BUSI477 Review Exam1 PDF

Review Exam1 BUSI477 Chapter 1 - Outline Globalization: Sourcing goods to take advantage of differences in cost and quality of factors of production Pros of globalization would be More trade means the potential for more jobs. Open borders mean more opportunities to develop poor areas of t...

Review Exam1 BUSI477 Chapter 1 - Outline Globalization: Sourcing goods to take advantage of differences in cost and quality of factors of production Pros of globalization would be More trade means the potential for more jobs. Open borders mean more opportunities to develop poor areas of the world. increases standards of living such as health and welfare and safety conditions in the workplace. Globalization helps to break down more than just trade barriers, it helps countries communicate, collaborate, and share knowledge. Cons to globalization would be that jobs get transferred to lower cost areas. The poor get trapped in poverty. Globalism creates a culture of fear. People would be forced to either freelance their skills, create their own business, or accept the race to the bottom of the pay scale to keep their employment. How does managing an international business differ from managing a domestic business? Countries are different. Range of problems is wider and problems more complex. Must find ways to work within limits imposed by government. Transactions involve converting money into different currencies. Chapter 1 - Key concepts Containerization: The loading and shipping of containers on to ships. This has decreased the use of break-of-bulk shipping. Foreign Direct Investment (FDI): when a firm invests resources in business activities outside its home country. Multinational enterprise (MNE): is any business that has productive activities in two or more countries. Chapter 2 - Outline Political systems: Two dimensions: Collectivism and individualism: Emphasizes collective goals over individual goals. An individual should have freedom in economic and political pursuits. Democracy and totalitarianism: government is by the people, exercised either directly or through elected representatives. one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. Economic systems: Three types: Market, command and mixed economy Legal systems: Three types: Common law, civil law and theocratic law (e.g. Islamic law). Implications for international businesses: Contract law, property rights and corruption, and product safety and liability. Chapter 2 - Key concepts Political economy: Political, economic, and legal systems Market economy: All productive activities are privately owned. Production is determined by supply and demand. To work, supply must not be restricted. of a country. Role of government is to encourage vigorous free and fair competition. Collectivism: Emphasizes collective goals over individual Command economy: Government plans the goods and services, quantity and price, then allocates them for “the good of society.” All businesses are state goals. owned. Historically found in communist countries. No incentive for individuals to look for better ways to serve needs. Individualism: An individual should have freedom in Mixed economy: Some sectors are privately owned, some are government economic and political pursuits. owned. Once common in developed world, less so now. Government may aid troubled firms whose operations are vital to national interests. Democracy: government is by the people, exercised either Common law: Evolved in England over hundreds of years. Based on tradition, directly or through elected representatives. precedent, custom. More flexible than other systems. Civil law: Based on detailed laws organized into codes. Less adversarial than Totalitarianism: one person or political party exercises a common law system. absolute control over all spheres of human life and prohibits opposing political parties. Theocratic law: Based on religious teachings. Most common is Islamic law. Pseudo-democracy: Lie between pure democracies and complete totalitarianism systems. Chapter 3 - Outline Measures of economic development (GDP, PPP, HDI): Differences among nations affect how attractive it is for doing business. GDP: (Gross Domestic Product): Measures the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. PPP: Purchasing power parity (PPP) is an adjustment in gross domestic product per capita to reflect differences in cost of living. Innovation and entrepreneurship are the engines of growth (requirements): New products along with new processes, new organizations, new management practices, and new strategies. First to commercialize innovative products and processes. Provides much of the dynamism in an economy. Benefits, costs, risks and overall attractiveness of doing business internationally (determinants, figure 3.1) First-mover advantages versus late-mover disadvantages: advantages enjoyed by early entrants. disadvantages suffered by late entrants. Chapter 3 - Key concepts Political risk: likelihood that political forces will cause drastic changes in a country’s business environment that will adversely affect a business’s profit and other goals. Economic risk: likelihood that economic mismanagement will cause drastic changes in a country’s business environment that adversely affect a business’s profit and other goals. Legal risk: likelihood that a trading partner will opportunistically break a contract or expropriate property rights. Chapter 4 - Outline Culture (as defined by Hofstede, determinants, figure 4.1): likelihood that a trading partner will opportunistically break a contract or expropriate property rights. Religion versus ethical system: A system of shared beliefs and rituals concerned with the realm of the sacred. A set of moral principles, or values, that are used to guide and shape behavior. Economic implications of major religions (Christianity, Islam, Hinduism, Buddhism) and Confucianism. Sociologists argue that Protestant branch has the most important economic implications. Many pro-free enterprise principles, protection of private property, concern with social justice. Max Weber: Hindus are valued by their spiritual rather than material achievements. Does not support the caste system—individuals have some mobility and can work with individuals from different classes. Three values of Confucianism—loyalty, reciprocal obligations, and honesty— may all lead to lowering the cost of doing business in Confucian societies. Hofstede’s work-related values (original and recently added dimensions, comparison, interpretation and/or application): Chapter 4 - Key concepts