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MGT 302
International Business Management - exam 1
| Question | Answer |
|---|---|
| what is globalization | The shift toward a more integrated and interdependent world economy. |
| What are two facets of globalization | globalization of markets and globalization of production |
| What is the globalization of markets | refers to the merging of historically distinct and separate national markets into one huge global marketplace. |
| What has made it easier to sell internationally? | Falling barriers to cross-border trade |
| What is also helping to create a global market? | Tastes and preferences of consumers in different nations are beginning to converge on some global norm. |
| What is the globalization of production | refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production. |
| What are factors of production? | things such as labor, energy, land, and capital |
| What has become needed now that business activity continues to transcend national borders | institutions that can help, manage, regulate and police the global marketplace and to promote multinational treaties to govern the global business system. |
| General Agreement on Tariffs and Trade (GATT) | Old agreement meant to police the world trading system and make sure nations adhere to the rules laid down. |
| World Trade Organization (WTO) | Succcessor to GATT. respoinsible for policing the global trading system and making sure nations adhere to the rules of the trade treaties signed by member states. |
| What gives the World Trade Organization enormous scope and influence | 159 nations that collectively account for 98 percent of world trade are members |
| What does the World Trade Organization promote? | The lowering of barriers to cross-border trade and investment which creates a more open global business system unencumbered by barriers to trade and investment between countries. |
| International Monetary Fund (IMF) | Established in 1944 along with the World Bank by 44 nations in Betton Woods, New Hampshire. Was established to maintain order in the international monetary system. |
| World Bank | Set up to promote economic development. Focuses on making low-interest loads to cash-strapped governments in poor nations that wish to undertake significant infrastructure investsments. |
| What is seen as the Lender of last resort to nations whose economies are in turmoil and whose currency is being devalued? | International monetary fund. |
| United Nations | established October 24, 1945 by 51 countries committed to preserving peace through international cooperation and collective security. Nearly every nation in the world belongs to the United nations. |
| What are the four purposes of the UN | to maintain international peace and security, to develop friendly relations among nations, to cooperate in solving international problems and in promoting respect for human rights, and to be a center for harmonizing the actions of nations. |
| What is one of the UN's central mandates? | The promotion of higher standards of living, full employment and conditions of economic and social progress and development. As much as 70 percent of the work the UN does is devoted to accomplishing this. |
| What is the G20 | Established in 1999 it comprises the finance ministers and central bank governors of the 19 largest economies in the world plus representatives of the european union and the european central bank. |
| Why was the G20 established? | to formulate a coordinated policy response to financial crises in developing nations. In 2008 and 2009 it became the forum through which major nations attempted to launch a coordinated global response to the global financial crisis. |
| What represents 90 percent of the global GDP and 80 percent of international global trade? | The G20. |
| International trade | when a firm exports goods or services to consumers in another country. |
| Foreign direct investment (FDI) | occurs when a firm invests resources in business activities outside its home country. |
| What decades had the most formidable barriers to international trade and direct foreign investment? | The 1920's and 1930's |
| What contributed to the Great Depression | High tarriffs on imports created retaliatory trade policies in foreign competition which created higher trade barriers and depressed world demand of goods and services. |
| What implies that firms are finding their home markets under attack from foreign competitors? | The globalization of markets and production and the resulting growth of world trade, foreign direct investment, and imports. |
| What US companies have threatened China's home markets? | Apple, General Motors, and Starbucks |
| What foreign companies have threatened United States automobiles markets | Japanese automobiles |
| What does Dutch company Philips have to worry about | It's market share being decreased by Korea's Samsung and LG. |
| What is the role of technological change in globalization | Technological change has made it possible through advances in communication, information processing, and transportation technology including the internet. |
| What is the single most important innovation in technology | The development of the micrprocessor |
| What did the microprocessor enable? | The explosive growth of high-power, low-cost computing which increased the amount of information that can be processed by individuals and companies. |
| How has global communications been revolutionized? | by the development of satellite, optical fiber, wireless technologies, and the internet. |
