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Chapter 1
Globalization
95
Business
Undergraduate 4
10/22/2011

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Term
Globalization
Definition
Trend towards a more integrated global economic system.
Term
What is driving the move toward greater globalization.
Definition
1. Declining trade and investment barriers.
2. Technological change (advances in transporation and telecommunication)
Term
Two key facets of globalization are:
Definition
1. The Globalization of production
2. The Globalization of markets
Term
Globalization of production
(goal?)
Definition
Globalization of production: The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production.

Goal: Lower overal cost structure or improve the quality of functionality of their product and gain competitive advantage.
Term
Globalization of production-> What are Factors of production?
Definition
Inputs into the productive process of a firm (labor, mgmt, land, capital, and technological know how).
Term
Takeaways from Milton Friedman's Pencil story
Definition
* Gets people to cooperate through the power of mutual-interest
* Magic pricing system that got countries to cooperate
* promotes product efficiency
Term
Globalization of Markets
Definition
The merging of historically distinct and seperate national markets into one huge global marketplace

(In many markets today, tastes and preferences of consumers in diff. nations are CONVERGING upon some GLOBAL NORM-> thereby helping to create a global market.

EX: Coca Cola, Starbucks, McDonalds, IKEA are all facilitators of this trend (offering same basic product worldwide).
Term
Starbucks brews plan to enter India
Definition
India could one day rival China...has a large opportunity where starbucks plans to triple the number of outlets (1,500 stores in 5 yrs).
Ties in the globalization of markets the idea of offering same product to consumers around the world. Starbucks would like to sell India's Arabica beans as well.
Term
Does a company have to be the size of a multinational giant to facilitate and/or benefit from the globalization of markets?
Definition
No, nearly 90% of firms that export are small businesses in the US employing less than 100 ppl.
Term
Market for FLat-panel tvs (winners/losers?)
Definition
Winners: US consumers benefiting from falling prices of flat panel tvs, manufacturers such as Vizio
Losers: firms making traditional tvs,
Term
Globaloney vs. Global village
Definition
1. Globaloney: Ppl. sometimes have poor estimation because we hear a lot about globalization...but we're not there yet (we have a tendency to generaliaze from specific examples, which may not be the representation overall.

Global village: thomas friedman argued that the world is flat and views the world as a level playing field in terms of commerce, where competitors have equal opportunity. Ppl living in developed nations no longer have the playing field tilted to their favor. Individuals in India, China, and Brazil have the same opportunities as those lving in Europe and US.
Term
General Agreement on Tariffs and Trade (GATT)
Definition
International treaty that committed signatories to lowering barriers to the free flow of goods across national boreders and led to the WTO.
Term
World Trade Organization (WTO)
Definition
suceeded GATT. primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties. Promotes the lowering of barriers to cross-border trade and investment.
Term
World Bank
Definition
International institution set up to promote general economic development in poorer nations.
Term
International Monetary Fund (IMF)
Definition
International institution set up to maintain order in the international monetary system. (last resort lender to nations whose economies are in turmoil and currencies losing value)
Term
United Nations (four purposes?)
Definition
International org. made up of 191 countries formed in 1945 to promote peace, security, and cooperation.

Four purposes:
1. maintain international peace & security
2. develop friendly relations among other nations
3. cooperate in solving international problems in promoting respect for human rights
4. center for haramonizing the actions of nations.
Term
International trade
Definition
occurs when a firm exports goods or services to consumers in another country
Term
Foreign direct investment (FDI)
Definition
direct investment in business operation in a foreign country
Term
The Uruguya Round
Definition
GATT negotiated to further reduce trade barriers, extended GATT to cover services as well as manufactured goods, provided enhanced protection for patents, trademarks, copyrights, and established the WTO to police the international trading system. (avg. tariff rates have fallen to about 4%!)
Term
Moore's Law
Definition
The powere of the microprocessor technology doubles and its cost of production falls in half every 18 months
Term
International Business (why is it different from managing a purely domestic business? give 4 reasons)
Definition
Business/individual firm that engages in international (cross border) economic activities.

