D080 Video Summary PDF

D080 Video Summary Unit 2 Module 1 -- Globalization and Features: **Globalization**: The process of international integration through the exchange of worldviews, products, ideas, and culture, aiming to remove barriers among countries to promote collaboration and interdependence. **Key Points and Explanations:** 1. **Economic Globalization**: - **Focus**: Economic development through trade, investment, and information technology. - **Positive Impact**: Lower prices due to global competition (e.g., cheaper bananas from Costa Rica). - **Negative Impact**: - Rich countries may benefit more than poorer nations. - Job losses in developed countries as unskilled jobs move to developing nations. - Environmental damage and unethical labor practices in developing countries due to lack of regulations. 2. **Political Globalization**: - **Emphasis**: Collaboration among countries through international organizations (e.g., World Bank, WTO, NAFTA, EU). - **Positive Impact**: Increased cooperation among countries. - **Negative Impact**: Loss of political independence and sovereignty for member countries. 3. **Cultural Globalization**: - **Transmission**: Ideas, meanings, and values are shared globally. - **Positive Impact**: Increased cultural awareness and open-mindedness. - **Negative Impact**: Loss of cultural uniqueness (e.g., younger generations in China preferring Western holidays over traditional ones). **Examples:** 1. **Economic Globalization**: - Imagine you can buy a toy from another country for less money than a similar toy made in your own country. This is because the other country can make it cheaper. But this also means some toy-making jobs in your country might disappear. 2. **Political Globalization**: - Think of it like a school joining a big sports league. The school has to follow the league\'s rules, even if they sometimes prefer their own rules. This can lead to more teamwork, but also less control over their own decisions. 3. **Cultural Globalization**: - Picture your family celebrating holidays from different cultures because you have friends or relatives from those places. It makes you more aware of different customs, but you might start to forget your own traditions. **Pro and Anti Globalization Arguments:** - **Pro Globalization**: - **Economic**: Lower prices for goods, faster economic development. - **Political**: More cooperation among countries. - **Cultural**: Greater cultural awareness. - **Anti Globalization**: - **Economic**: Job losses in developed countries, environmental harm. - **Political**: Loss of political independence. - **Cultural**: Loss of cultural uniqueness. Unit 2 Module 1 -- International Business Operations: **Globalization**: The process of international integration through the exchange of worldviews, products, ideas, and culture, aiming to remove barriers among countries to promote collaboration and interdependence. **Key Points and Explanations:** 1. **Economic Globalization**: - **Focus**: Economic development through trade, investment, and information technology. - **Positive Impact**: Lower prices due to global competition (e.g., cheaper bananas from Costa Rica). - **Negative Impact**: - Rich countries may benefit more than poorer nations. - Job losses in developed countries as unskilled jobs move to developing nations. - Environmental damage and unethical labor practices in developing countries due to lack of regulations. 2. **Political Globalization**: - **Emphasis**: Collaboration among countries through international organizations (e.g., World Bank, WTO, NAFTA, EU). - **Positive Impact**: Increased cooperation among countries. - **Negative Impact**: Loss of political independence and sovereignty for member countries. 3. **Cultural Globalization**: - **Transmission**: Ideas, meanings, and values are shared globally. - **Positive Impact**: Increased cultural awareness and open-mindedness. - **Negative Impact**: Loss of cultural uniqueness (e.g., younger generations in China preferring Western holidays over traditional ones). **Examples:** 1. **Economic Globalization**: - Imagine you can buy a toy from another country for less money than a similar toy made in your own country. This is because the other country can make it cheaper. But this also means some toy-making jobs in your country might disappear. 2. **Political Globalization**: - Think of it like a school joining a big sports league. The school has to follow the league\'s rules, even if they sometimes prefer their own rules. This can lead to more teamwork, but also less control over their own decisions. 3. **Cultural Globalization**: - Picture your family celebrating holidays from different cultures because you have friends or relatives from those places. It makes you more aware of different customs, but you might start to forget your own traditions. **Pro and Anti Globalization Arguments:** - **Pro Globalization**: - **Economic**: Lower prices for goods, faster economic development. - **Political**: More cooperation among countries. - **Cultural**: Greater cultural awareness. - **Anti Globalization**: - **Economic**: Job losses in developed countries, environmental harm. - **Political**: Loss of political independence. - **Cultural**: Loss of cultural uniqueness. Unit 2 Module 1 -- Globalization Views: **The World is Flat View** - **Proposed by**: Thomas Friedman. - **Key Idea**: Globalization has leveled the economic playing field, allowing contributions from nations beyond the industrialized West. - **Technological Development**: Advances in technology have connected the world, enabling global business through the Internet, emails, cloud services, and teleconferencing. - **Labor**: Companies are not limited by local labor forces. **CAGE Analysis (Contrasting View)** - **Key Idea**: The world is \"spikey\" or multi-domestic, emphasizing differences rather than a level playing field. - **Four Aspects**: 1. **Culture**: Significant cultural differences impact preferences and trade (e.g., US frozen beef in India). 2. **Administration**: Similar historical backgrounds (e.g., UK and Canada) make trade easier due to similar legal, political, and economic systems. 3. **Geography**: Geographic proximity affects trade volume and costs (e.g., US exporting to Canada vs. South Africa). 4. **Economics**: Economic differences, like living standards and labor costs, influence trade (e.g., affordability of iPhones in Somalia). **Examples:** 1. **Culture**: Imagine trying to sell beef burgers in a country where people don\'t eat beef. It would be hard to succeed. 2. **Administration**: Think of how much easier it is to play a game with friends who know the same rules as you. 3. **Geography**: It\'s cheaper and easier to send a letter to a neighboring town than to another continent. 4. **Economics**: Consider why a new expensive gadget might not sell well in a place where most people don\'t have enough money to buy it. Unit 2 Module 1 -- Political, Economic, and Legal Systems: **Political Systems** - **Anarchy**: No government; citizens determine policies through all-citizen votes. - **Monarchy**: Ruled by a king or queen. - **Absolute Monarchy**: Monarch has absolute power. - **Constitutional Monarchy**: Monarch is a symbolic figure; prime minister holds power. - **Oligarchy**: Controlled by a small group of elites (e.g., Russia, China). - **Dictatorship**: Absolute power held by one person or a small group without constitutional limitations. - **Democracy**: Citizens vote for leaders who represent them and make decisions (e.g., United States). **Impact on Global Business** - Political systems influence business operations through regulations and policies. - Businesses should consider a country's political stability and level of government intervention. **Economic Systems** - **Traditional Economy**: Focus on farming and self-sufficiency; low standard of living, common in underdeveloped regions. - **Command Economy**: Government controls all economic production and owns resources. - **Market Economy**: Privately owned businesses and resources; economic production determined by supply and demand. - **Mixed Economy**: Combination of market and command economies; government intervenes when necessary. **Impact on Global Business** - Economic systems determine how goods and services are produced and distributed. - Understanding a country's economic system helps businesses navigate production and market strategies. **Legal Systems** - **Civil Law**: Judges apply written laws; rare use of juries. Common in Continental Europe and Latin America. - **Common Law**: Judges interpret laws and use juries to determine facts. Common in the United States and other English-speaking countries. - **Religious Law**: Based on religious guidelines and moral standards (e.g., Islamic law). - **Customary Law**: Observed in areas without a strong justice system. **Impact on Global Business** - Legal systems affect how businesses operate and resolve disputes. - Knowledge of a country's legal system is crucial for compliance and strategic planning. **Examples:** 1. **Political Systems**: - Imagine a club where members vote on everything (anarchy) versus a club led by a president who makes all decisions (dictatorship). - A democracy is like a student council where representatives are elected to make decisions. 2. **Economic Systems**: - Traditional economy: Think of a small farm where a family grows enough food just for themselves. - Command economy: Imagine a school where the principal decides what everyone will eat for lunch every day. - Market economy: Like a lemonade stand where kids decide how much to charge based on how many people want lemonade. - Mixed economy: A mix where the school cafeteria decides some things, but students also have choices. 