention 2006 that set out a bill of rights for all seafarers. **Domestic Workers Convention, 2011**: Convention 2011 aimed at protecting domestic workers from abuse and exploitation. **Contracts**: A legally enforceable promise **Damages**: Recompense for the injured party by the party that breached the contract. **Vertical Structure of Law**: A structure of law where those at the top govern those at the bottom. The Common Law and **Uniform Commercial Code (UCC)**: Source of contract law in the United States - The UCC Article 2 has rules governing the obligations of parties, specifically to the offer, acceptance, and performance of sales contracts and so on. **Horizontal Structure**: Structure of law where neither party is in a legally dominant position over the other. **Horizontal Laws**: Laws that govern disputes in a horizontal structure. **UN Convention on Contracts for the International Sale of Goods (CISG**): United Nations treaty that applies to the international sales of commercial goods **Intellectual Property** (IP): A work or invention that is the result of creativity to which one has rights, and for which one may apply for a patent, copyright, or trademark. **Trade Secret**: Intellectual property that is kept private. **World Intellectual Property Organization (WIPO):** Established by the United Nations to implement global policy related to intellectual property **TRIPS (Trade-Related Aspects of Intellectual Property Rights)**: A WTO agreement that governs all IP laws and protects intellectual property rights for global businesses. **Intellectual Property Rights**: The legal protections for creations of the mind **Ethics**: Field of philosophy that deals with the morality of what is considered right and wrong. **Organizational Ethics**: How an organization ethically responds to an internal or external stimulus. **Business Ethics**: The contemporary standards or sets of values that govern the actions and behavior of individuals in the business organization and the actions of the business itself **Ethical Consumerism**: A movement in which consumers make purchasing decisions based on a company\'s ethical profile **Corporate Social Responsibility**- Is a mechanism used to uphold a high ethical standard when companies conduct business. **Stakeholders**: All parties who have a stake in the performance and output of the corporation. - include the company\'s employees, unions, investors, suppliers, consumers, local and national governments, and communities that may be affected by corporate activities such as construction, manufacturing, and pollution. **Sarbanes-Oxley Act of 2002**: Law aimed at increasing the level of ethical transparency within corporate America. **Open Government Information Regulation**: Chinese regulation (2008) that establishes limited rules for government information disclosure and public participation - **Power Distance**: One of Hofstede\'s six dimensions of national culture. It describes how formal and authority-focused a society is. **Culture Norms**: Shared, sanctioned, and integrated systems of beliefs and practices that are passed down through generations and characterize a cultural group **Conflict of Interest (COI)**: Ethical challenges in which multiple interests are at conflict with one another. **Grease Payments**: A business practice of paying small inducements in order to expedite decisions and transactions. **Internal Controls**: That redundancies that are build into a system to make certain that it accurately maintains material statements. **Discrepancies**: Accounting errors that are not intentional **Irregularities**: Misrepresentations of accounting data with the intent to defraud. **Internal Auditing**: A control in which the company investigates and evaluates employees compliance with company policies and procedures. **Whistleblower**: A person who exposes any kind of information or activity that is deemed illegal, unethical, or not correct within an organization **Unit 4 Business Strategies** - **Module 7: Organizational Structures in International Business** (Lessons 29-30) 1. **Answer:** The formal way a company divides labor, groups employees, and assigns responsibilities. *Vertical linkages tie supervisors and subordinates together* *Horizontal linkages are relationships between equals in an organization* 2. **Answer:** **[Functional]:** - Based on the primary functions performed within an organizational unit (marketing, finance, production, sales) - Each area has one manager - Referred to as SILOS as each area operates in relative isolation [Disadvantages]: f. groups may not communicate well with one another and will cause decreasing flexibility and innovation g. susceptible to tunnel vision [Advantages]: a. allows greater operational efficiency and specialization b. each group of specialists can operate independently, with management acting as the point of cross-communication between functional areas. Diagram Description automatically generated **[Divisional]:** - Employees are divided into departments based on product areas, markets, and/or geographic regions. - Used in large, international corporations [Disadvantages]: a. operational inefficiencies from separating specialized functions b. can include increased accounting and tax implications [Advantages]: a. works best for companies with a wide variety of products or regions. b. Offers greater operational flexibility c. Failure of one division does not threaten the others d. The smaller divisions benefit from the brand of the parent company.  