REVIEWER INTERNATIONAL STUDIES.pdf

CHAPTER 1 3. In 1776, Adam Smith- the father of INTRODUCTION TO INTERNATIONAL economics – published his book entitled BUSINESS AND THE RISE OF “An inquiry into the nature and causes of GLOBALIZATION...

CHAPTER 1 3. In 1776, Adam Smith- the father of INTRODUCTION TO INTERNATIONAL economics – published his book entitled BUSINESS AND THE RISE OF “An inquiry into the nature and causes of GLOBALIZATION the wealth of nations, fundamentally ________________________________ challenging mercantilism. History 4. In the first quarter of the 19th century, David Ricardo, as well as James Mill In the latter part of the 20th century, and Robert Torrens, introduced the countries have been becoming more theory of comparative advantage. open towards international trade and Ricardo’s theory, published in his book business, paving the way for better “Principles of Political Economy, further economies, better markets, and better reinforced the idea of free trade. The global industrial harmony. theory of comparative advantage suggests that a country exports goods in The business trading from one country which its relative cost advantage, and to another country is called international not their absolute cost advantage, is business. It is described as the greatest in comparison to other purchasing and selling of goods, countries. commodities and services of a country outside of its own borders. 5. The anti-mercantilism movement won the world’s ideologies, hence countries THE EVOLUTION OF THE CONCEPT began to plan their international pacts OF INTERNATIONAL TRADE AND and policies were made, including BUSINESS tariff-free importation. By 1913, the world was immersed in FREE TRADE – 1. Ancient records show that merchants all currencies can be converted to gold, from the 19th century have been with the gold becoming an international participating in different barter modes monetary currency accepted anywhere and routes of trade. Most of the trading in the world. happens in the seas and ports, with goods such as silk, spices, and precious 6. However, the freedom of international stones. This pave the way for the trade did not last too long. The First creation of the Silk Road and the Spic World War changed the entire course of Route. world trade and countries began to build walls around themselves with wartime 2. Mercantilism in England spread, the controls. first systematic body of thought focused on international trade. This school of thought argued that there should always be a “favorable balance” in trade. 7. With the global economic imbalance TYPES OF INTERNATIONAL and unstable condition, world leaders, BUSINESS COMPANIES headed by the League of Nations, held the World Economic Conference in May 1. Multi-domestic – a strategic business 1927. This conference opened the door model that involves promoting products to discussions on how to ease the and services in various markets around international trade issues and economic the world and adapting the pressures, leading to the establishment product/service to the cultural norms, of the Multilateral Trade Agreement. taste preferences and religious customs of the various markets. 8. Despite these agreements, the world faced another disruption with another Also, it is an organization with depression during the 1930s. This led to multi-country affiliates, each of which the countries further raising tariffs on formulates its own business strategies imported goods. This depression then based on perceived market differences. paved the way for another league of nations conference in 1947, establishing 2. Multi-national – a business strategy the General Agreement on Tariff and that involves selling products and Trade. services in different foreign markets without changing the characteristics of 9. Today the concept of international the product/service to accommodate the trade and business is in a much better cultural norms or customs of the various place in terms of freedom and markets. management. Global competition affects nearly every company- regardless of 3. International – this type could either size. Many source suppliers from foreign be multi-domestic or multi-national. countries compete against products or International businesses have to ensure services that originate abroad. that they blend the global outlook and the local adaptation resulting in a 10. International businesses grew in “glocal” phenomenon wherein they scope and size to the point where at the would have to think global and act local. moment, the global economy is Further, international businesses need dominated by multinationals from all to ensure that they do operate within countries in the world. What was local laws and at the same time primarily a phenomenon of western repatriate profits back to their home corporations has now expanded to countries. include companies from the East (from ✓ Domestic market extension by countries like India and China). exporting ✓ Multi-domestic company ✓ Global corporation BENEFITS OF INTERNATIONAL THE RISE OF GLOBALIZATION BUSINESS - When the world grew to be - The rise of international trade is interdependent when it comes to beneficial to both the nation and the global economy, it also achieved the businesses. globalization. Benefits to Nation 1. It encourages a nation to obtain But what is globalization? foreign exchange that can be utilized to - In post-cold war, the term was used to import merchandise from the global describe the world becoming more market. interdependent in its economical and 2. It prompts specialization of a country informational dimension. in the production of merchandise which it creates in the best and affordable way. He defined globalization as “the 3. It helps a country in enhancing its understanding of the world and the development prospects and furthermore increased perception of the world as a make opportunities for employment. whole. – Roland Robertson, a professor 4. International business makes it of sociology at the University of comfortable for individuals to utilize Aberden. commodities and services produced in other nations which help in improving Sociologist Martin Albrow and Elizabeth their standard of life. King define the term as “all those processes by which the