1. Countries are different
2. range of problems are wider & complex
3. there are limits imposed by govs and intertational trade systems
4. International transactions involve converting money
Term
Multinational Enterprise (MNE)
Definition
firm that owns business opeartions in more than one country
Term
Semi-globalization (the CAGE view on distance)
Definition
Culturally (tastes, languages, customs)
Administratively (legal systems, bureau)
Geographically (complex & expensive logistics)
Economically (wage inequality)
Term
Globalization Debate
Definition
GLOBALIZATION, JOBS, INCOMES: Many critics believe globalization allows countries to move activities to countries where wage is lower causing job loss but overall the benefits outweigh the costs increasing jobs in developed countries, increasing incomes and standard of living so that they can buy more US products creating jobs for us.

GLOBALIZATION & ENVIRONMENT: Increase income levels decrease pollutants. Carbon emissions an exception due to global warming.

GLOBALIZATION & THE WORLDS POOR: WHy is there a huge gap between rich and poor nations? Not due to free trade or global. but poorer countries suffer from totalitarian govs, economice policies destroying wealth,debt burden war, etc.
Term
HIPCs
Definition
Highly indebted poor countries
Term
Political Economy
Definition
The political, economic, and legal systems of a country. (these systems are interdependent, and interact to influence each other)
Term
Political Systemv (also, 2 dimensions..)
Definition
The system of government in a nation (how ppl share/organize power)

Political systems can be assessed according to 2 dimensions:
Collectivism vs. Individualism
Democratic vs. totalitarian
Term
Collectivism
Definition
A political system that emphasizes collective goals over individual goals. (traced back to Plato). Needs of society as a whole r more important than individual freedoms. "common good"
Term
Collectivisim>
SOCIALISM
Definition
political PHILOSOPHY advocating susbstantial public involvment, thru government ownership, in the means of production and distribution. (manage state owned enterprise to benefit society as a whole, rather than individual capitalists)
Term
Collectivisim>Socialism:
Communists vs. Social Democrats
Definition
Communists: Those who believe socialism can be achieved only thru revolution and totalitarian dictorship.
Social Democrats: those committed to achieving socialism by democratic means avoiding violent revolution/dictatorship
Term
Privatization
Definition
the sale of state-owned enterprises to private investors
Term
Individualism
Definition
An emphasis on the importance of guarenteeing individual freedom and self-expression. (traced to Aristotle)...pursue one's own self-interest. However Steve Jobs, Bill Gates benefits many ppl.
Term
Democracy
Definition
Political system in which government is by the ppl, exercised either directly or through elected reps.
Term
Totalitarism (4 types):

1. Communist Totalitarism
2. Theocratic Totalitarism
3. Tribal Totalitarism
Definition
Form of gov. in which one person or political party excercise absolute congtrol over all spheres of human life, opposing parties are prohibited

1. Communist Totalitarism: Version of collectivism advocating that socialism can be achieved only thru a totalitarian dictatorship.(CHINA, VIETNAM, NORTH KOREA)


2. Theocratic Totaliatarism: Political system in which political power is monopolized by a party, group, or indiv. that governs according to religious principles (IRAN/SAUDI ARABIA)

3. Tribal Total: Political system in which a party, group, indiv. represents the interests of a particular tribe (ethnic group) monopolizes politcal power (ZIMBABWE, KENYA, UGANDA)

4. Right-Wing Totalitarism: Generally permits individual economic freedom but restricts individual political freedom, including free speech, frequently on the grounds that it would lead to the rise of communism. (south korea, Phillipines) mnany are miltary dictatorships
Term
Representative Democracy
Definition
A political system in which citizens periodically elect indivs to represent them.
Term
Three types of econimic systems
Definition
1. Market econmy
2. Command econmy
3. Mixed economy
Term
Three types of econimic systems
Definition
1. Market econmy
2. Command econmy
3. Mixed economy
Term
Economic Systems (facts)
Definition
1. A free market system is likely in countries where indiv. goals are given primacy over collective goals.
2. State-owned enterprises and restricted mrkts are common in countries where collective goals are dominant
Term
Market Economy
Definition
Goods and services that a country produces, and the quantity in which they are produced ins determined by supply and demand. (privately owned as opposed to stateowned)
*consumers throught their purchases, determine what is produced and in what quanitity. consumers are sovereign.
*Role of government is to encourage free and fair competition between private producers and to avoid monopolies.
Term
Command Economy
Definition
Government plans the goods and services a country produces, the quantity in which it is produced, and the prices at which they are sold. (SOVIET UNION/CHINA)
*All buisnesses are stateowned
*Becuz there is no private ownership, there is little incentive to better serve consumer needs (little innovation)
Term
Mixed Economy
Definition
Both command and market economy. (CHINA, VIETNAM, FRANCE, BRITAIN)
*govs tend to take over troubled firms that are considered to be vital to national interests
*The number of mixed economies in the world today is falling
Term
Legal systems (DEFINITION AND NAME 3 TYPES)
Definition
Rules, laws, that regulate behavior along with thte processes by which the laws of a co. are enforced and through which redress for grievances is obtained.