Diagram, timeline Description automatically generated  **[Matrix]:** - A combination of different types of structures. - Common in high tech and engineering firms Disadvantages: - Increased complexity in the chain of command - Can result in higher manager to worker ratio which can increase costs - can result in reduced agility in decision-making and conflict resolution. Advantages: - Specialization - Teams are able to share information easily Diagram Description automatically generated **[Teams]:** - Made up of people with [complementary skills] working together for a common purpose. - Less hierarchical, with shared leadership and objectives Advantages: - Increased creativity and productivity and mutual accountability - Generates a variety of expertise Disadvantages: - difficult to motivate individual employees when only team accomplishments are rewarded. - Increased risk for interpersonal conflicts 3. **Answer:** [Centralized:] Centralization is the degree to which decision-making authority is concentrated at higher levels in an organization. - many important decisions are made at higher levels of the hierarchy [Decentralized]: decisions are made, and problems are solved at lower levels by employees who are closer to the problem in question.  4. **Answer:** **Global Integration**: The degree to which a company is able to use the same products and methods in multiple countries **Local Responsiveness**: The degree to which a company must customize its products and methods to meet the conditions in other countries The **two dimensions** result in four basic global business strategies: export, standardization, multidomestic, and transnational. Diagram Description automatically generated with medium confidence **Module 8: Entry Strategies for Foreign Markets** (Lessons 31-32) 1. **Answer:** [Exporting]**:** Sending goods to another country to sell. [Licensing]**:** A type of contract that allows one party to use another\'s property as their own without paying royalties for a designated length of time [Franchising]**:** A system where a business grants an entrepreneur the right to use their products, names, and processes in exchange for a percentage of the profits **[Greenfield/Subsidary]**: A new business built where no prior business existed, either physically or metaphorically or both - Form of Foreign Direct Investment [Strategic Alliances]**:** An agreement between two companies to cooperate on the mutually beneficial project [Joint Venture]**:** a business agreement in which parties agree to develop a new entity and new assets by contributing equally. [Acquisition]: occurs when one company purchases most or all of another existing company in a specific target market or country.  2. **Compare the entry speed, cost level and risk level for all entry strategies. (Hint: check the summary table in the textbook)** **Answer:**  3. **Answer:** - **Standardization** is the effort to keep the product the same everywhere and to maintain strict quality control in order to stay true to the brand. Global standardization helps create economies of scale which increases profits. - **Adaptation** is any modification of the domestic product for the foreign market. Sometimes changing the packaging or product is a critical step in adaptation. - **Glocalization** is the process of adapting to local markets while maintaining a global identity. **Module 9: Culture and Communications** (Lessons 33-36) 1. **Answer:** [Culture]: is the beliefs, values, mind-sets, and practices of a group of people. [Hofstede's Six Cultural Dimensions]: a. **Power Distance**: refers to how openly a society or culture accepts or does not accept differences between people, as in hierarchies in the workplace, in politics, and so on. i. **High Power**: Japan, Mexico, and the Philippines. ii. **Low Power**: Austria & Denmark b. **Individualistic**: refers to people\'s tendency to take care of themselves and their immediate circle of family and friends, perhaps at the expense of the overall society. iii. **Individualistic**: USA, Australia, United Kingdom iv. **Collectivist**: Japan, Singapore, Korea, Mexico and Arab nations c. **Masculinity versus Femininity** is how a society views traits that are considered masculine or feminine, respectively. - refers to how a culture ranks on traditionally perceived \"masculine\" values: [assertiveness], [materialism], and less concern for others. - **Masculine**: Japan and Mexico - **Feminine**: Switzerland and New Zealand d. **Uncertainty Avoidance**: refers to how much uncertainty a society or culture is willing to accept. v. **Low Risk**: Japan and France vi. **High Risk**: Denmark, Singapore, Australia, and slightly USA e. **Long Term Orientation**: refers to whether a culture has a long-term or short-term orientation. (Japan) - values persistence, perseverance, thriftiness, and having a sense of shame. - [Short-term orientation] values tradition only to the extent of fulfilling social obligations or providing gifts or favors. (USA and United Kingdom) f. **Indulgence versus restraint**: refers to the degree of freedom that societal norms give to citizens in fulfilling their human desires. Chart, bar chart Description automatically generated 2. **Answer:** **China:** One of the most important cultural factors in China is the concept of ***[guanxi]*** (pronounced guan-shi), which is loosely defined as a connection between two or more unequal parties that includes an exchange of favors. ***[Guanxi]*** can - help foster strong, harmonious relationships with corporate and government contacts. - it can also encourage bribery and