| How do the factors that revolutionized global communications rely on the microprocessor | to encode, transmit, and decode the vast amount of information that flows along these electronic highways |
| Moores Law | the power of the micrprocessor technology doubles and its cost of production falls in half every 18 months |
| What has developed into the information backbone of the global economy? | The internet |
| Where has e-commerce retail sales reached 365 billion in 2012 (up from almost nothing in 1998) | In North America |
| When did global e-commerce sales surpass 1 trillion? | 2012 |
| What does the internet make it easier to do? | for buyers and sellers to find each other |
| How does the internet equalize things? | by rolling back constraints of location, scale, and time zones. It allows business both large and small to expand their global presence at a lower cost |
| What are the most important innovations in transportation technology | commercial jet aircraft, superfreighters, and the introduction of containerization |
| What does containerization do? | simplifies the transhipment from one mode of transport to another. |
| How was the advent of commercial jet travel important to globalization | it reduced the time needed to get from one location to another which shrunk the globe |
| What revolutionized the transportation business | containerization |
| How did containerization revolutionize | by lowering the cost of shipping goods over long distances |
| How were things done before containerization | would take lots of longshoreman to unload a ship and reload goods onto trucks and trains. It could take many days to do it |
| How has the widespread use of containerization made the transloading of freight from ships to trucks more efficient | It now only takes a few longshoreman in a couple of days |
| What has now happened as a result of efficiency gains from containerization | transportation costs have plummeted making it more economical to ships goods around the globe, thereby driving the globalization of markets and production |
| By the early 2000's what accounted for 28% of US trade? | Air shipments |
| What was the difference in cost in ocean freight and ports charges per ton between 1920 and 1990 | From 95 dollars to 29 dollars. |
| What was the difference in cost of shipping freight by rail between 1985 and the early 2000's | 3.04 cents to 2.3 cents |
| what has become more economical now that transportation costs have declined | the dispersal of production to geographically separate locations |
| What has happened as a result of techonological innovations | the real costs of communication and information processing have declined |
| what have the developments of lower tranportation costs and lower technology costs produces? | The possiblity for a firm to create and then manage a globally dispersed production system |
| what has low-cost global communication networks help to create? | electronic global marketplaces |
| How has low cost transportation made it possible to create global markets? | It made it more economical to ship products around the world. |
| What is creating a world-wide culture? | global communications networks and global media |
| What has reduced the cultural distance between countries and is bringing convergences of consumer tastes and preferences | low-cost jet travel |
| In the 1960's what was the U.S share of world exports of manufactured goods? | 20% |
| In 2012, what was the US share of world exports of manufactured goods? | 8.7 % |
| By 2012 who had the largest market share of world exports of manufactured goods? | China |
| What does the relative decline of world exports of the US reflect? | the growing economic development and indutrialization of the world economy |
| What are the 5 top world exporters as of 2012 in order | China, US, Germany, Japan, France |
| When did non-US firms increasingly begin to invest across borders? | When barriers to free-flow of goods, services, and capital fell and as other countries increased their share of world output. |
| What was the major motivation for foreign direct investment by non-US firms? | The desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets. |
| Why did European and Japanese firms begin to move their manufacturing operations to developing nations in the 1970's | labor costs were lower |
| Why did Japan invest in North America and Europe | to hedge against unfavorable currency movements and possible imposition of trade barriers |
| What were the concerns of Japanese executives about a strong Yen in the Japanese auto industry | That it would price japanese cars out of foreign markets |
| Foreign direct invest increased from 1 percent in 1980 to 17.5 percent in 2011 by | Developing nations |
| What developing nations accounted for much of the increase in investment for developing economies | Hong Kong, South Korea, Singapore, Taiwan, India, and Mainland China |
| How much did Foreign direct investment decline in the United states between 1980 and 2011? | From 38 percent to 21 percent |
| What are the six most important national sources of Foreign direct investment? | United States, United Kingdom, Japan, Germany, France, Netherlands |
| multinational enterprise (MNE) | any business that has productive activities in two or more countries. |
| What are two notable trends in the demographics of multinational enterprise? | The rise of non-US multinationals and the growth of mini-multinationals |
| By 2010 of the 100 largest nonfinancial multinationals, how many were US? | 21 |
| In 1973, how many of US multinationals were US? | 48.5% out of 260 multinationals |
| Why are there risks of doing business in Russia, and several Eastern European and central Asian states? | The disturbing signs of growing unrest and totalitarian tendencies continue to be seen |