3. **Legal Systems**: - Civil law: Think of a classroom where the teacher has a strict set of rules to follow for every situation. - Common law: Like a playground where kids decide the rules together, and a teacher helps interpret them. - Religious law: Imagine a community that follows specific moral rules based on their religious beliefs. Unit 2 Module 2 -- The International Institutions: **Three Major International Institutions**: 1. **International Monetary Fund (IMF)** 2. **World Bank** 3. **World Trade Organization (WTO)** **International Monetary Fund (IMF)** - **Established**: 1944, post-World War II - **Goal**: Maintain short-term global financial stability and facilitate smooth international transactions. - **Functions**: - Stabilize exchange rates and monitor the international payment system. - Provide short-term loans to member countries to correct debt issues. - Prevent financial crises from spreading to other countries. - **Key Terms**: Financial stability, debt, currency, exchange rate, short-term. - **Special Drawing Rights (SDR)**: A basket of currencies used by IMF member countries for debt repayment and loans. Includes U.S. dollar, British pound, Japanese yen, euro, and Chinese Renminbi. - **Criticisms**: Imbalanced leadership and voting power, strict loan repayment conditions. **World Bank** - **Established**: Post-World War II - **Initial Focus**: Help Europe reconstruct after the war by providing long-term loans for infrastructure projects. - **Current Focus**: Support development in underdeveloped countries to fight poverty and improve living standards. - **Functions**: - Provide long-term loans for infrastructure and development projects. - Support economic reforms in poor nations (e.g., countries in Africa, Southeast Asia, and Latin America). - **Key Terms**: Long-term loans, poverty alleviation, infrastructure development. - **Departments**: - **International Bank for Reconstruction and Development (IBRD)**: Originally focused on European reconstruction. - **International Development Association (IDA)**: Provides long-term loans to underdeveloped nations. - **Criticisms**: Similar to IMF, including imbalanced leadership and conditional loan requirements. **World Trade Organization (WTO)** - **Purpose**: Promote and regulate international trade to ensure smooth trade relations and dispute resolution among countries. **Examples:** 1. **IMF**: - Imagine a friend who lends you money for a short time to help you cover your lunch costs until you get your allowance. You need to pay them back soon. - **Keywords**: Short-term help, money management, currency. 2. **World Bank**: - Think of a parent who gives you money to build a treehouse. It takes time to finish, but the treehouse will last for many years. - **Keywords**: Long-term projects, building and improving. 3. **WTO**: - Like a referee in a game who ensures everyone plays by the rules and resolves disputes if they arise. - **Keywords**: Trade rules, dispute resolution. **Transparency Requirement (WTO)** - **Requirement**: WTO member countries must submit any changes in trade policies for review. - **Criticism**: Member countries\' citizens may feel that their sovereignty is compromised by having to disclose policy changes to the WTO. **Most Favored Nation (MFN) Status Rule (WTO)** - **Requirement**: Ensures that all trading partners are treated equally. - **Criticism**: - Perceived to give multinational companies unfair advantages over domestic businesses. - Multinational companies already benefit from larger markets, lower costs, and advanced technologies. **Agricultural Subsidies (WTO)** - **Issue**: Farmers in developed nations receive subsidies, allowing them to sell products at lower prices, which developing nations\' farmers cannot compete with. - **Criticism**: Developing countries find it unfair as they do not receive similar support from their governments. **Labor Standards (WTO)** - **Requirement**: Member countries must use appropriate labor standards to protect workers\' rights and prevent child labor and sweatshops. - **Criticism**: Developing countries argue that strict labor standards eliminate their advantage of cheap labor and hinder their ability to attract foreign investment. **Linking Concepts: Sovereignty and Globalization** - **Political Globalization Impact**: Joining international organizations like the WTO reduces a country\'s sovereignty since they must follow the organization\'s rules, which can be linked to the transparency requirement criticism. **Examples:** 1. **Transparency Requirement**: - Imagine having to tell everyone your plans for changing your room rules, and they all get to review and comment on it. You might feel like you have less control over your own space. 2. **Most Favored Nation Status Rule**: - Think about a rule where every friend must be treated the same, even if one friend already has more toys and advantages. It might feel unfair to friends with fewer toys. 3. **Agricultural Subsidies**: - Picture getting extra allowance to buy snacks, while another kid doesn\'t get any. If you sell snacks at a lower price, the other kid can\'t compete because they don\'t have extra allowance. 4. **Labor Standards**: - Imagine having strict rules about chores, which makes it hard to finish them quickly. In another house, kids can do chores more easily with fewer rules. Unit 2 Module 3 -- The International Trade Theories: **International Trade**: Involves exports (selling goods/services to foreign buyers) and imports (buying goods/services from foreign producers). **Six International Trade Theories:** 1. **Mercantilism** - **Concept: Wealth measured by gold and silver.** - **Goal: Achieve a trade surplus by encouraging exports and limiting imports.** - **Methods:** - **Trade Barriers: Tariffs and quotas to protect domestic industries.** - **Subsidies: Government support to reduce costs for domestic businesses, promoting exports.** 2. **Neo-Mercantilism** - **Modern Extension of Mercantilism: Adds methods for limiting imports and encouraging exports through protectionist policies and subsidies.** 3. **Absolute Advantage (Adam Smith)** - **Concept: A country should specialize in producing goods where it has an absolute advantage (produces more efficiently with the same resources).** - **Example: Brazil specializes in coffee beans, and the U.S. specializes in corn.** - **Benefits: Specialization increases production efficiency and generates value for both exporting and importing countries.** 4. **Comparative Advantage (David Ricardo)** - **Concept: Countries should specialize in producing goods where they have a lower opportunity cost (what they give up to produce one good over another).** - **Example: If Brazil can produce coffee beans more efficiently than corn, it should specialize in coffee beans, even if it could also produce corn efficiently.** - **Benefits: Specialization based on comparative advantage leads to more efficient resource use and increased trade benefits.** 5. **Heckscher-Ohlin (H-O) Theory (Factor Endowment Theory)** - **Concept: A country\'s comparative advantage is determined by its factor endowments (labor, land, natural resources, capital, technology).** - **Example: China specializes in labor-intensive products (e.g., T-shirts), Saudi Arabia in oil, and the U.S. in technology-intensive products (e.g., aircraft).** 6. **Country Similarity Theory** - **Concept: Firms are more likely to trade with countries that have similar consumer preferences and living standards.** - **Example: A company in the U.S. might export to Canada because consumer preferences are similar.** 7. **Global Strategic Rivalry Theory** - **Concept: Firms trade internationally to gain competitive advantages by specializing in research and development, developing patents, achieving economies of scale, and controlling raw materials.** - **Example: De Beers controls diamond mines, making it highly competitive in the diamond jewelry industry.** **Key Points for Understanding**: - **Exports** bring money into a country. - **Imports** lead money out of a country. - **Trade Surplus**: More exports than imports. - **Specialization**: Countries focusing on what they produce best, increasing overall efficiency and wealth. **Linking Specialization and Economies of Scale**: - **Specialization**: Focusing on producing a particular good increases efficiency and expertise. - **Economies of Scale**: Producing in larger quantities reduces per unit costs and increases production efficiency. - **Overall Benefit**: Specialization and economies of scale enhance trade benefits, improving living standards regardless of whether a country exports or imports. **Examples:** 1. **Mercantilism**: - Imagine collecting more and more coins by selling your crafts to neighbors but not buying any from them. 2. **Neo-Mercantilism**: - Think of having rules to limit the number of snacks you buy from others and getting extra money from your parents to make more crafts to sell. 3. **Absolute Advantage**: - Picture your friend being really good at baking cookies while you\'re great at drawing. You both focus on what you do best and then trade. 4. **Comparative Advantage**: - If you can bake cookies more efficiently than cakes, even though you are good at both, you should specialize in cookies. 5. **Heckscher-Ohlin Theory**: - Think of a country with lots of oil focusing on oil production, while a country with lots of factories focuses on making clothes. 6. **Country Similarity Theory**: - A toy company in the U.S. might sell toys to Canada because kids in both countries like similar toys. 7. **Global Strategic Rivalry Theory**: - A tech company develops a new app that no one else has, making it highly competitive and setting barriers for other companies. **Additional Key Points** - **Specialization** leads to economies of scale and production efficiency. - **Free Trade**: Generates a win-win situation for both exporting and importing countries. - **Living Standards**: Free trade improves living standards by providing more choices of goods and services at lower prices. Unit 2 Module 3 -- Trade Barriers: **Trade Barriers**: Government-imposed restrictions on trade to protect domestic industries and limit foreign competition. **Reasons for Trade Barriers:** 1. **Economic Reasons**: - **Dumping**: Selling products in a foreign market below production cost to eliminate local competition. - **Protectionism**: General protection of domestic industries. - **Infant Industry**: Protecting newly developed industries that are not mature enough to compete globally. - **Limiting Outsourcing**: Protecting domestic jobs by making imported products more expensive. 2. **Political Reasons**: - **Embargo/Economic Sanction**: Restricting trade with countries due to poor political relations. - **National Security**: Ensuring critical products are sourced domestically. 3. **Social Reasons**: - **Health and Safety** **Types of Trade Barriers:** 1. **Tariffs**: - **Import Tariff**: Tax on imported products. - **Export Tariff**: Tax on exported products. - **Protection Tariff**: Protects domestic businesses. - **Revenue Tariff**: Raises tax revenues. - **Specific Tariff**: Flat rate per unit (e.g., \$5 per T-shirt). - **Ad Valorem Tariff**: Percentage of product value (e.g., 5% on cars). 2. **Quotas**: - **Absolute Quota**: Quantity limit on imports (e.g., 3 million T-shirts per year). - **Tariff Rate Quota**: Combines tariffs and quotas. 