corruption. - "You owe me one" **Latin America**: - Businesses typically are hierarchical in their structure, with decisions made from the top down. - Developing trust and gaining respect in the business environment is all about forging and maintaining good relationships. - Latin Americans love life and value the small things that provide color, warmth, friendship, and a sense of community. - Time is space 3. **Answer:** An example of how [language] affects business is in written or email communications, in which you do not have the benefit of seeing someone\'s physical gestures or posture. How you gesture, twitch, or scrunch up your face represents a veritable legend to your emotions. Being able to suitably read---and broadcast---body language can significantly increase your chances of understanding and being understood. It is essential to understand body language in order to accurately interpret a situation, comment, or gesture. 4. **Answer:** **[Primary sources]** are original sources, undiluted by someone else\'s interpretation. - Examples of primary sources would be firsthand accounts by people who have lived in the culture; raw data about everything from health statistics to business data to weather information; and newspapers, diaries, travel journals, blogs, photographs, and videos. **[Secondary sources]** offer explanations and interpretations of information.  5. ***Make sure to include a description of the advantages and disadvantages of the three HR strategies.*** **Answer:** **Staffing Strategies:** From a global business standpoint, a diverse workforce can cause human resource management challenges such as language barriers, workplace cultural differences, and compensation issues. **Performance Evaluations:** The challenge in overseas performance evaluations is determining who should rate the performance of the expatriate. **Three approaches to HRM:** Table Description automatically generated 1. **Answer:** **Host-country National**: An employee of an organization who is the citizen of the country in which the foreign subsidiary is located. **Expatriate**: A person who lives outside of their own native country. **Third-country National**: A person who is in transit and/or applying for visas in countries that are not their country of origin. 2. **Answer:** There are five main components of training someone for an overseas assignment: 1. language 2. culture 3. goal setting 4. managing family and stress 5. repatriation [Training]: not understanding the culture can harm a manager\'s success on an overseas assignment. [Cultural] implications, such as management style, are not always obvious. [Training] on the goals and expectations for the expatriate worker is important. [Stress]: it is important to train the employee on managing stress, homesickness, culture shock, and likely a larger workload than the employee may have had at home. - It is important to note that much of this stress occurs in the family as well. The expatriate may be performing and adjusting well, but if the family is not, it can cause greater stress on the employee, resulting in a failed assignment. **[Repatriation]**: Many employees experience reverse culture shock upon returning home, which is a psychological phenomenon that can lead to feelings of fear, helplessness, irritability, and disorientation. All these factors can cause employees to leave the organization soon after returning from an assignment and take their knowledge with them. 3. **Answer:** The balance sheet approach. - With this compensation approach, the idea is that the expatriate should have the same standard of living that the expat would have had at home. Five groups of expenses are looked at in this approach: 1. income taxes 2. housing 3. goods and services 4. base salary 5. overseas premium  4. **Answer:** Text, application Description automatically generated **Glossary Terms for Unit 4:** **Organizational Structure:** The formal way a company divides labor, groups employees, and assigns responsibilities. **Conglomerates**: Large corporations made up of several combined companies, often formed through mergers and takeovers. **Subsidiaries**: Companies completely owned or controlled by a parent company. **Division of Labor:** Dividing organizational activities into smaller tasks.  **Organizational Chart**: A visual map of the roles and relationships within an organization and how functions and responsibilities are divided. **Vertical and Horizontal Linkages**: Lines on an organizational chart showing the relationships within an organization. **Unity of command**: One employee should only report to one person. **Departmentalization**: Grouping a business's people, tasks, and resources into units. **Functional Departmentalization**: Organizing a company's people, tasks, and resources based on business functions such as marketing, production, and sales. **Product Departmentalization**: Organizing a company's people, tasks, and resources based on goods or services. **Market Departmentalization**: Organization a company's people, tasks, and resources based on the type of customer served. **Geographic Departmentalization**: Organizing a company's people, tasks, and resources based on a geographic region. **Functional/Departmental Structure**: An organizational structure dividing employees into departments based on business functions **Divisional Structure**: An organizational structure grouping employees into departments based on products, processes, or geographic regions **Matrix Structure**: An organizational structure that combines more than