| What may make China an industrial superpower in two more decades? | The move toward greater free-market reforms |
| What are the pros and cons of china's growth for international business | Pro - China represents a huge and largely untapped market. annual foreign direct investment increased to 100 billion by 2010. Con - China's new firms are capable competitors and could take away global market share. |
| Why was foreign direct investment discouraged in Latin American countries in the past | The dictators viewed western international businesses as instruments of imperialist domination |
| What was another reason foreign investment was discouraged in Latin America | poorly managed economies were characterized by low growth, high debt, and hyperinflation |
| What three countries in Latin america have led the way in improvements in debt, inflation and state-ownership of companies | Mexico, Brazil, and Chile |
| What three countries in Latin america have moved back towards greater state involvement | Bolivia, Ecuador, and Venezuela |
| What are the arguments for globalization | stimulates economic growth, raises the income of consumers, and helps create jobs in all countries who participate in the global trading system. |
| What do proponents say the increased international trade and cross-border investment will lead to? | lower prices for goods and services |
| What happened in December 1999? | 40000 protestors blocks the streets of SEattle in an attempt to shut down a world trade organization meeting being held in the city. |
| what were the Seattle protesters protesting | job losses in industries under attack from foreign competitors, downward pressure on the wage rates of unskilled workers, environmental degradation and cultural imperialism of global media and international enterprises |
| what happened during the Seattle protests | They turned violent and people began throwing bricks |
| Why did the protesters think their protest was successful | The WTO didn't come to an agreement on a way to cut barriers to cross-border trade and investment |
| international business | any firm that engages in internation trade or investment |
| What was the result of the Uruguay round of the GATT in 1993? | reduced the trade barriers between various national markets. extended GATT to cover services as well as manufactured goods, provided enhanced protection for patents, trademarks, and copyrights, and established the World Trade Organization. |
| What was the agenda at DOHA | cutting tariffs on industrial goods, services, and agricultural products, phasing out subsidies to agrcultural producers, reducing barriers to cross-border investment, and limiting the use of anti-dumping laws. |
| How much of the global GDP does the G20 represent? | 90 % |
| How much of international global trade does the G20 represent | 80% |
| Why was the G20 established | to formulate financial crisis policy in developing nations |
| What should managers do in order to manage an international business efficiently? | They must decide if it is ethical to adhere only to the lower labor and environmental standards found in many less developed nations. |
| What are Russia's current tendencies in regard to democracy and economic activity? | Growing unrest and totalitarian tendencies, increase in state involvement in economic activity, shift towards authoritarian government |
| Globalization of markets results in | greater homogeneity, and uniformity among markets. |
| How many firms from developing economies had entered the United Nation's list of the 100 largest multinational enterprises by 2010? | 7 |
| Instead of calling something "The German Market or "The American Market" companies now refer to the market as a | global market |
| Firms must consider differences in | consumer preferences and tastes |
| What do Chileans like on their hotdogs and potato chips | mayonaise |
| What are some other differences among nations | differing distribution channels, differing legal regulations, differing cultural values |
| Three causes of the global market | 1. Falling trade barriers make it easier to sell globally, 2. consumers tastes are converging on some sort of global norm. 3. firms are offering standardized products that create greater uniformity |
| Which country has 98 % of all small and mid-sized companies participate in international markets | Germany |
| Firms of all sizes benefit and contribute to the | globalization of markets |
| In 2010 small and medium sized firms in the US accounted for | 98 percent of exports |
| What are the benefits of globalization of production | companies can lower their overall cost structure and improve the quality or functionality of their product offering |
| How does Vizio manage to only have 500 employees | It outsources all of its manufacturing and most of its logistics and engineering activities |
| What country is used by hospitals to read MRI reports, US lawfirms, and US engineers | India |
| What country is used by doctors for transcription | Phillipines |
| Critics of the WTO state that | It is usurping the sovereignty of nations |
| What is driving globalization | Declining trade and investment barriers and technological change. |
| Average tarriffs are now at just | 4% |
| Declining trade and investment barriers have produced a more favorable environment for | Foreign direct investment |
| Global stock of FDI was how much in 2011 | 20.4 trillion |
| What does declining trade and investment barriers facilitate | global production |
| After WWII advanced industrial nations in the west did What? | The reduced barriers to trade |