people of the Benefits to Firms world are incorporated into a single 1.It helps in improving profits of the world society.” organizations by selling products in the nations where costs are high. Anthony Giddens uses the following 2.It helps the organization in utilizing definition: Globalization can be defined their surplus resources and increasing as the intensification of social relations profitability of their activities. throughout the world, linking distant 3.It helps firm’s in enhancing their localities in such way that local development prospects. happenings are formed as a result of 4.International business also goes as events that occur many miles away and one of the methods for accomplishing vice versa.” development in the firms confronting market conditions in the local market. David Held defined globalization 5.It enhances business vision as it “referring to a rapid global makes firms more aggressive and interconnection, deep and on large diversified. scale, such definition but requires now a more complex research” - Swedish journalist Thomas Larsson THE DRIVERS OF GLOBALIZATION says that globalization “is the process of the shrinking of the world, the Falling barriers shortening of distances, and the - Referring to declining trade and closeness of things. It allows the investment barriers. International trade increased interaction of any person on occurs when a firm exports goods or one part of the world to someone found services to consumers in another on the other side of the world, in order to country. Foreign direct investment (FDI) benefit.” occurs when a firm invests resources in business activities outside its home country. THE TWO FACETS OF GLOBALIZATION Technological changes - While the lowering of trade barriers A. The globalization of markets made globalization of markets and - Refers to the merging of historically production a theoretical possibility, distinct and separate national markets technological change made it a tangible into one huge global marketplace. There reality. is no longer an “American Market” or “Philippine Market.” Instead there is only - Microprocessors the global market. - telecommunications - The internet and the world wide web B. The globalization of production - Transportation technology: - Refers to the sourcing of goods and services from locations around the globe to take advantage of national differences BENEFITS OF GLOBALIZATION in the cost and quality of factors of production like land, labor and capital. 1.Free trade – a way for countries to Companies compete more effectively by exchange goods and resources. This lowering the overall cost structure or means countries can specialize in improving the quality or functionality of producing goods where they have a their product offering. comparative advantage (this means they can produce goods at a lower opportunity cost). 2.Free movement of labor – increased labor migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased onto their best-skilled workers, who are opportunities to look for work elsewhere. attracted by higher wages elsewhere. 3. Increased economies of scale- 4. Less cultural diversity. Globalization production is increasingly specialized. has led to increased economic and Globalization enables goods to be cultural hegemony. With globalization produced in different parts of the world. there is arguably less cultural diversity; This greater specialization enables however, it has also led to more options lower average costs and lower prices for for some people. consumers. 5. Tax competition and tax avoidance. 4. Greater competition – domestic Multi-national companies like Amazon monopolies used to be protected by a and Google, can set up offices in lack of competition. However, countries like Bermuda and Luxembourg globalization means that firms face with very low rates of corporation tax greater competition from foreign firms. and then funnel their profits through these subsidiaries. 5. Increased investment - globalization has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. COSTS OF GLOBALIZATION 1. Free trade can harm developing economies. Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. 2. Environmental costs. One problem of globalization is that it has increased the use of non-renewable resources. 3. Labor drain. Globalization enables workers to move more freely. Therefore, some countries find it difficult to hold  CHAPTER 2 HECKSCHER-OHLIN THEORY THEORETICAL ASPECTS IN (Eli Heckscher and Bertil Ohlin) INTERNATIONAL BUSINESS & TRENDS - Describes the interaction of relative abundance of factors and relative intensity of their use in different THEORY OF ABSOLUTE production processes. ADVANTAGE This model assumes that there are only - If a country can produce good at a two factors of production: land and lower cost than another individual, labor, and that it is fixed in each country, business or country. varying only across national borders. - Countries should only produce goods that they have an absolute advantage. THE LEONTIEF PARADOX THEORY (Adam Smith) (Wassily Leontief) Was relatively abundant in capital compared to other nations, the US would be an exporter of capital-intensive goods and an importer of labor-intensive goods. However, he found that US exports were less capital intensive than US imports. PRODUCT LIFE CYCLE THEORY (Raymond Vernon) THEORY OF COMPARATIVE - The product life-cycle theory, proposed ADVANTAGE (Ricardo) by Raymond Vernon, suggested that as products mature both the location of - The theory of comparative advantage sales and the optimal production looks at things in a more holistic view, location will change affecting the flow that a country may produce goods at a and direction of trade. lower OPPORTUNITY COST but not necessarily have an absolute advantage in producing that goods. - This simply means that a country can produce good at a lower cost than another country. THE NEW TRADE THEORY (Paul Krugman) - A country may dominate in the export of a good simply because it was lucky enough to have one or more firms among the first to product that good. While this is at variance with the Heckscher-Ohlin theory, it does not contradict comparative advantage theory, but instead identifies a source of comparative advantage.