Culture: A system of values and norms shared among a group of people Power distance: refers to how a society deals with the fact that people are and that when taken together constitute a design for living. unequal in physical and intellectual capabilities. Values: Ideas about what a group believes to be good, right, and Individualism versus collectivism: focuses on the relationship between desirable. individuals and their fellows. Folkways: are routine conventions of everyday life Uncertainty avoidance: measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating Group: is an association of two or more individuals who have a shared uncertainty. sense of identity and interact in structured ways based on common expectations. Masculinity versus femininity: looks at the relationship between gender and work roles. Social strata: are hierarchical social categories often based on family background, occupation, and income. Long-term versus short-term orientation: refers to the extent to which a culture programs its citizens to accept delayed gratification of their Religion: A system of shared beliefs and rituals concerned with the realm material, social, and emotional needs. of the sacred. Ethnocentrism: is the belief in the superiority of one’s own ethnic group or Ethical system: A set of moral principles, or values, that are used to guide culture. and shape behavior. Chapter 5 - Outline Different philosophical approaches to business ethics that apply globally (Straw men: Friedman doctrine, cultural relativism, righteous moralist, naïve immoralist). Determinants of ethical behavior (figure 5.1) Five-step decision-making process. Feedback mechanism (Constructive criticism, reflective questions, real- world examples) Chapter 5 - Key concepts Straw men approaches: Offer inappropriate guidelines for ethical decision making. Ethics: corporate social responsibility, and sustainability are Friedman doctrine: “the social responsibility of business is to “social” issues that arise frequently in international increase profits,” so long as the company stays within the rules of law. business. Cultural relativism: Ethics are reflection of culture. Business ethics: are the accepted principles of right or Righteous moralist: Home-country standards of ethics should be wrong that govern the conduct of businesspeople. followed in foreign countries. Ethical dilemma: are situations in which no alternatives Naïve immoralist: If a manager of a multinational sees that firms seem ethically acceptable. from other nations are not following ethical norms in a host nation, that manager should not either. Universal Declaration of Human Rights: Lays down principles that should be adhered to irrespective of the Stakeholders (internal, external): Internal stakeholders are people culture. whose interest in a company comes through a direct relationship, such as employment, ownership, or investment. External stakeholders Corporate social responsibility (CSR): Advocates argue do not directly work for or with a company but are affected by the that businesses need to recognize their noblesse oblige. actions and outcomes of the business. Chapter 6 - Outline Gains from (unrestricted) trade: countries specialize in the production (and export) of goods and services that they produce most efficiently, while importing goods and services that they cannot produce so efficiently from other nations. Mercantilism (proponent, argument or tenet, main criticism): advocates government involvement in promoting exports and limiting imports. Theory of absolute advantage (proponent, argument or tenet, main criticism) Theory of comparative advantage (proponent, argument or tenet, main criticism) Heckscher-Ohlin theory (proponent, argument or tenet, main criticism): focuses on factors of production. New trade theory: focuses on first-mover advantages. Chapter 6 - Key concepts Free trade: Government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. Mercantilism: advocates government involvement in promoting exports and limiting imports. Zero-sum game: A gain by one country results in a loss by another. Absolute advantage: in producing a product when it is more efficient than any other country at producing it. Economies of scale: Cost reductions associated with large-scale production. First-mover advantages: Economic and strategic advantages accruing to the first to enter a market. Chapter 7 - Outline Instruments of trade policy (purpose): Antidumping policies (dumping definition, purpose) Political arguments for government intervention: Protecting jobs and industries. Economic arguments for government intervention: The infant industry argument. World Trade Organization (definition, purpose, “global police”, unresolved issues): Chapter 7 - Key concepts Tariff: are levied as a fixed charge for each unit of imported good. World Trade Organization: is the only international Subsidy: Government payment to a domestic producer. organization dealing with the rules of trade between Quota: are direct restrictions on quantity of some good that may be nations. imported. General Agreement on Tariffs and Trade (GATT)*: Voluntary export restraint: is a quota on trade imposed by the was a multilateral agreement designed to liberalize exporting country. trade by eliminating tariffs, subsidies, import quotas, Local content requirement: Some fraction of a good must be etc. produced locally. Dumping: occurs when companies sell goods in a foreign market at General Agreement on Trade in Services (GATS) below their costs of production or below their “fair” market value. Trade Related Aspects of Intellectual Property Antidumping policies: s punish foreign firms that engage in Rights (TRIPS) dumping, protecting domestic producers from unfair foreign competition. Sample question (concept) A ______ is a direct restriction on the quantity of some good that may be imported into a country. a) Tariff b) Quota c) Subsidy d) Ad valorem tariff Sample question (application) Country A specializes in the production of steel and produces it more efficiently than any other country. It buys corn, which it produces less efficiently than steel, from Country B, even though it produces corn more efficiently than Country B. Which theory of international trade supports Country A’s decision to buy corn from Country B? a) Comparative advantage b) Mercantilism c) Absolute advantage d) Product life-cycle theory Format The exam must be taken in the classroom. No exceptions. 55 multiple choice questions*1.8 points, 1 true/false question*1 point (total points 100) All questions presented at once 50 minutes