3. **Non-Tariff Barriers**: - **Voluntary Export Restriction**: Exporting country voluntarily reduces export quantity. - **Procurement Programs**: Governments prefer local products (e.g., Buy American Act). - **Technical Barriers**: Sanitary measures, packaging requirements, labeling standards. **Impacts of Trade Barriers:** - **On Consumers**: Higher prices due to tariffs or quotas. - **On Domestic Producers**: Increased profits and production as they face less competition from cheaper imports. - **On Government**: Increased tax revenues from tariffs or quota licenses. **Examples:** 1. **Dumping**: - Imagine if a toy company sells toys for less than it costs to make them, just to beat out all other toy companies in your town. 2. **Import Tariff**: - Think of it like a tax on every toy brought in from another country, making those toys more expensive for you to buy. 3. **Quota**: - Picture a rule that only a certain number of foreign toys can be sold in your country each year. Once the limit is reached, no more can be sold until next year. 4. **National Security**: - Imagine if the army can only buy uniforms from companies within your country to ensure they have reliable supplies. Unit 2 Module 4 -- MNCs and FDI: **Multinational Corporations (MNCs)** - **Definition**: For-profit companies that operate across national boundaries, moving resources, goods, services, and skills without regard to their home country. - **Advantages**: - **Flexibility**: Overcome trade barriers, regulatory restrictions, and shift production locations. - **Research and Development**: Utilize global R&D centers. - **Labor Costs**: Leverage lower labor costs by threatening to move operations. **Foreign Direct Investment (FDI)** - **Definition**: Acquiring foreign assets to control and manage them, including companies, property, facilities, equipment, or partnerships. - **Types**: - **Horizontal FDI**: Opening new markets or building facilities in other countries (e.g., Wal-Mart, McDonald\'s). - **Vertical FDI**: Investing to provide inputs for core operations, either backward (bringing components back home) or forward (selling components in foreign markets). **Benefits of FDI for Host Countries** - **Economic Growth**: Increases capital investment, job creation, and reduces poverty. - **Skills and Technology Transfer**: Develops new skills and introduces new technologies. - **Tax Revenue**: Boosts tax income from increased business activities. **Strategies to Attract FDI** - **Tax Incentives and Loans**: Encourage investments through financial benefits. - **Infrastructure Development**: Modernize local infrastructure to attract specific industries. - **Reduced Bureaucracy**: Simplify regulations to make it easier for foreign companies to operate. - **Education and Job Training**: Improve workforce skills. - **Export Processing Zones**: Create zones near ports for cheap labor and efficient exports. **Reasons to Restrict FDI** - **Protect Local Industries**: Preserve critical resources and maintain competitive advantages. - **Cultural Preservation**: Protect local culture and population segments. - **Political and Economic Independence**: Ensure sustainable economic development and control growth. **Strategies to Restrict FDI** - **Ownership Restrictions**: Keep control of local markets in citizens\' hands. - **Nationalization**: Government takes control of sectors like petroleum and mining. - **Local Purchase Requirements**: Foreign investors must buy a percentage of goods from local businesses. - **Joint Ventures**: Foreign investors partner with local businesses. **Examples:** 1. **MNCs**: - Imagine a big toy company that makes toys in different countries to sell them everywhere, not just where the company started. - **Example**: Harley Davidson moving production to avoid tariffs. 2. **FDI**: - Think of it like a company building a factory in another country to make products there. - **Example**: McDonald\'s opening new restaurants in other countries (Horizontal FDI). 3. **Benefits to Host Countries**: - More jobs and better technology because big companies are investing there. - **Example**: A new factory providing jobs and introducing advanced machinery. 4. **Attracting FDI**: - Governments making it easy for foreign companies to set up by offering tax breaks and building good roads and ports. - **Example**: Creating special economic zones near ports for easy exporting. 5. **Restricting FDI**: - Governments making rules to ensure foreign companies don't take over important local resources or industries. - **Example**: Only allowing foreign companies to own a part of a local business. Unit 2 Module 4 -- Regional Economic Integration: **Regional Economic Integration**: Agreements among nations in the same geographical area to reduce or eliminate trade barriers like tariffs and quotas, potentially establishing unified policies. **Levels of Regional Economic Integration:** 1. **Free Trade Area**: - **Features**: Remove tariffs and quotas among member countries; independent trade policies with nonmember nations. - **Example**: NAFTA (Canada, U.S., Mexico). 2. **Customs Union**: - **Features**: Free trade area plus common trade policies with nonmember countries. - **Example**: Mercosur (Argentina, Brazil, Paraguay, Uruguay, Venezuela). 3. **Common Market**: - **Features**: Customs union plus removal of restrictions on the movement of labor, technology, and capital. - **Examples**: ASEAN, COMESA. 4. **Economic Union**: - **Features**: Common market plus unified economic policies (tax, monetary, fiscal). - **Example**: European Union (EU). 5. **Political Union**: - **Features**: Economic union plus unification of all political policies. - **Examples**: United Arab Emirates (UAE), United States. **Major Regional Blocs:** 1. **NAFTA/USMCA**: - **Features**: Free trade area with updated rules on intellectual property, country of origin, and labor provisions. 2. **Mercosur**: - **Features**: Customs union committed to democracy and peace; Venezuela suspended due to human rights violations. 3. **ASEAN**: - **Features**: Common market with economic, social, cultural, and technical cooperation; major trading partners include China, Australia, New Zealand, and India. 4. **European Union (EU)**: - **Features**: Economic union with product standards, unified policies, and the Eurozone using the euro as currency. **Benefits of Regional Economic Integration:** - **Trade Opportunities**: Reduces trade barriers, increasing trade and investment opportunities. - **Competition**: Increases competition, leading to lower consumer prices. - **Economic Growth**: Contributes to higher growth rates in less developed countries. - **Political Cooperation**: Facilitates closer political cooperation and peace. - **Efficiency**: Increases production efficiency by removing movement restrictions on labor. **Costs/Drawbacks of Regional Economic Integration:** - **Trade Diversion**: Member countries may trade more with each other, potentially excluding nonmembers. - **Reduced Competition**: Internal trade can protect inefficient producers, raising consumer prices. - **Worker Movement**: Movement to regions with better job opportunities can occur. - **Cultural Identity**: Dilution of national cultural identity. - **Market Dominance**: Encourages mergers and acquisitions, potentially dominating smaller local firms. **Examples:** 1. **Free Trade Area**: - Imagine three friends agreeing to share their snacks with each other without any restrictions but still deciding on their own if they want to trade snacks with other kids. 2. **Customs Union**: - Think of friends agreeing to trade snacks freely and deciding together what rules to follow if they trade with other kids. 3. **Common Market**: - Picture friends sharing snacks freely, agreeing on rules for trading with others, and being able to freely visit and play at each other\'s houses. 4. **Economic Union**: - Imagine friends not only sharing snacks and visiting each other\'s houses but also pooling their allowances and deciding together how to spend their money. 5. **Political Union**: - Think of friends deciding to live together in one big house, following the same rules for everything, including chores and schoolwork. Unit 2 Module 4 -- Dynamics of Foreign Exchange: **Foreign Exchange Dynamics**: Examines how supply and demand affect the strength of a currency and its impact on international trade and investment. **Currency Strengthening and Weakening:** - **Increased Demand, Constant Supply**: Currency strengthens as it becomes scarcer and more valuable. - **Decreased Demand, Constant Supply**: Currency weakens as it becomes more abundant. - **Increased Supply, Constant Demand**: Currency weakens due to increased availability. - **Decreased Supply, Constant Demand**: Currency strengthens due to decreased availability. **Effects of Currency Strength:** - **Weak Currency**: - **Exports**: Advantageous for exporters as they earn more when converting stronger foreign currency to domestic currency. - **Foreign Direct Investment (FDI)**: Can reduce costs for foreign investors in labor and resources. - **Tourism**: Increases costs for tourists as their purchasing power decreases abroad. - **Strong Currency**: - **Exports**: Disadvantageous for exporters as they earn less when converting weaker foreign currency to domestic currency. - **FDI**: Attracts foreign investors as their returns are higher when converted back to their home currency. - **Tourism**: Advantageous for tourists as their purchasing power increases abroad. **Example Scenario:** - **U.S. Company Exporting to Eurozone**: - Exchange rate: 1 euro = \$1.20 (weaker dollar) - Earnings: 1000 euros = \$1200 per jacket. - Later exchange rate: 1 euro = \$0.80 (stronger dollar) - Earnings: 1000 euros = \$800 per jacket, \$400 less than before. **Exchange Rate Policies:** 1. **Floating Exchange Rate**: - **Concept**: Currency value fluctuates based on market supply and demand. - **Examples**: United States, NAFTA countries, European Union countries. 2. **Fixed Exchange Rate (Pegged Exchange Rate)**: - **Concept**: Currency value tied to another currency or valuable resource like gold. - **Mechanism**: Central bank maintains foreign reserves to stabilize currency value. - **Examples**: Belize fixed to U.S. dollar. 3. **Pegged Float (Fixed Float Exchange Rate)**: - **Concept**: Hybrid policy where currency value freely floats within a set range. - **Mechanism**: Central bank intervenes if currency moves outside the range. - **Examples**: India. **Examples:** 1. **Weak Currency**: - Imagine you are trading Pokémon cards, and if your cards become more valuable, you can trade them for more toys. 2. **Strong Currency**: - Think of your cards becoming less valuable, and now you get fewer toys for the same number of cards. 3. **Floating Exchange Rate**: - Picture the value of your cards changing based on how much other kids want them. 4. **Fixed Exchange Rate**: - Think of always trading one specific card for a particular toy, no matter how the value of other toys changes. 