Int Review Exam1

Review Exam1 ============ 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...

Review Exam1 ============ 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. - **Foreign Direct Investment (FDI):** when a firm invests resources in - **Multinational enterprise (MNE):** is any business that has productive 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 - **Collectivism:** Emphasizes collective goals over individual goals. - **Individualism:** An individual should have freedom in economic and political pursuits. - **Democracy:** government is by the people, exercised either directly or through elected representatives. - **Totalitarianism:** one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. - **Pseudo-democracy:** Lie between pure democracies and complete totalitarianism systems. - **Market economy:** All productive activities are privately owned. Production is determined by supply and demand. To work, supply must not be restricted. Role of government is to encourage vigorous free and fair competition. - **Command economy:** Government plans the goods and services, quantity and price, then allocates them for "the good of society." All businesses are state owned. Historically found in communist countries. No incentive for individuals to look for better ways to serve needs. - **Mixed economy:** Some sectors are privately owned, some are government owned. Once common in developed world, less so now. Government may aid troubled firms whose operations are vital to national interests. - **Common law:** Evolved in England over hundreds of years. Based on tradition, precedent, custom. More flexible than other systems. - **Civil law:** Based on detailed laws organized into codes. Less adversarial than a common law system. - **Theocratic law:** Based on religious teachings. Most common is Islamic law. Chapter 3 - Outline =================== - Measures of economic development (GDP, PPP, HDI): Differences among nations affect how attractive it is for doing - **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 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 - **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 - **Values:** Ideas about what a group believes to be good, right, and desirable. - **Folkways:** are routine conventions of everyday life - **Group:** is an association of two or more individuals who have a shared sense of identity and interact in structured ways based on common expectations. - **Social strata:** are hierarchical social categories often based on family background, occupation, and income. - **Religion:** A system of shared beliefs and rituals concerned with the realm - **Ethical system:** A set of moral principles, or values, that are used to guide - **Power distance:** refers to how a society deals with the fact that people are unequal in physical and intellectual capabilities. - **Individualism versus collectivism:** focuses on the relationship between individuals and their fellows. - **Uncertainty avoidance:** measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating uncertainty. - **Masculinity versus femininity:** looks at the relationship between gender and work roles. - **Long-term versus short-term orientation:** refers to the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs. - **Ethnocentrism:** is the belief in the superiority of one's own ethnic group or culture. 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 - **Ethics:** corporate social responsibility, and sustainability are "social" issues that arise frequently in international business. - **Business ethics:** are the accepted principles of right or wrong that govern the conduct of businesspeople. - **Ethical dilemma:** are situations in which no alternatives seem ethically acceptable. - **Universal Declaration of Human Rights:** Lays down principles that should be adhered to irrespective of the culture. - **Corporate social responsibility (CSR):** Advocates argue that businesses need to recognize their noblesse oblige. - **Friedman doctrine:** "the social responsibility of business is to - **Cultural relativism:** Ethics are reflection of culture. - **Righteous moralist:** Home-country standards of ethics should be followed in foreign countries. - **Naïve immoralist:** If a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either. - **Stakeholders (internal, external):** Internal stakeholders are people whose interest in a company comes through a direct relationship, such as employment, ownership, or investment. External stakeholders do not directly work for or with a company but are affected by the 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 - **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 Chapter 7 - Key concepts ======================== - **Tariff:** are levied as a fixed charge for each unit of imported good. - **Subsidy:** Government payment to a domestic producer. - **Quota:** are direct restrictions on quantity of some good that may be imported. - **Voluntary export restraint:** is a quota on trade imposed by the - **Local content requirement:** Some fraction of a good must be - **Dumping:** occurs when companies sell goods in a foreign market at below their costs of production or below their "fair" market value. - **Antidumping policies:** s punish foreign firms that engage in dumping, protecting domestic producers from unfair foreign competition. - **World Trade Organization:** is the only international organization dealing with the rules of trade between nations. - **General Agreement on Tariffs and Trade (GATT)\*:** was a multilateral agreement designed to liberalize trade by eliminating tariffs, subsidies, import quotas, etc. - General Agreement on Trade in Services (GATS) - Trade Related Aspects of Intellectual Property Sample question (concept) ========================= - A [ ] is a direct restriction on the quantity of some good that 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