| What has been the result of the GATT agreement | lower tarriffs. |
| Lower transportation costs facilitate | global markets and allow firms to disperse production to economical geographically separate locations |
| Low cost information processing and communication facilitates | firms being able to create and manage globally disperse production |
| low cost global communications networks help | create an electronic global marketplace |
| Global communication networks and global media create | a worldwide culture and a global consumer product market |
| MSC launched the largest container ship named | The Oscar - long as four soccerfields |
| What company once had the largest container ship called the Globe | China |
| Four factors have allowed for the increase of the software sector in India | 1. India has a lot of engineers 2. labor costs are low. 3. many indians are fluent in english 4. because of time difference indians can work while americans sleep |
| FDI stock by developing nations has | increased |
| Which country receives the most shares of FDI | The united states |
| Supporters for global economy believe | lglobalization will cause lower prices for goods and services, greater economic growth, higher consumer income, and more jobs |
| critics for global economy believe | gobalization will cause job losses, environmental degradation, cultural imperialism of global media and MNEs. |
| How does globalization affect jobs and income according to critics | jobs are being lost to low wage nations. They are destroying manufacturing jobs in advanced nations |
| How does globalization affect jobs and income according to supporters | contend that benefits outweigh costs. Countries will specialize in what they do most efficiently and trade for other goods and all countries will benefit |
| How does globalization affect labor policies and the environment according to critics | Argue that firms avoid the cost of adhering to labor and environmental regulations by moving production to countries where such regulations do not exist or are not enforced. |
| How does globalization affect labor policies and the environment according to supporters | claim that tougher environmental and labor standards are associated with economic progress. As countries get richer from free trade they implement stronger environmental and labor regulations |
| How does globalization affect national sovereignty according to critics | Argue that unelected bureaucrats have the power to impose policies on the democratically elected governments of nation-states |
| How does globalization affect national sovereignty according to supporters | claim that the power of these organizations is limited to what nation-states agree to grant. The power of the organizations lies in their ability to get countries to agree to follow certain actions. |
| International business | any firm that engages in the international trade or investment. |
| What are five ways countries differ from each other | political systems, economic systems, legal systems, cultures, and levels of economic development |
| Differences among countries means that an international business must | vary its practices from country to country |
| International business have a greater complexity than | domestic businesses |
| Political economy | political, economic, and legal systems of a country and their interdependence |
| political system | the system of government in a nation |
| What does the political system do | It shapes its economic and legal systems |
| What two dimensions do we use to assess the political system | The degree to which they emphasize collectivism as opposed to individualism and the degree to which they are democratic or totalitarian. |
| How are the two dimension we use to assess the political system interrelated | systems that are totalitarian tend to be collectivist and systems that are democratic tend to be individualistic |
| Collectivism | political system that stresses the primacy of collective goals over individual goals. The needs of the society are more important than individual freedom |
| Socialists | believe in state ownership of the basic means of production, distribution, and exchange. |
| Communists | believe that socialism can only be achieved through violent revolution and totalitarian dictatorship |
| Social democrats | believe in achieving socialism by democratic means |
| What nations were communist in the 1970's | Soviet Union, Poland, Czechoslovakia, Hungary, China, Cambodia, Laos, Vietnam, various African nations including Angola and Mozambique, and the Latin American Nations of Cuba and Nicaragua. |
| True or False - state ownership of the means of production runs counter to the public interest | true |
| privatization | Selling off of state-owned enterprises to private investors |
| Individualism | philosophy that an individual should have freedom in his or her economic and political pursuits |
| Collectivism can be traced to which Greek philosopher | Plato |
| Individualism can be traced to which Greek philosopher | Aristotle |
| What are the two tenets of individualism | emphasis on the importance of guaranteeing individual freedom and self-expression and the second tenet is that the welfare of society is best served by letting people pursue their own economic self-interest |
| democracy | political system in which a government is by the people, exercised either directly or through elected officials |
| totalitarianism | a form of government where one person or one party exercises total control over all spheres of human life and prohibits opposing parties. |