5. **Pegged Float**: - Imagine trading your cards within a value range. If the value goes too high or low, you adjust to keep it within that range. Unit 2 Summary: **Comprehensive Summary of Key Topics** **Globalization and Features** - **Definition**: International integration through the exchange of worldviews, products, ideas, and culture. - **Goal**: Promote collaboration and interdependence by removing economic, cultural, and political barriers. - **Impacts**: - **Positive**: Economic development, access to advanced technologies, lower consumer prices. - **Negative**: Job losses in developed countries, environmental concerns, and cultural erosion. **International Business** - **Definition**: Managing business operations across country borders. - **Benefits**: Increased revenue, access to cheaper resources, and advanced technologies. - **Challenges**: Cultural differences, regulatory variations, and public relations. **International Trade Theories** - **Mercantilism**: Promotes exports and limits imports to achieve a trade surplus. - **Absolute Advantage**: Specialization in production where a country is most efficient. - **Comparative Advantage**: Specialization based on lower opportunity cost. - **Heckscher-Ohlin Theory**: Comparative advantage determined by factor endowments (labor, resources, technology). - **Country Similarity Theory**: Firms prefer trading with similar countries. - **Global Strategic Rivalry Theory**: Firms trade internationally to gain competitive advantages (R&D, patents, economies of scale). **Trade Barriers** - **Reasons**: - **Economic**: Protect domestic industries, prevent dumping, protect infant industries, limit outsourcing. - **Political**: Embargoes, sanctions, national security. - **Social**: Health and safety concerns. - **Types**: - **Tariffs**: Taxes on imports/exports. - **Quotas**: Limits on the quantity of imports. - **Non-Tariff Barriers**: Technical standards, procurement programs. - **Impacts**: Higher consumer prices, increased domestic production, government tax revenue, reduced imports. **Multinational Corporations (MNCs) and Foreign Direct Investment (FDI)** - **MNCs**: Operate across borders, leveraging global R&D, shifting production, and reducing labor costs. - **FDI**: Long-term investments in foreign assets (companies, property, partnerships). - **Horizontal FDI**: Opening new markets/building facilities. - **Vertical FDI**: Integrating parts of the value chain. - **Benefits for Host Countries**: Economic growth, job creation, technology transfer, increased tax revenue. - **Attracting FDI**: Tax incentives, infrastructure development, reduced bureaucracy, skilled workforce. - **Restricting FDI**: Protect local industries, preserve culture, maintain independence, manage growth. **Regional Economic Integration** - **Levels**: - **Free Trade Area**: Remove trade barriers among members (e.g., NAFTA). - **Customs Union**: Common trade policies with nonmembers (e.g., Mercosur). - **Common Market**: Free movement of labor, technology, capital (e.g., ASEAN, COMESA). - **Economic Union**: Unified economic policies (e.g., EU). - **Political Union**: Integrated political policies (e.g., UAE, USA). - **Benefits**: Increased trade, competition, economic growth, political cooperation, efficiency. - **Drawbacks**: Trade diversion, reduced external trade, cultural dilution, market dominance by large companies. **Foreign Exchange Dynamics** - **Currency Strength**: - **Weak Currency**: Benefits exporters, reduces investment costs, increases tourist expenses. - **Strong Currency**: Attracts foreign investment, increases tourist purchasing power, hurts exporters. - **Exchange Rate Policies**: - **Floating Exchange Rate**: Currency value fluctuates based on market supply and demand (e.g., US, EU). - **Fixed Exchange Rate (Pegged)**: Currency value tied to another currency/resource (e.g., Belize). - **Pegged Float**: Hybrid, with currency floating within a set range (e.g., India). Unit 3 Module 5 -- Anti-Trust, Labor, and Contract Laws: **Perfect Competition vs. Monopolies** - **Perfect Competition**: Many buyers and sellers, no barriers to entry/exit, perfect information, firms and consumers are price takers. - **Monopoly**: One firm or product, price makers with market power, higher prices, lower quantities, barriers to entry. **Antitrust Laws** - **Sherman Antitrust Act**: Limits power of price-making cartels, prevents monopolies. - **Clayton Antitrust Act**: Defines unethical business practices (price fixing, monopolies), upholds labor union rights. - **Federal Trade Commission (FTC) Act**: Establishes FTC to protect consumers, stop unfair practices, approve/reject mergers, prohibit unfair competition. **Free Trade and Labor Standards** - **Free Trade**: Increases competition, drives down prices, decreases profit margins, leads to cost-cutting measures. - **Decreasing Labor Standards**: Firms may reduce labor costs, leading to unsafe working conditions, sweatshops, child labor. - **Resolving Conflict**: - **National Labor Committee**: NGO setting minimum labor standards, prohibiting sweatshops, slave labor, child labor. - **International Conventions**: Worst Forms of Child Labor Convention, Maritime Labor Convention, Domestic Workers Convention. **Contracts and Legal Structures for Global Business** - **Contracts**: Legally enforceable promises with compensation (damages) for breaches. - **Strong Legal System**: Necessary for enforceable contracts, clearly defined property rights. - **Vertical Legal Structures**: Higher authority imposes/enforces laws (e.g., U.S. federal government on states). - **Horizontal Legal Structures**: Agreement between equals (e.g., treaties, regional economic integration like USMCA). - **Sources Governing Contracts**: - **Common Law**: Based on interpretation and precedent. - **Uniform Commercial Code (UCC)**: Rules governing sales, obligations, unfair contract terms. - **UN Convention on Contracts for the International Sale of Goods**: Uniform law for international commercial goods sales, provides gap fillers. **Examples:** 1. **Perfect Competition**: - Imagine a school fair where many students sell lemonade, and anyone can join or leave at any time. No single student controls the price. 2. **Monopoly**: - Think of a single candy store in a town setting high prices because there are no other stores to compete with. 3. **Sherman Antitrust Act**: - Imagine a rule preventing a group of kids from controlling all the snacks at school and deciding the prices. 4. **Clayton Antitrust Act**: - Think of a rule against kids teaming up to unfairly set high prices for their lemonade stands. 5. **Free Trade and Decreasing Labor Standards**: - Picture students competing to sell the cheapest lemonade, leading some to use lower-quality ingredients or work in uncomfortable conditions. 6. **National Labor Committee**: - Imagine a group ensuring that kids selling lemonade aren\'t forced to work in bad conditions or for no pay. 7. **Contracts**: - Think of a promise between friends to trade toys, with rules in place to ensure everyone keeps their promises. 8. **Vertical Legal Structure**: - Imagine school rules set by the principal that all students must follow. 9. **Horizontal Legal Structure**: - Think of an agreement between different classrooms to share resources fairly Unit 3 Module 5 -- Environmental Laws and Intellectual: **Environmental Laws** - **Collective Environment**: The earth and environment belong to all people and nations, shared responsibility to protect it. - **Global Business Impact**: Firms must consider international environmental laws in design, production, and distribution. - **Key International Agreements**: - **Kyoto Protocol**: Reduce greenhouse gas emissions to 5.2% below 1990 levels, focused on industrialized countries. - **Paris Agreement**: Prevent global temperature from rising more than 2°C, all countries responsible for reducing emissions. - **U.S. Environmental Laws**: - **National Environmental Policy Act (NEPA)**: Requires environmental impact statements for federal actions. - **Environmental Protection Agency (EPA)**: Monitors environmental practices. - **Clean Water Act**: Prevents water pollution, fines for oil spills. - **Oil Pollution Act of 1990**: Strengthens EPA\'s ability to prevent and respond to oil spills, requires responsible companies to pay for cleanup and civil damages. **Intellectual Property Protections** - **Importance**: Protects creative products, encourages investment in new ideas, and provides societal benefits. - **Types of Intellectual Property**: - **Patents**: Grants exclusive rights to inventors for 5-20 years, depending on the invention type and country. - **Copyrights**: Grants creators exclusive rights to their work for a lifetime plus 70 years in the U.S. - **Trademarks**: Unique identifiers of a business, protecting brand integrity. - **Trade Secrets**: Keeping the details of a formula or process secret to prevent copying. - **Global Protection**: - **World Intellectual Property Organization (WIPO)**: Develops global intellectual property infrastructure, builds respect, implements policy, handles disputes. - **Trade-Related Aspects of Intellectual Property Rights (TRIPS)**: Requires WTO members to comply with WIPO protections. - **Paris Convention on Industrial Property**: Protects industrial property, established in 1883. - **Berne Convention on Copyright**: Governs copyright and protection, over 90 countries signed. **Examples:** 1. **Environmental Laws**: - Imagine a rule where everyone in the school must help keep the playground clean because it\'s shared by all students. - **Example**: Kyoto Protocol aiming to reduce air pollution levels like how students must reduce littering. 2. **Patents**: - Think of creating a unique gadget and getting exclusive rights to sell it for 17 years before others can copy it. - **Example**: A new toy invention protected by a patent. 3. **Copyrights**: - Imagine writing a song and having exclusive rights to it for your whole life plus 70 years after you. - **Example**: A story you write and publish, protected from being copied by others. 4. **Trademarks**: - Picture a unique logo for your lemonade stand that no other stand can use, ensuring people recognize your brand. - **Example**: The Coca-Cola logo or bottle shape. 