1. COMMON LAW
2. CIVIL LAW
3. THEOCRATIC LAW
Term
COMMON LAW
Definition
Based on tradition, precedent and customs
*case by case (great flexibility to interpret)
*Judgment based on interpretation of law
*more expensive as contracts may differ
(US, Great Britain)
Term
Civil Law
Definition
Based on a detailed set of written laws and codes (Roman law and Napoleonic Code)
*Judges have little flexibility to interpret and only power to apply
* Judgment based on application of statutes
*Every law expresssed in detail
(FRANCE, SPAIN, ITALY, JAPAN)
Term
Theocatic law
Definition
based on religious teaching (ex: Koran, Sunnah)
Term
UN covention on Contracts for the International Sale of Goods (CIGS)
Definition
a set of rules governing certain aspects of making and performance of commercial contracts btwn sellers and buyers who have place of buisnes in diff. nations. this allows firms to avoid contract disputes
Term
Property rights (can be violated in 2 ways)
Definition
bundle of legal rights over the use to which a resource is put and over the use made of any incomed that may be derived from that resource

1. private action:theft, piracy, blackmail
2. public action: extortion of income or resources of property holders by public officials such as politicians/government by levying taxes, requiring expensive license, etc.
Term
Foreign corrupt practices Act
Definition
us law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
(exceptions: grease payments/speedmoney)
Term
3 types of business risk & definitions
Definition
1. Political risk: likelihood political forces will cause drastic changes to country's buisness environment
2. Economic risk: likelihood that economic mismanagement will cause..
3. Legal risk: likelihood a trading partner will break a contract...
Term
Sources of Political Risk
Definition
-Government seizure of assets (expropriation)
-embargoes and sanctions (Cuba/NKorea)
-Boycotts (shell in nigeria)
-insurrection/revolution
-Terrorism (Dubai)
-Hostage taking (columbia)
Term
Sources of Political Risk
Definition
-Government seizure of assets (expropriation)
-embargoes and sanctions (Cuba/NKorea)
-Boycotts (shell in nigeria)
-insurrection/revolution
-Terrorism (Dubai)
-Hostage taking (columbia)
Term
Sources of legal risk
Definition
-FDI requirments
-Restrictions on marketing
-limits on income
-environmental regulation
-anti-terrorism laws
-competition policy
-CORUPPTION/BRIBARY
Term
Intellectual property
Definition
products of the mind, such as computer software, screenplay, music...etc
Term
Gross National Income (GNI)
Definition
Yardstick for measuring the economic activity of a country, measures total annual income recieved by nation's residents.