| Why is the purest form of democracy impractical? | Large populations of citizens cannot be directly involved in decision making as the societies are too broad-spread, complex, and advanced |
| representative democracy | citizen elect representatives to represent them. The representatives form a government that makes decisions on behalf of the electorate |
| What are the first 6 safeguards of a representative democracy | 1. individual rights to freedom of expression, opinion, and organization; 2. free media; 3. regular elections where are eligible citizens are allowed to vote; 4. universal adult suffrage; 5. limited terms for reps. 6. fair court system; |
| What are the last 3 safeguards of a representative democracy | 7. A nonpolitical state bureaucracy; 8. a nonpolitical police force and armed service; 9. relatively free access to state information |
| When was communism swept out of Europe | During the largely bloodless revolutions of 1989 |
| Why did many European nations nationalize private companies in certain industries | So that they could be run for the public good rather than private profit |
| What were the major industries that are usually held by the government in socialist nations | telecommunications, electricity, gas, coal, transportation, oil, and steel |
| What actually happens in state run monopolies | They become increasingly inefficient due to a lack of competition |
| What was Aristotle's argument | That individual diversity and private ownership are desirable. Aristotle believe that communal property receive little care but property owned by an individual receives the greatest care. |
| What is the central message of individualism | That individual economic and political freedoms are the ground rules on which a society should be based. |
| What was the Cold war about? | A war between collectivism and individualism |
| What were the main achievement's of Venezuela's former president Hugo Chavez | He reduced poverty from 50 percent to 28 percent and brought down unemployment from 14.5 percent to 7.6 percent. State owned enterprises helped him achieve both goals. |
| What rights are denied to citizens in a totalitarian country? | right to freedom of expression and organization, a free media, and regular elections |
| What are the four major forms of totalitarianism | communist, theocratic, tribal, and right wing |
| What is theocratic totalitarianism | a state that is monopolized by a party, group, or individual who governs according to religious principles. Most common form is based on Islam. |
| What is tribal totalitarianism | Occurs when a political party represents the interests of a particular tribe monopolizes power. Most common in African countries of Zimbabwe, Tanzania, Uganda and Kenya |
| What is the tribal totalitarian government in Kenya | The Kikuyu tribe |
| right-wing totalitarianism | permits some individual freedom but restricts political freedom frequently on the grounds that it would lead to communism. Common feature is hostility to socialist or communist ideals. Fascist governments of Germany and Itally in WWII were this kind. |
| What are the three types of economic systems | a market economy, a command economy, and a mixed economy |
| market economy | a productive activities are privately owned instead of being owned by the state. Goods and services are not planned by anyone. Production is determined by supply and demand and signaled through the price system. |
| What allows a market economy to work well | supply must not be restricted. |
| How does a supply restriction occur | when a single firm monopolizes a market |
| What happens when there is a monopoly | output is restricted and prices rise |
| What does restricting output and raising prices cause? | profit for the monopolist, but high prices for consumers and a detriment to the welfare of the society. Becomes inefficient and produces high priced and low quality goods. |
| How do governments avoid the creation of monopolies | by encouraging free and fair competition between private producers, outlawing restrictive business practices designed to monopolize a market (antitrust laws). |
| what are the benefits of private ownership | encourages vigorous free and fair competition, ensures entrepreneurs have a right to the profits generated by their own efforts. incentive to search for better ways to serve consumer needs. |
| command economy | the government plans the goods and services that a country produces, the quantity produced, and the prices at which they are sold. All businesses are state-owned. |
| Where are command economies found | In communist nations |
| What is the objective of the command economy | for the government to allocate resources for the good of society. businesses are state owned because the government then can direct them to make investments that are in the best interests of the nation as a whole. |
| What has caused the number of command economies to fall | The demise of communism |
| What state is currently in a transition from a command economy to a mixed economy | Vietnam |
| What is a mixed economy | Certain sectors are left to private ownership and free market mechanisms and other sectors have significant state ownership and government planning. Once were common throughout the world. |
| What three nations had mixed economies until the 1980's | Great Britain, France, and Sweden |
| What do governments do with troubled firms whose operation is vital to national interests | take them into state ownership. |
| What three companies did the US take into state ownership in 2008 and 2009 | AIG, Citigroup, and General Motors to stop these financial institutions from collapsing. Sold most of their stock. |