5. **Trade Secrets**: - Think of a secret recipe for your favorite cookies that only you know, keeping it locked away. - **Example**: The secret formula for Coca-Cola. 6. **Global Intellectual Property Protection**: - Imagine a worldwide rule where all countries agree to protect your song from being copied. - **Example**: The Berne Convention ensuring your story\'s copyright is respected internationally. Unit 3 Module 6 -- Ethical Considerations: **Ethics in Business** - **Definition**: Ethics are systems of moral principles defining what is good for individuals and society, shaped by culture and social norms. - **Importance**: Ethics and economic progress are interconnected, fostering trust essential for business activities. **Ethical Consumerism** - **Concept**: Consumers vote with their money, supporting ethically produced goods and services, and avoiding unethical companies. **Corporate Social Responsibility (CSR)** - **Definition**: A company\'s obligation to society, considering the welfare of all stakeholders affected by its actions. - **Examples**: - **Bad CSR**: Sriracha did not address health issues caused by hot pepper fumes affecting nearby residents. - **Good CSR**: Keebler stops selling their Girl Scout cookie equivalents during Girl Scout cookie season to support their fundraising efforts. **Ensuring Ethical Practices** - **Internal Controls System**: - **Purpose**: Ensure accuracy and reliability of financial and accounting information, preventing errors and fraud. - **Components**: - **Rules and Procedures**: Step-by-step instructions to prevent discrepancies (unintentional errors) and irregularities (intentional fraud). - **Internal Auditing**: Multiple reviews to catch and correct errors, discouraging fraudulent behavior. **Sarbanes-Oxley Act (SOX)** - **Purpose**: Improve public trust in corporate America. - **Key Provisions**: - **Code of Ethics**: Public companies must adopt and disclose a code of ethics. - **Auditor Independence**: Requires private auditors for public companies. - **Accountability**: Increases accountability for senior executives. - **Insider Trading Disclosure**: Strengthens disclosure requirements. - **Prohibiting Loans**: Bans company loans to executives. - **Increased Penalties**: Minimum 25-year prison sentence for fraud. - **Whistleblower Protection**: Protects individuals who report illegal or unethical activities. **Examples:** 1. **Ethics**: - Imagine a school rule that everyone should be kind and respectful, shaped by what the school community believes is right. 2. **Ethical Consumerism**: - Think of choosing to buy snacks from a shop that donates to charity and avoids buying from a shop that mistreats workers. 3. **Corporate Social Responsibility**: - **Bad CSR Example**: A factory pollutes a river, harming local fishers, but does nothing to fix it. - **Good CSR Example**: A cookie company stops selling certain cookies during a fundraiser to support a local cause. 4. **Internal Controls**: - Picture a checklist your teacher gives you to ensure you complete your homework correctly, preventing mistakes and catching any if they happen. 5. **Sarbanes-Oxley Act**: - Imagine rules at school requiring students to show their work to both classmates and teachers to prevent cheating and ensure everyone is following the rules. Unit 3 Module 6 -- Ethical Considerations Knowledge Check: **Question 1**: - **Prompt**: Which is not a mandate that companies with corporate social responsibility (CSR) strive to achieve? a) Treat its employees with dignity and respect. b) Consider the impact of their actions on the environment. c) Provide a quality product or service to its customers. d) Fairly deal with its suppliers. e) Do whatever it takes to be profitable. - **Correct Answer**: e) Do whatever it takes to be profitable. - **Reasoning**: CSR involves considering the welfare of all stakeholders, including employees, the environment, customers, and suppliers. Pursuing profit at all costs can harm these stakeholders, making it contrary to CSR principles. **Question 2**: - **Prompt**: GCD Industries employs a set of internal controls to help ensure ethical behavior and prevent financial impropriety. Which one of the following is least likely to be used as an internal control by this company? a) Corrective actions are taken immediately whenever a department goes over its budget. b) Adequate and accurate documentation and records are maintained. c) Financial accounting records are periodically audited. d) All funds due to the company and all checks for expenditures are handled by the same person. e) The company has written policies and procedures for all members to follow. - **Correct Answer**: d) All funds due to the company and all checks for expenditures are handled by the same person. - **Reasoning**: Effective internal controls require separation of duties to prevent fraud and errors. Having one person handle all funds and expenditures lacks oversight and conflicts with the principles of internal controls. **Examples:** 1. **Corporate Social Responsibility (CSR)**: - **Example**: A lemonade stand decides to use eco-friendly cups and donate a portion of profits to a local charity, rather than just trying to make as much money as possible. 2. **Internal Controls**: - **Example**: A classroom system where two students check each other\'s homework to make sure it\'s done correctly, instead of one student checking all the work alone. Unit 3 Summary: **1. Antitrust, Labor, and Contract Laws** - **Perfect Competition vs. Monopolies**: - **Perfect Competition**: Many buyers and sellers, no barriers to entry/exit, price takers. - **Monopoly**: Single firm, price makers with market power, higher prices, and lower quantities. - **Antitrust Laws**: - **Sherman Antitrust Act**: Prevents monopolies and price-making cartels. - **Clayton Antitrust Act**: Defines unethical business practices and protects labor union rights. - **Federal Trade Commission (FTC) Act**: Establishes FTC to protect consumers and prevent unfair practices. - **Free Trade and Labor Standards**: - Free trade increases competition and drives down prices. - Firms may cut labor costs, leading to decreased labor standards. - **National Labor Committee**: Sets minimum labor standards and prohibits sweatshops and child labor. - **International Conventions**: Include the Worst Forms of Child Labor Convention, Maritime Labor Convention, and Domestic Workers Convention. - **Contracts and Legal Structures**: - **Contracts**: Legally enforceable promises with compensation (damages) for breaches. - **Strong Legal System**: Necessary for enforceable contracts and property rights. - **Vertical Legal Structures**: Higher authority imposes laws (e.g., federal government). - **Horizontal Legal Structures**: Agreements between equals (e.g., treaties). - **Sources Governing Contracts**: Common Law, Uniform Commercial Code (UCC), UN Convention on Contracts for the International Sale of Goods. **2. Environmental Laws and Intellectual Property Protections** - **Environmental Laws**: - **Collective Environment**: Shared responsibility to protect the environment. - **International Agreements**: - **Kyoto Protocol**: Reduce greenhouse gas emissions to 5.2% below 1990 levels. - **Paris Agreement**: Prevent global temperature rise above 2°C. - **U.S. Environmental Laws**: - **National Environmental Policy Act (NEPA)**: Requires environmental impact statements. - **Environmental Protection Agency (EPA)**: Monitors environmental practices. - **Clean Water Act**: Prevents water pollution, fines for oil spills. - **Oil Pollution Act of 1990**: Requires cleanup costs and allows civil lawsuits for damages. - **Intellectual Property Protections**: - **Importance**: Encourages investment in new ideas and provides societal benefits. - **Types of Protections**: - **Patents**: Exclusive rights to inventors for 5-20 years. - **Copyrights**: Exclusive rights to creators of artistic works for a lifetime plus 70 years. - **Trademarks**: Unique business identifiers. - **Trade Secrets**: Keeping information secret to prevent copying. - **Global Protection**: - **World Intellectual Property Organization (WIPO)**: Develops global IP infrastructure and policies. - **TRIPS**: WTO agreement requiring compliance with WIPO standards. - **Paris Convention on Industrial Property**: Protects industrial property. - **Berne Convention on Copyright**: Governs copyright protection. **3. Ethical Considerations for Global Business** - **Ethics in Business**: - **Definition**: System of moral principles defining good behavior, shaped by culture and social norms. - **Importance**: Ethics and economic progress are interconnected, fostering trust essential for business. - **Ethical Consumerism**: - **Concept**: Consumers vote with their money, supporting ethically produced goods and services. - **Corporate Social Responsibility (CSR)**: - **Definition**: A company\'s obligation to society, considering the welfare of all stakeholders. - **Examples**: - **Bad CSR**: Sriracha causing health issues without addressing them. - **Good CSR**: Keebler not selling certain cookies during Girl Scout cookie season. - **Ensuring Ethical Practices**: - **Internal Controls System**: - **Purpose**: Ensure accuracy and reliability of financial and accounting information. - **Components**: Rules and procedures, internal auditing. - **Sarbanes-Oxley Act (SOX)**: - **Purpose**: Improve public trust in corporate America. - **Key Provisions**: Code of ethics, auditor independence, accountability, insider trading disclosure, prohibiting loans to executives, increased penalties for fraud, and whistleblower protection. **4. Knowledge Check Questions on Ethical Considerations** - **Key Questions**: - **Corporate Social Responsibility**: - Not part of CSR: \"Do whatever it takes to be profitable.\" - **Internal Controls**: - Least likely to be used: \"All funds due to the company and all checks for expenditures are handled by the same person.\" - **Concepts Covered**: - **CSR**: Obligation to treat employees with respect, consider environmental impact, provide quality products, and deal fairly with suppliers. - **Internal Controls**: Systems ensuring accuracy and reliability, preventing errors and fraud, requiring separation of duties and periodic audits. Unit 4 Module 7 -- Organizational Structures: **Definition**: Organizational structures define how tasks and authority are arranged within a business, showing relationships of control, coordination, and communication. **Types**: 1. **Functional/Departmental Structure**: - **Description**: Groups similar positions, tasks, or skills. - **Advantages**: Specialization, operational efficiency. - **Disadvantages**: Reduced flexibility and innovation, potential tunnel vision. - **Example**: A tech company where all software developers work together in one department, while all marketers work in another. 2. **Divisional Structure**: - **Description**: Groups by products, markets, or geographical regions. - **Advantages**: Focused efforts, operational flexibility, independent division success. - **Disadvantages**: Communication barriers, loss of economies of scale. - **Example**: An international retail chain with separate divisions for North America, Europe, and Asia. 3. **Matrix Structure**: - **Description**: Combines functional and divisional structures. - **Advantages**: Specialization, cross-functional information sharing, multiple layers of management. - **Disadvantages**: Complexity in chain of command, blurred authority. - **Example**: A global corporation with divisions by region (e.g., North America) and functional departments (e.g., marketing) within each region. 