one organizing perspective at once, such as combining geographic and product models **Teams Structure**: A newer type of organizational structure that includes a group of workers, with complementary skills, all working toward a common goal, such as a specific project **Tall Structures**: Organizational structures with many levels. **Flat Structures**: Organizational structures with few layers. **Multinational Corporation (MNC)**: A company that operates in two or more countries. **Value Chain**: The process by which a company adds value to product, such as production, marketing, and service **Specific Strategic Business Unit (SBU)**: An independent division within a large company with responsibility for specific products or activities **Centralization**: The degree to which decision-making authority is concentrated at higher levels in an organization and business functions controlled in a central location. **Centralized Companies**: Companies with structures that limit decision-making to higher levels in the organizational hierarchy **Decentralized Companies**: Companies with structures that distribute the authority to make decisions to lower levels of employees who are closer to the problem **Global Integration**: The degree to which a company is able to use the same products and methods in multiple countries **Local Responsiveness**: The degree to which a company must customize its products and methods to meet the conditions in other countries **Export Strategy**: An international commerce strategy that focuses on shipping domestic products to other countries **Standardization Strategy**: A strategy for international commerce that does not customize products for local markets **Multidomestic Strategy**: A strategy of international commerce that customizes products to each country **Transnational Strategy**: An international commerce strategy that combines the aspects of standardization and multidomestic strategies **Brand**: A type of product made by a particular company under a particular name **Product Adaptation**: The process of changing a product in some way so it is more acceptable or desirable in a particular market **Glocalization**: The process of adapting to local markets while maintaining a global identity   **Exporting:** Sending goods to another country to sell. **Licensing:** A type of contract that allows one party to use another\'s property as their own without paying royalties for a designated length of time **Franchising:** A system where a business grants an entrepreneur the right to use their products, names, and processes in exchange for a percentage of the profits **Strategic Alliances:** An agreement between two companies to cooperate on the mutually beneficial project **Greenfield** Ventures: A new business built where no prior business existed, either physically or metaphorically or both **Distributor**: Someone who supplies goods to businesses **Licensor**: A person or company who owns a product but provides it to someone else as part of an agreement **Licensee**: A person or company who has entered into an agreement with someone to use their product or service for a specified period of time **Due Diligence**: The reasonable steps or research necessary before making an informed decision or evaluation **Strategic Plan**: A formal agreement on priorities, focus, and goals **Culture**: The beliefs, values, mind-sets, and practices of a group of people **Cultural Dimensions**: A framework for cross-cultural communication, developed by Geert Hofstede that shows the effects of a society\'s culture on the values of its members, and how these values relate to behavior. **Power Distance**: One of Hofstede\'s six dimensions of national culture. It describes how formal and authority-focused a society is. **Individualistic**: One of Hofstede\'s six dimensions of national culture. It measures how focused people are on their immediate circle at the expense of the greater group. **Collectivist**: Focused on the good of the group or society over the individual **Masculinity versus Femininity**: One of Hofstede\'s six dimensions of national culture. It measures how the society views traits that it considers masculine or feminine. **Uncertainty Avoidance**: One of Hofstede\'s six dimensions of national culture. It measures how comfortable a society is with uncertainty. **Long-term Orientation**: One of Hofstede\'s six dimensions of national culture. It measures how focused a society is on traits such as perseverance and shame. **Short-term Orientation**: One of Hofstede\'s six dimensions of national culture. It focuses on immediate gratification and fulfilling current social obligations. **Indulgence versus Restraint**: One of Hofstede\'s six dimensions of national culture. It measures the degree of freedom and spontaneity that is valued. **Guanxi**: Concept in China that describes a connection based on reciprocity **Ethnocentrism**: The belief that one\'s own culture is most important **Domestic**: Related to home or place of origin **Cultural Agility**: the ability to understand multiple local contexts and work within them to obtain consistent business results. **Subsidiaries**: Companies completely owned or controlled by a parent company **Training**: A focused educational program with a specific goal **Primary Sources**: Original information that could be firsthand accounts, raw data, or artifacts **Secondary Sources**: Information that has been passed on from an original source or interpreted **Human Resources (HR) Management (HRM):** Department within an organization