| legal system | the rules or laws that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained. |
| Why is the legal system of a country of immense importance to international business | A country's laws regulate business practice, define the manner in which business transactions are to be executed, an set down the rights and obligations of those involved in business transactions |
| True or false - the legal system of a country is not influenced by the prevailing political system | False |
| What are the three main types of legal systems | common law, civil law, and theocratic law |
| What is common law | law based on tradition, precedent, and custom. |
| What is tradition in relation to common law | refers to a country's legal history |
| What is precedent in relation to common law | what were the cases that have come before the courts in the past |
| What is custom in relation to common law | the ways in which the law is normally applied in specific situations |
| Why is the common law system flexible | Judges in a common law system have the power to interpret the law so that it applies to the unique circumstances of an individual case. Each new interpretation may cause the laws to be altered, clarified, or amended |
| What is theocratic law | law that is based on religious teachings. |
| What is the most widely practiced theocratic legal system | Islamic law |
| What are the documents of the Islamic legal system | The Koran, the Sunnah (sayings and decisions of Muhammad), and the writings of Islamic scholars |
| What is Civil law | based on a detailed set of laws organized into codes. |
| How many countries operate with a civil law system | more than 80, including Germany, France, Japan, and Russia |
| Why is a civil law system less adversarial than a common law system | because it relies on detailed legal codes rather than interpreting tradition, precedent, and custom. Less flexibility. Have only the power to apply the law not interpret the law |
| contract | a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved. |
| contract law | the body of law that governs contract enforcement. The parties to an agreement normally resorts to contract law when one party feels the other has violated the contract either in letter or spirit |
| How is a contract written under common law | Very detailed with all contingencies spelled out |
| How is a contract written under civil law | tend to be shorter and less specific because most of the issues are already covered in civil code |
| What do international businesses need to be sensitive to in regards to the legal system | The difference between civil and common law systems. Approaching a contract dispute in a state with civil law as though it had a common law may backfire. |
| United Nations Convention on Contracts for the International Sale of Goods (CIGS) | Meant to alleviate the question of which country's laws apply in a contract dispute. It establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts by parties in different countries |
| What is the problem with CIGS | Fewer than 70 nations have ratified CIGS. many of the world's larger trading nations, including Japan and the UK have not ratified CIGS |
| What happens when firms do not wish to accept CIGS | The opt for arbitration by a recognized arbitration court to settle contract disputes |
| What is the most well-known abritration court | International Court of Arbitration of the International Chamber of Commerce in Paris |
| How many requests does the International Court of Arbitration of the International Chamber of Commerce in Paris handle each year | More than 500 requests from more than 100 countries |
| Property | a resource over which an individual or business holds a legal title. A resource that is owns. |
| What are resources of a business | land, buildings, equipment, capital, mineral rights, businesses, intellectual property. |
| What are property rights | the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource |
| When did China finally enact a law to protect the rights of private property holders | 2007 |
| How can property rights be violated | through private or public action |
| What is the violation of property right through private action | theft, piracy, blackmail, and the like by private individuals or groups. |
| What causes a high level of criminal action | A weak legal system |
| What were the qualities that created the ability for the Russian Mafia to blackmail businesses | the collapse of communism, an outdated legal system, a weak police force and judicial system. |
| What was the way the Russian mafia blackmailed businesses | They made businesses pay "protection money" or face violent consequences |
| What are some other well known mafias | The chicago Mafia of the 1930's and the Yakuza of Japan. |
| What markets do the Yakuza run protection rackets in | food and entertainment industries |
| Public action to violate property rights | when public officials, such as politicians and government bureaucrats extort income, resources, or the property itself from property holders. |
| How is public actions to violate property rights done | through legal mechanisms such as levying excessive taxes, requiring expensive licenses or premits from property holders, taking assets into state ownership without compensation, or redistributing assets without compensation. |
| What was an example of public actions to violate property rights in the Phillipines | The government of the late Ferdinand Marcos demanded bribes from foreign businesses that wished to set up operations in that country |
| What are the five least corrupt nations of the world as of 2012 in order | New Zealand and Finland (tied), Japan, United Kingdom, USA |