4. **Team Structure**: - **Description**: Groups people with complementary skills working together for a common purpose. - **Advantages**: Increased creativity, productivity, expertise variety. - **Disadvantages**: Interpersonal conflict, motivation issues. - **Example**: A tech firm with multiple teams working on different aspects of a new product, competing to create the best solution. **Environmental Laws** - **Definition**: Environmental laws regulate the impact of human activities on the environment, promoting sustainability and protection of natural resources. - **Global Agreements**: 1. **Kyoto Protocol**: - **Goal**: Reduce greenhouse gas emissions to 5.2% below 1990 levels. - **Focus**: Industrialized countries. - **Example**: A country implementing policies to reduce CO2 emissions from factories. 2. **Paris Agreement**: - **Goal**: Prevent global temperature rise of more than 2°C. - **Focus**: All countries responsible. - **Example**: A nation committing to renewable energy initiatives to reduce overall emissions. - **U.S. Environmental Laws**: 1. **National Environmental Policy Act (NEPA)**: - **Requirement**: Environmental impact statements for federal actions. - **Example**: A federal construction project requiring an assessment of potential environmental impacts. 2. **Environmental Protection Agency (EPA)**: - **Function**: Monitors and enforces environmental practices. - **Example**: The EPA regulating industrial emissions to protect air quality. 3. **Clean Water Act**: - **Purpose**: Prevent water pollution. - **Example**: Imposing fines on companies for oil spills in waterways. 4. **Oil Pollution Act**: - **Strengthened EPA**: Requires companies to pay for cleanup and civil damages. - **Example**: An oil company paying for the cleanup of an offshore spill. **Intellectual Property Protections** - **Definition**: Intellectual property (IP) protections safeguard creations of the mind, encouraging innovation and investment. - **Types of IP Protection**: 1. **Patents**: - **Rights**: Exclusive rights for 5-20 years. - **Example**: A pharmaceutical company holding a patent on a new medication. 2. **Copyrights**: - **Rights**: Exclusive rights for a lifetime plus 70 years. - **Example**: An author retaining rights to their book for their life and 70 years after. 3. **Trademarks**: - **Purpose**: Unique business identifiers. - **Example**: The Nike swoosh logo identifying Nike products. 4. **Trade Secrets**: - **Purpose**: Keeping details secret to prevent copying. - **Example**: Coca-Cola\'s secret formula for its soda. - **Global Protection**: 1. **World Intellectual Property Organization (WIPO)**: - **Role**: Develops global IP infrastructure, handles disputes. - **Example**: WIPO mediating an international patent dispute. 2. **TRIPS Agreement**: - **Requirement**: WTO members comply with WIPO protections. - **Example**: A country aligning its IP laws with international standards to be part of the WTO. 3. **Paris Convention**: - **Purpose**: Protects industrial property. - **Example**: An international agreement ensuring industrial designs are protected. 4. **Berne Convention**: - **Purpose**: Governs copyright protection. - **Example**: Countries agreeing to protect authors\' rights globally. **Examples:** 1. **Functional Structure**: - A school where all math teachers work in one department, while all science teachers work in another. 2. **Divisional Structure**: - A toy company with separate divisions for board games, action figures, and educational toys. 3. **Matrix Structure**: - A company where marketing, sales, and customer service teams are divided by both product lines and regions. 4. **Team Structure**: - A group of students with different skills working together on a science project, competing against another group. 5. **Kyoto Protocol**: - Imagine a rule where each classroom must reduce paper waste by a certain amount. 6. **Paris Agreement**: - Think of a school-wide effort to reduce energy use and prevent temperature rise in the school building Unit 4 Module 7 -- Global Integration vs. Local Responsiveness: **Decision Making in Multinational Corporations** - **Centralized Decision Making**: - **Definition**: Top managers at headquarters make all decisions, which are then passed down. - **Advantages**: Consistent decision making across all locations. - **Disadvantages**: Inefficient due to distance from customers and front-line operations. - **Example**: The U.S. military\'s top-down decision-making process. - **Decentralized Decision Making**: - **Definition**: Lower-level managers make decisions closer to the customers and front-line operations. - **Advantages**: Flexibility to meet local needs. - **Disadvantages**: Inconsistent decision making across different locations. - **Example**: Local store managers customizing their products and services based on regional customer preferences. **Global Integration vs. Local Responsiveness** - **Global Integration**: Using the same products, methods, and decisions across all markets. - **Local Responsiveness**: Customizing products and methods to meet local conditions. **Strategies** 1. **Export Strategy**: - **Definition**: Low global integration, low local responsiveness. - **Characteristics**: Same products and marketing approach in all markets, no customization. - **Example**: A company exporting the same product globally without any changes. 2. **Standardization Strategy**: - **Definition**: High global integration, low local responsiveness. - **Characteristics**: One product and marketing campaign for all markets, centralized decision making. - **Example**: A global smartphone company using the same design and marketing worldwide. 3. **Multidomestic Strategy**: - **Definition**: Low global integration, high local responsiveness. - **Characteristics**: Customizing products and processes for each country, decentralized decision making. - **Example**: A fast-food chain customizing its menu to suit local tastes in different countries. 4. **Transnational Strategy**: - **Definition**: High global integration, high local responsiveness. - **Characteristics**: Combination of standardization and customization to achieve economies of scale and meet local needs. - **Example**: A car manufacturer standardizing core components but customizing features like the steering wheel placement for different markets. **Examples:** 1. **Centralized Decision Making**: - **Example**: A school principal making all the decisions for the school and then telling teachers what to do. 2. **Decentralized Decision Making**: - **Example**: Teachers in different classrooms making their own decisions about how to teach their students. 3. **Export Strategy**: - **Example**: A student making the same kind of cookies and sending them to friends in different neighborhoods without changing the recipe. 4. **Standardization Strategy**: - **Example**: A toy company selling the same toy with the same packaging in every store around the world. 5. **Multidomestic Strategy**: - **Example**: A clothing brand making different styles and colors of clothes for different countries based on local fashion trends. 6. **Transnational Strategy**: - **Example**: A computer company using the same hardware components in all its computers but customizing the software language and keyboard layout for different countries. Unit 4 Module 8 -- Entry Strategies: **Entry Strategies for International Markets** 1. **Export-Import** - **Risk Level**: Lowest - **Definition**: Sending goods/services globally from the home base without physical presence. - **Advantages**: Low investment, low control needed, easy to implement. - **Disadvantages**: High competition, low rewards, potential environmental impacts. - **Example**: Selling products on Amazon to international customers. 2. **Licensing** - **Risk Level**: Low - **Definition**: Selling rights to produce intellectual property to a foreign partner. - **Advantages**: No upfront cost for the licsensor, leveraging existing patents/copyrights. - **Disadvantages**: Requires strong regulatory environment and intellectual property protection. - **Example**: A tech company licensing its software to a foreign manufacturer. 3. **Franchising** - **Risk Level**: Low to moderate - **Definition**: Parent company provides framework and specialized equipment to the franchisee. - **Advantages**: Established business model, shared investment. - **Disadvantages**: Franchisor's reputation at risk, requires management support. - **Example**: McDonald\'s franchising its brand to local business owners worldwide. 4. **Strategic Alliance/Partnership** - **Risk Level**: Moderate - **Definition**: Two or more companies agree to work together while remaining separate entities. - **Advantages**: Shared resources, reduced individual risk. - **Disadvantages**: Unstable due to potential for partners to quit. - **Example**: Star Alliance between multiple airlines for shared frequent flyer benefits. 5. **International Joint Venture** - **Risk Level**: Moderate to high - **Definition**: Two companies create a new jointly owned entity. - **Advantages**: Pooled resources, shared equity, local market knowledge. - **Disadvantages**: Complex management, shared control. - **Example**: CBS and Warner Brothers creating The CW network. 6. **Merger and Acquisition** - **Risk Level**: High - **Definition**: Home country firm purchases a foreign firm for quick market entry. - **Advantages**: Fast entry, established facilities and customer base, perceived as a local company. - **Disadvantages**: Very costly, integration challenges. - **Example**: A global tech company acquiring a well-known local software firm. 7. **Wholly Owned Subsidiary** - **Risk Level**: Highest - **Definition**: Building and operating a new facility or starting a new company in a foreign market. - **Advantages**: Full control over operations, brand new facilities. - **Disadvantages**: Highest capital investment, significant risk. - **Example**: A multinational corporation building a new manufacturing plant overseas. **Examples:** 1. **Export-Import**: - **Example**: A student selling handmade crafts online to buyers in different countries without leaving their home. 2. **Licensing**: - **Example**: A student allowing a friend in another country to make and sell a special type of bracelet they invented, in exchange for a fee. 3. **Franchising**: - **Example**: A popular lemonade stand gives other kids the right to use their brand and recipes to start similar stands. 4. **Strategic Alliance/Partnership**: - **Example**: Two groups of students team up to organize a school event but remain separate clubs. 5. **International Joint Venture**: - **Example**: Two student clubs from different schools come together to create a new club that both schools manage equally. 6. **Merger and Acquisition**: - **Example**: One student club buys another club and combines their resources to become a larger organization. 