responsible for employment issues **Ethnocentric:** HR strategy of hiring only people from the home country for key positions in foreign subsidiaries **Polycentric:** HR strategy that gives local hiring control to foreign subsidiaries **Geocentric:** HR strategy that takes a whole-world view of the company, hiring the best people for positions regardless of location **Host-country National:** An employee of an organization who is the citizen of the country in which the foreign subsidiary is located. **Expatriate:** A person who lives outside of their own native country. **Third-country National:** A person who is in transit and/or applying for visas in countries that are not their country of origin. **Repatriation:** The process of transitioning employees back to their home countries **Performance Evaluations:** Formal processes for evaluating an employee **Compensation:** What an employee is paid in exchange for work **Unit 5 Global Business Practices** - **Module 10: Global Production and Supply Chain Practice** (Lessons 37-39) 1. **Answer:** **Supply Chain:** The sequence of processes involved in the production and distribution of a commodity *Refers to the flow of physical goods and associated information from the source to the consumer.* [Traditional Supply Chain]:  2. **Answer:** [Push Model]: Theory in supply chain management that focuses decisions on the ***needs of the product*** [Pull Model]: Theory in supply chain management that bases decisions and activities on the ***needs of the customer*** 3. **Answer:** Supply chain management improves customer value in the following ways: - *[Reduced inventory]*: A well-executed supply chain management system means that customers receive orders when they need them. Better communication and better scheduling may enable the supplier to produce the item exactly when it is needed. - *[Improvement in the order accuracy]*: Supply chain management should guarantee that when orders are shipped, the right items are shipped in the right quantity. Eliminates product returns, which results in economic benefits for both the customer and the supplier. - [Reduced cycle time for product development]: Customer and the supplier must develop new levels of trust. As this evolves, the supplier is in a better position to help the customer develop new products far more rapidly. It greatly reduces the product cycle time. - *[Financial benefits]*: These value improvements all translate into significant cost savings. Cost savings experienced by the supplier can be transferred into cost savings for the customer. - *[Peace of mind]*: Having a supplier whom one can trust to accurately deliver items in a timely, low-cost fashion, and who has also developed contingency plans to cope with potential problems, is relatively unique and provides the customer with a high level of comfort. One 4. **Answer:** - [Make-to-order]: products are customized to meet the needs of the buyers who ordered them. - [Mass production]: also known as make-to-stock strategy, is the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. - [Mass customization]: customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. - combines the advantages of customized products with those of mass production. 5. **Answer**: ***List and explain the factors in location decisions*** [Shipping]: To minimize shipping costs, managers often want to locate plants close to suppliers, customers, or both [Workforce]: Managers generally want to locate in areas with ample numbers of workers with necessary levels of skill, education, or experience. [Cost]: Managers want locations where costs for resources and other expenses---land, labor, construction, utilities, and taxes---are low. (Fixed Costs) [Community]: Managers want locations where they themselves would live in. Consider quality of life, schools, crime and climate. [Country Factors]: Stability---economic, social, and political---is also a critical factor for managers to examine. Must assess risk for seizure of assets and danger to personnel. [Business Environment]: Managers look for locations where governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales. This is a favorable business environment. [Market Impressions:] Public relations cannot be ignored when looking at locations. Negative publicity can have a lasting impression on branding and revenues. ***List and explain the factors in relocation decisions**.* [Growth]: The search for growth is a primary driver of manufacturing relocation. Emerging economies have significantly higher trend rates of growth than mature economies. [Government Incentives]: Countries sometimes offer special incentives to attract companies to their area. [Costs]: Reducing cost is the third powerful driver of manufacturing relocation. [Innovation]: The relative importance of another driver---innovation---is increasing as the center of gravity of global business activity continues to shift eastward. 6. **Answer:** **[Insourcing]:** When firms cannot resolve their supplier problems, they find other suppliers to work with or they move the activities back in-house, which is a process called insourcing. **[Outsourcing]**: outsourcing is largely about scale and the ability to provide services at a more competitive cost, outsourcing is primarily driven by the dramatic wage-cost differentials that exist between developed and developing nations. Pros of Outsourcing: Lower costs: Cheaper labor, cheaper materials. Greater flexibility: Foreign countries might deal with high demand better. Enhanced expertise: Some suppliers may have prop