*However, doesn't account for differences in cost of living...so use the PURCHASHING POWRE PARITY: adjustment in gross domestic product per captia to reflect difference in the cost of living
Term
Human Development Index (HDI)
Definition
Influenced by Amartya Sen. An attempt by UN to assess the impact of the number of factors on the quality of human life in a country:
Measures: life expectancy at birth, educational attainment, and whether average incomes meete the basic needs of life
Term
3 main reasons account for spread of Democracy
Definition
1. Many totalitarian regimes failed to deliver economic progress to their populations. Fail of communism , cant help but notice that most of the world's strongest economies were governed by democratic..
2. New information and technology reduces the state's ability to control access to uncensored information.
3. Many countries economic advances have led the emergence of prosperous middle to working classes to push for democratic reforms to protect their property rights.
Term
Fukuyama vs. Huntington views
Definition
Fukuyama: universal global civilazation based on democratic ideals
Huntington: fractured world , conflict
Term
First-mover advantage vs. late-mover advantage
Definition
first mover: advantages that accrue to the first to enter a market
late mover: handicaps experienced by beinga late entrant into the mrkt
Term
Overall Atractiveness of a country
Definition
depends on balancing the likely long-run benefits of doing business in that coungry against the likely costs and risks:
Measured by: Benefits (size of economy; likelihood of economic growth) Costs (corruption, legals costs, lack of infrastructure), and Risks (political, economic, legal risks)
Term
How do governments respond to voice?
Definition
With favorable rules!
-Exporting industries: subsidies
-Importing industries: tariffs
-Domestic-oriented industries: FDI restrictons
Term
Pluralist vs. Corporatist vs. Command countries
Definition
Pluralist: large number of interests exist w/ equal acces to policymakers; gov. relatively neutral ex: US, CANADA

Corporatist: close ties btwn government and corporate elite aimed at long term growth, greater gov. intervention (ex: Brazil, Germany, korea)
Command: polices devised by gov. w/ few interests head or represented (do not care about co's interest) ex: North Korea, Cuba
Term
Business culture in China: Guanxi
Definition
"relationships" or "connections" caused Mcdonalds to lose its lease in Beijing
Term
cross-cultural literacey
Definition
understanding of how cultural differences across and within nations can affect teh way buisness is practiced
Term
6 determinants of culture
Definition
1. religion
2. politcal philosphy
3. economic philosphy
4. education
5. language
6. social structure
Term
Norms (social rules ) are divided into Folkways and Mores
Definition
1. Folkways: routine conventions of everyday life (violation is not a serious matter)
2. Mores: norms that are seen as central to the functioning of society and its social life. (much greater signif. than folkways) ex: theft, incest, cannibalism
Term
social strata
Definition
hierarchical social categories often based on family background, occupation, and income
Term
social mobility
Definition
the extent to which individuals can move out of the strata into which they are born.
Term
caste system (most rigid form of social stratification)
Definition
a closed system of stratification in which social positions is determined by the family into which the perosn is born, and change in that position is usually not possible during an indivduals lifetime
Term
class system (less rigid form)
Definition
system of social straticiation in which the position of a person has by birth can be changed throughout his or her own achievement/luck
Term
Hofsteades dimensions
1. Power distance

*Power distance is high when...
Definition
Weaker members acceptance of inequality (ppl are unequal in physical and intellectual capabilities)

*a good working relationship w/ ur superior is less important
*being consulted by direct superior in decisions is less important
*subordinates are more afraid to express disagreement
*you are okay with organization structure in which subor. have two bosses

High pwoer distance: russia
Low power distance: norway
Term
Hofsteades dimensions
2. Individualism

*Indivdualism is greater when..
Definition
loose ties between indivduals, each responible for him/herself

*personal/ family life is important
*good physical working conditions
*security of employemnt not so important
*variety n adventure in job is important
Term
Hofsteades dimesions
3. Masculinity

*masculinity is greater when..
Definition
degree to which men have diff. values than

*u think most ppl cannot be trusted
*u think it is usually their own fault when ppl fail in life
*working with ppl who coopearte well is not so important
*having an opportunity for advancement to higher level jobs is important
Term
Hofsteades dimensions
4. Uncertainty avoidance

*uncertainty avoidance is greather when>..
Definition
a function of how comfotable group members feel about uncertainty (ambiguous situations)

*u feel nervous/tense at work
*u think one cannot be a good manager without having precise answers
* u think competiion between employees does more harm than good
*u think org's rules should not be broken, even when employee thinks its in the companys best interest
Term
Hofsteades dimensions
5. Long-term orientation:
Definition
thrift and preserverence
Term
Hofsteades dimensions
5. Long-term orientation:

*long term orientation greather when..
Definition
thrift and preserverence

*u attach more importance in being economical/thrift
*less importance to respect tradition and 'saving face'
Term
Free trade
Definition
The absence of government barriers to the free flow of goods and services btwn. countries. (supported adam smith's theory)
Term
New Trade Theory
Definition
Nobel prize winner Paul Krugman devloped this theory. Theory says sometimes countries specialize in the production and export of particular products not becuz of underlying differences in factor endowments but because in certain indutries the world market can support only a limited number of firms. (firms that enter the market first are able to build a competitive advantage similar to the theory of national competitive advantage)
Term
Mercantilism
Definition
economic philosophy advocating that countries should simultaneously encourage exports and discourage imports. (trade surplus)
*by doing so, country would accumlate gold and silver and consequently increase its natonal wealth, prestige, and power.
*gov. shouild intervene to achieve a surplus in balance of trade (protectionism)
*viewed trade as a zero-sum game
(flawed way of tihinking)
*International finance at the time was based on gold/silver standard
Term
Zero-sum game
Definition
a situation in which an economic gain by one country results in an economic loss by another.
Term
Absolute Advantage (Adam Smith)
Definition
A country has an absolute advantage in the production of a product when it is more efficient than any other country producing it. Smith argues that countries differ in their ability to produce goods efficiently. Smith's basic arguemnt therefore is that a country should never produce goods at home that it can buy at a lower cost from other countries. By specializing in the production of goods in which EACH has an absolute advantage, both countries benefit by engaging in trade.
Term
SMOOT-HAWLEY TARIFF ACT
Definition
The Smoot-hawley tariff act was also known as the Tariff Act of 1930 which raised taxes to historically high levels. The original plan was to help American agriculture (protecting domestic US farmers against agriculture imports). It increased nearly 900 American import duties and about 1,000 Amrican economists signed a petition against the bill. By 1932, the average American tariff on dutiable imports was 59.1% (after deflation). Many trade partners retaliated/protested. For ex: Canada impose extra duties on some American goods but cut tariffs on imports from the rest of the British empire. As a result, US imports decreased 66% and exporrts decreased 61%. The Smoot-hawley tariff was more a consequence of the onset of the Great Depression than an initial cause. Afterwards, American trade policies generally emphasized trade liberalization over
Term
The classic trade theory
Definition
1. Absolute Advantage theory: Adam smith
2. Comparative Advantage theory: David ricardo
Term
Comparative Advantage Theory
Definition
David Ricardo argued country should specialize in the production of goods it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other coutnries that it could produce more efficiently itself.
Term
Assumptions of the Smith-Ricardian theory of trade
Definition
1. Only 2 countries and 2 goods
2. No transportation costs
3. Countries have similar prices/values
4. Constant returns to scale
5. Fixed stocks of resources
6. No effects on income distribution w/in countries
Term
Constant return to specialization vs. Diminishing return to specialization
Definition
units of resouces required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier.

Diminishing return to specialization: occurs when more units of resources are required to produce each additional unit. (more realistic to assume for 2 reasons: not all resources are of the same quality (ex: Land in ghana for cocoa beans), and different goods use resources in different proportions
Term
Hecksher-Ohlin Theory
Definition
Had a different explantion of comparative advantage arguing that it arises from difference in national factor endowments (extend to which a county is endowed with resources such as land, labor, capital)
Term
Product Life Cycle theory
Definition
Raymond Vernon proposed as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.
Term
Product Life Cycle theory
Definition
Raymond Vernon proposed as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.
Term
Porter's Diamond (theory of national competitive advantage)
Definition
(4 factors):
1. Factor endowments
2. Firm strategy, structure, rivalry
3. Demand conditions (environment)
4. Related and supporting industries
Term
dumping
Definition
selling goods in foregin market at below their costs of production or below their "fair" market value
Term
infant industry arguement
Definition
oldest. new industries in developing countries must be temporarily protected from international compettiton to help them rech a positin where they can compete
Term
infant industry arguement
Definition
oldest. new industries in developing countries must be temporarily protected from international compettiton to help them rech a positin where they can compete
Term
infant industry arguement
Definition
oldest. new industries in developing countries must be temporarily protected from international compettiton to help them rech a positin where they can compete
Term
infant industry arguement
Definition
oldest. new industries in developing countries must be temporarily protected from international compettiton to help them rech a positin where they can compete
Term
strategic trade policy (2 problems)
Definition
help domestic industries gain first mover advantages.
Problems: may invite retaliation, may be captured by special interest gorups which will distort it to their own ends
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