7. **Wholly Owned Subsidiary**: - **Example**: A student starts a completely new club from scratch in a different school with their own resources and effort. Unit 4 Module 9 -- Hofstede's Cultural Dimensions: **Culture in Business** - **Definition**: Beliefs, values, mindsets, and norms of a group of people, including their behavior patterns, rules, perceptions, and logic. - **Characteristics**: Learned through social interactions, relatively static, hard to change. **Hofstede's Six Cultural Dimensions** 1. **Power Distance**: - **Low Power Distance**: Equal power distribution, less concern with rank (e.g., Denmark, USA). - **High Power Distance**: Respect for hierarchy, clear authority (e.g., China, Mexico, Japan). 2. **Individualism vs. Collectivism**: - **Individualistic**: Emphasis on \'I\', loosely knit social framework (e.g., USA, Denmark). - **Collectivist**: Emphasis on \'we\', tightly knit social framework (e.g., Japan, Mexico, China). 3. **Masculinity vs. Femininity**: - **Masculine**: Preference for achievement, heroism, assertiveness, material rewards (e.g., USA, Japan). - **Feminine**: Preference for cooperation, modesty, caring for the weak (e.g., Denmark). 4. **Uncertainty Avoidance**: - **Low Uncertainty Avoidance**: Risk-loving, creativity encouraged (e.g., Denmark, USA). - **High Uncertainty Avoidance**: Risk-fearing, rigid codes of behavior (e.g., Japan, Mexico). 5. **Short-term vs. Long-term Orientation**: - **Short-term**: Focus on present, quick payoffs (e.g., USA, Mexico, Denmark). - **Long-term**: Focus on future, willing to invest now for future benefits (e.g., China, Japan). 6. **Indulgence vs. Restraint**: - **Indulgent**: Free gratification, enjoying life (e.g., USA, Mexico, Denmark). - **Restrained**: Suppressed gratification, regulated by strict norms (e.g., China, Japan). **Learning About Cultures** - **Training**: 1. **Documentary Training**: Watching videos, reading materials. 2. **Cultural Simulation**: Role-playing, computer-based simulations. 3. **Field Simulation**: Visiting the country for immersive learning. - **Self-Guided Learning**: 1. **Primary Sources**: Talking to people with firsthand experience (e.g., employees, executives). 2. **Secondary Sources**: Reading documents (e.g., U.S. Department of Commerce guides, culture grams). **Cultural Attributes by Region** - **East Asia**: - **China**: Guanxi (networking and favors). - **Japan**: Respect for hierarchy, group orientation, no direct eye contact. - **Latin America**: - Laid-back attitude towards time, developing personal relationships, concern for hierarchy. **Examples:** 1. **Power Distance**: - **Example**: In some schools, students call teachers by their first names (low power distance), while in others, they must use titles like Mr. or Ms. (high power distance). 2. **Individualism vs. Collectivism**: - **Example**: Some students prefer working alone on projects (individualistic), while others prefer group work (collectivist). 3. **Masculinity vs. Femininity**: - **Example**: In some classes, students are encouraged to be competitive (masculine), while in others, teamwork and helping each other are emphasized (feminine). 4. **Uncertainty Avoidance**: - **Example**: Some students love trying new and unpredictable games (low uncertainty avoidance), while others prefer structured and familiar activities (high uncertainty avoidance). 5. **Short-term vs. Long-term Orientation**: - **Example**: Some students focus on getting good grades now (short-term), while others think about how their studies will help their future careers (long-term). 6. **Indulgence vs. Restraint**: - **Example**: Some students enjoy playing games and having fun (indulgent), while others focus strictly on homework and responsibilities (restrained). Unit 4 Module 9 -- Human Resource Management: **Culture in Business** - **Definition**: Beliefs, values, mindsets, and norms of a group of people, including their behavior patterns, rules, perceptions, and logic. - **Characteristics**: Learned through social interactions, relatively static, hard to change. **Hofstede's Six Cultural Dimensions** 1. **Power Distance**: - **Low Power Distance**: Equal power distribution, less concern with rank (e.g., Denmark, USA). - **High Power Distance**: Respect for hierarchy, clear authority (e.g., China, Mexico, Japan). 2. **Individualism vs. Collectivism**: - **Individualistic**: Emphasis on \'I\', loosely knit social framework (e.g., USA, Denmark). - **Collectivist**: Emphasis on \'we\', tightly knit social framework (e.g., Japan, Mexico, China). 3. **Masculinity vs. Femininity**: - **Masculine**: Preference for achievement, heroism, assertiveness, material rewards (e.g., USA, Japan). - **Feminine**: Preference for cooperation, modesty, caring for the weak (e.g., Denmark). 4. **Uncertainty Avoidance**: - **Low Uncertainty Avoidance**: Risk-loving, creativity encouraged (e.g., Denmark, USA). - **High Uncertainty Avoidance**: Risk-fearing, rigid codes of behavior (e.g., Japan, Mexico). 5. **Short-term vs. Long-term Orientation**: - **Short-term**: Focus on present, quick payoffs (e.g., USA, Mexico, Denmark). - **Long-term**: Focus on future, willing to invest now for future benefits (e.g., China, Japan). 6. **Indulgence vs. Restraint**: - **Indulgent**: Free gratification, enjoying life (e.g., USA, Mexico, Denmark). - **Restrained**: Suppressed gratification, regulated by strict norms (e.g., China, Japan). **Learning About Cultures** - **Training**: 1. **Documentary Training**: Watching videos, reading materials. 2. **Cultural Simulation**: Role-playing, computer-based simulations. 3. **Field Simulation**: Visiting the country for immersive learning. - **Self-Guided Learning**: 1. **Primary Sources**: Talking to people with firsthand experience (e.g., employees, executives). 2. **Secondary Sources**: Reading documents (e.g., U.S. Department of Commerce guides, culture grams). **Cultural Attributes by Region** - **East Asia**: - **China**: Guanxi (networking and favors). - **Japan**: Respect for hierarchy, group orientation, no direct eye contact. - **Latin America**: - Laid-back attitude towards time, developing personal relationships, concern for hierarchy. **Examples:** 1. **Power Distance**: - **Example**: In some schools, students call teachers by their first names (low power distance), while in others, they must use titles like Mr. or Ms. (high power distance). 2. **Individualism vs. Collectivism**: - **Example**: Some students prefer working alone on projects (individualistic), while others prefer group work (collectivist). 3. **Masculinity vs. Femininity**: - **Example**: In some classes, students are encouraged to be competitive (masculine), while in others, teamwork and helping each other are emphasized (feminine). 4. **Uncertainty Avoidance**: - **Example**: Some students love trying new and unpredictable games (low uncertainty avoidance), while others prefer structured and familiar activities (high uncertainty avoidance). 5. **Short-term vs. Long-term Orientation**: - **Example**: Some students focus on getting good grades now (short-term), while others think about how their studies will help their future careers (long-term). 6. **Indulgence vs. Restraint**: - **Example**: Some students enjoy playing games and having fun (indulgent), while others focus strictly on homework and responsibilities (restrained). Unit 5 Module 10 -- Location and Relocation Decisions: **Strategies for Producing Products for International Markets** 1. **Manufacture in the Home Country, then Export**: - **Justification**: Used when shipping costs, importation delays, tariffs, and exchange rate risks are not prohibitive. - **Example**: A company manufacturing goods in the USA and exporting them globally. 2. **Global Components with Local Assembly**: - **Definition**: Sourcing components globally and performing customized assembly close to the market. - **Benefits**: Improved sales service and customer knowledge. - **Example**: Dell sourcing computer components globally but assembling in Singapore. 3. **Local Production**: - **Definition**: Sourcing materials and manufacturing products in the foreign country. - **Benefits**: Lower cost labor, regional suppliers, and local knowledge. - **Example**: Nokia manufacturing in India to reduce costs. **Determinants of Location Decisions** 1. **Shipping**: - **Objective**: Minimize shipping costs for raw materials and finished goods. - **Consideration**: Value-to-weight ratio of products. - **Example**: Locating near suppliers/customers to reduce costs. 2. **Workforce**: - **Objective**: Locate in areas with skilled workers. - **Benefit**: Access to experienced workers in industry hubs. 3. **Costs**: - **Objective**: Choose locations with low fixed costs (land, labor, utilities, taxes). - **Benefit**: Achieve economies of scale at lower production levels. 4. **Country and Community Factors**: - **Considerations**: Cultural norms, economic, social, and political stability. - **Impact**: Affects communication, work styles, and productivity. 5. **Business Environment**: - **Objective**: Favorable environments with financial incentives like tax breaks. - **Consideration**: Continual assessment to ensure site meets company needs. **Factors Influencing Relocation Decisions** 1. **Growth**: - **Objective**: Locate in high-growth areas. - **Example**: Automotive industry targeting emerging markets. 2. **Government Incentives**: - **Objective**: Utilize incentives like tax breaks and modern infrastructure. - **Example**: Malaysia\'s multimedia super corridor. 3. **Costs**: - **Objective**: Reduce input costs, environmental regulations, interest rates, and trade policies. - **Example**: A shoe producer relocating to Indonesia for cheaper rubber and labor. 4. **Innovation**: - **Objective**: Adapt production processes for emerging markets. - **Example**: Procter & Gamble\'s low-cost, labor-intensive diaper manufacturing in Vietnam. **Examples:** 1. **Manufacture in the Home Country, then Export**: - **Example**: A student makes handmade crafts at home and sells them to friends in other neighborhoods. 2. **Global Components with Local Assembly**: - **Example**: A student buys parts for a toy from different stores and assembles it at school to show friends. 3. **Local Production**: - **Example**: A student uses materials from the school\'s art room to create projects for a local fair. 4. **Shipping**: - **Example**: A student brings their homemade cookies to a bake sale close to their home to minimize carrying distance. 5. **Workforce**: - **Example**: A group project team chooses classmates with specific skills to work together efficiently. 6. **Costs**: - **Example**: A student buys art supplies from a cheaper store to save money on their project. 7. **Business Environment**: - **Example**: Choosing a neighborhood with supportive neighbors for a lemonade stand. 8. **Growth**: - **Example**: Setting up a new club in a school with many interested students. 9. **Government Incentives**: - **Example**: A city offering free venue space for community events to attract more organizers. 10. **Innovation**: - **Example**: A student comes up with a new method for organizing books that can be used in different classrooms. Unit 5 Module 10 -- Outsourcing and Distribution Strategies: **Outsourcing** - **Definition**: Contracting with a third-party company to provide inputs (labor, components, raw materials) for a company\'s final output. - **Insourcing**: Providing all inputs internally. The decision between outsourcing and insourcing is called the make-or-buy decision. **Advantages of Outsourcing** 1. **Lower Costs**: - Economies of scale from large third-party suppliers. - Example: Global providers with large-scale operations can offer cost efficiencies. 2. **Greater Flexibility**: - Easier adjustment to demand. - Example: Access to a variety of suppliers can provide choices and cost benefits. 3. **Intellectual Property Advantages**: - Access to advanced technology and innovation. - Example: Suppliers with specialized technology improve productivity. 4. **Transparency and Accountability**: - Clear identification of costs and benefits. - Example: Market-based contracts focus on output. 5. **Focus on Core Activities**: - Concentration on the company\'s most valuable activities. - Example: A bakery focuses on baking pastries while purchasing raw materials from the market. **Risks of Outsourcing and Reasons for Insourcing** 1. **Loss of Control**: - Quality standards and monitoring challenges, especially with offshore vendors. - Example: Difficulty in managing outsourced production quality. 2. **Loss of Innovation**: - Impaired innovation due to transferred functions. - Example: Outsourced IT services leading to fewer internal process improvements. 3. **Loss of Organizational Trust**: - Negative impact on retained employees\' morale. - Example: Perceived breach of employer-employee relationship. 4. **Higher Transaction Costs**: - Complex contracts and potential for opportunistic behavior by third-party providers. - Example: Unforeseen price increases or use of subcontractors by outsourced vendors. **Distribution Strategies** 1. **Direct Distribution**: - Producer manages all distribution functions, often leveraging e-commerce. - **Advantages**: - Control over product, marketing, and costs. - Stronger consumer connection. - Example: A company selling directly to consumers via its website. - **Disadvantages**: - Higher initial costs for facilities and staff. - Difficult to manage on a large scale. - Example: Establishing a logistics team for global shipping. 2. **Indirect Distribution**: - Involves third-party intermediaries (agents, wholesalers, retailers) to move products to consumers. - **Advantages**: - No upfront costs if using existing networks. - Intermediaries\' market knowledge speeds up the process. - Example: Using a local retailer to sell products in a foreign market. - **Disadvantages**: - Reliance on intermediaries for brand representation and customer interaction. - Sharing profits with intermediaries. - Example: Intermediaries controlling marketing efforts in foreign markets. **Examples:** 1. **Outsourcing**: - **Example**: A student hires a friend to help make posters for a school event, instead of doing it all themselves. 2. **Direct Distribution**: - **Example**: A student selling homemade cookies directly to classmates at school. 3. **Indirect Distribution**: - **Example**: A student asks a local bakery to sell their homemade cookies, allowing the bakery to handle sales and customer interactions. Unit 5 Module 11 -- Financing Resource: **Categories of Funding for International Companies** 1. **Traditional Funding** - **Cash**: Internal financing through retained earnings. - **Loans**: Debt financing from banks, tax-deductible interest. - **Bonds**: Debt financing from bondholders, tax-deductible interest. - **Equity (Issuing Shares)**: More expensive and riskier than debt, involves sharing ownership. 2. **Small/Startup Company Funding** - **Venture Capital (VC)**: Wealthy individuals/groups invest in high-risk startups, often provide management advice, significant equity interest. - **Angel Investors**: Similar to VC but varied motivations, less structured. - **Friends and Family**: Informal funding source. - **Crowdsourcing/Crowdfunding**: Large number of people invest small amounts, receive non-monetary incentives (e.g., credits, first dibs on products, T-shirts). 3. **International Funding** - **Global Equity**: Selling stock in international markets, complex due to foreign currency and regulations. Motivations include raising money in emerging markets, reducing costs, and increasing funding sources. - **Overseas Debt Market**: International loans and bonds with tax-deductible interest. - **Export Financing**: Specialized institutions provide financing for exports. - **Sources**: - **Commercial Banks**: Rarely provide export loans. - **Intermediaries**: Short-term loans from export management companies or suppliers. - **Corporate Parents**: Loans to subsidiaries or franchises. - **Government/Public Entities**: - **JETRO**: Japan External Trade Organization, assists with exports to Japan. - **OPIC**: Overseas Private Investment Corporation (U.S. government agency). - **Export-Import Bank of the United States (Ex-IM Bank)**: Government funding for exports. - **Private Sector**: - **PEFCO**: Private Export Funding Corporation, provides export financing. **Examples:** 1. **Traditional Funding**: - **Example**: A lemonade stand uses its profits (cash) to buy more lemons and cups, and may take a loan from parents (debt) to expand. 2. **Venture Capital**: - **Example**: A group of students invests money in a friend\'s tech startup, offering advice and taking part ownership. 3. **Crowdfunding**: - **Example**: A student raises money online to create a new board game, offering backers special game pieces or early access. 4. **Export Financing**: - **Example**: A student selling handmade crafts internationally borrows money from a school club (similar to export management companies) to cover shipping costs. Unit 5 Module 11 -- Accounting Standards and Intl. Corporate: **Accounting Standards** 1. **GAAP (Generally Accepted Accounting Principles)** - **Developed by**: Financial Accounting Standards Board (FASB). - **Usage**: Used in the USA for preparing financial statements (balance sheet, cash flow statement, statement of retained earnings, income statement). - **Purpose**: Provides standardization for tracking company performance over time and comparing companies. 2. **IFRS (International Financial Reporting Standards)** - **Developed by**: International Accounting Standards Board (IASB). - **Usage**: Used internationally, including in the European Union. - **Purpose**: Harmonize and unify global accounting standards, increase options for international stock market sales. - **Relevance**: American companies issuing stock internationally must use both GAAP and IFRS, leading to higher costs. **Global Corporate Tax** 1. **Corporate Tax Methods** - **Tax Brackets**: Different tax rates based on profit ranges. - **Flat Rate System**: Single tax rate regardless of profit level. - **Trend**: Many countries are shifting from tax brackets to flat rates for attracting foreign direct investment (FDI). 2. **Corporate Tax Strategies** - **Transfer Pricing**: Prices charged between subsidiaries for inventory/services, adjusted to minimize tax liability in high-tax countries. - **Fronting of Loans**: Loans made between parent company and subsidiary, administered by banks for tax benefits. - **Tax Havens**: Countries with low corporate tax rates to attract international investment (e.g., Bermuda). **Examples:** 1. **GAAP**: - **Example**: A student uses a consistent method to track their allowance and expenses each week, just like companies use GAAP to standardize financial reporting. 2. **IFRS**: - **Example**: A student participating in an international science fair needs to follow specific global guidelines for their project, similar to how companies use IFRS for international financial reporting. 3. **Transfer Pricing**: - **Example**: A student giving some of their allowance to a sibling for doing chores but setting a fair price that reflects the actual work done. 4. **Tax Havens**: - **Example**: A student choosing to save their money in a friend's piggy bank because it's kept in a place with no rules on how much they can save. Unit 5 Module 11 -- Global Risk: **Types of Global Business Risks** 1. **Political Risks** - **Global Level**: Risks such as terrorism affecting businesses worldwide. - **Country-Specific Level**: - **Macro Political Risk**: Affects all businesses within a country (e.g., change in leadership, labor unrest, civil war). - **Micro Political Risk**: Affects specific companies or industries (e.g., nationalization of industries, blacklisting companies). 2. **Legal Risks** - Concern about the enforcement of laws on the books. - Specific focus on intellectual property laws and their enforcement. 3. **Societal/Cultural Risks** - Risks related to ethnic or religious strife, nationalistic movements within a country. 4. **Financial and Economic Risks** - Similar to domestic market risks but include an additional layer related to foreign currency. **Foreign Currency Risks** 1. **Transaction Risk** - **Definition**: Risk associated with the fluctuation in exchange rates between the time a transaction is made and when payment is received. - **Example**: An American company buying goods priced in euros may pay more if the dollar weakens against the euro by the time payment is due. 2. **Translation Risk** - **Definition**: Risk related to the translation of multinational companies\' financial statements from foreign currencies to the home currency. - **Example**: General Electric converting all subsidiary assets and liabilities into U.S. dollars for consolidated financial statements. **Examples:** 1. **Political Risks**: - **Example**: A student club plans a field trip, but due to a school administration change, the trip is canceled for all clubs (macro risk). Alternatively, only specific clubs are banned from the trip due to their activities (micro risk). 2. **Legal Risks**: - **Example**: A student invents a new game, but at school, other students start copying it because there are no rules to protect the inventor\'s idea. 3. **Societal/Cultural Risks**: - **Example**: A school faces conflicts between groups of students due to differing opinions on school traditions. 4. **Transaction Risk**: - **Example**: A student agrees to buy snacks from a friend with foreign currency

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