| What are the five most corrupt nations in the world in order | Somalia, Venezuela, Congo, Russia, Indonesia |
| What does high levels of corruption cause in a country's economy | reduces foreign direct investment, level of international trade, and the economic growth rate of the country |
| Because of the high corruption in some countries, politicians who flout corruption laws view it as a | perk of office |
| Foreign Corrup Practices Act | the law makes it illegal to bribe a foreign government to obtain or maintain business over which that foreign official has authority, and it requires all publicly traded companies to keep detailed records to see if this act was violated. |
| When and why was the foreign corruption act passed | In the 1970's in response to revelations that US companies had bribed foreign officials in other countries to gain lucrative contracts. |
| Organization for economic cooperation and development (OECD) | An association of the world's 34 most powerful economies. |
| Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions | The convention obliges member states to make the bribery of foreign public officials a criminal offense |
| grease payments or speed money | US Law and OECD allow small payments meant to speed up the issuance of permits or licenses, process paperwork, or get products off the dock and on their way to market. While technically bribes, they are less offensive |
| Intellectual property | property that is the product of intellectual activity such as computer software, screenplay, music score, or chemical formula |
| Patent | grants the inventor of a new product or process exclusive rights for a defined period to manufacture, use, or sale that invention |
| Copyright | exclusive legal right of authors, composers, artists, or publishers to publish and disperse their work as they see fit |
| Trademarks | designs and names, officially registered, by which merchants, manufacturers designate and differentiate their products. |
| World intellectual property organization | 185 member countries that have signed international treaties designed to protect intellectual property |
| Paris convention for the protection of Industrial property | 174 members. Oldest treaty dating back to 1883 to protect intellectual property |
| What is the worst offenders of intellectual property piracy | China and Thailand |
| What is the philosophy behind intellectual property laws | to reward the originator of a new invention, book, record, clothes design, restaurant chain and the like for his or her idea or effort. They stimulate innovation and creative work |
| What is an example of an industry that suffers from lax enforcement of intellectual property rights | The computer software industry |
| According to the Business Software Alliance, what percent of the world's software is pirated | 42 percent |
| What are some ways that international businesses can respond to violations of intellectual property | lobby their respective government to push for international agreements to ensure protection of intellectual property, file lawsuits, stay out of offending countries. |
| Trade-Related Aspects of Intellectual Property Rights (Trips) | As of 1995 WTO is overseeing enforcement of much stricter intellectual property regulations. Obliges WTO members to grant and enforce patents lasting at least 20 years, copyrights for 50 years after death or author. |
| Product safety laws | set certain safety standards to which a product must adhere |
| Product liability | involves holding a firm and its officers responsible when a product causes injury, death, or damage |
| What did Barak Obama pledge to in his 2013 State of the Union Address? | To negotiate a free-trade agreement with the EU |
| What makes up half of the global GDP | The 27 countries of the EU and the US. They also make up 1/3 of international trade |
| What is a positive sum game | free trade |
| How can a free trade deal help the US and EU | it could help the economy on both sides grow faster and reduce unemployment without costing any government money |
| What does the free trade agreement need to do to boost annual GDP growth by .5 percent per year for each side | It must reduce tariff and nontariff barriers to trade |
| What has shaped the economic policy of many nations over the past 60 years? | International trade theories |
| mercantilism | advocated that countries should encourage exports but discourage imports. by doing so a country would accumulate gold and silver and increase wealth, prestige, and power. advocated government intervention to achieve a surplus in the balance of trade. |
| Free trade | refers to a situation in which a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce or sell to another country. |
| Adam Smith's theory of absolute advantage | argued that the invisible hand of the market mechanism rather than government policy should determine what a country imports and exports. Believe countries should produce goods for which they have an absolute advantage and trade them for other goods. |
| David Ricardo's comparative advantage | economic theory about the work gains from trade for individuals, firms, or nations that arise from differences in their factor endowments or technological progress. |
| Heckscher–Ohlin theorem | It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively |
| Absolute advantage | refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources. It's more efficient |
| David Ricardo's work on comparative advantage was further refined by | Eli Hecksher and Bertil Ohlin |
| What causes gains from international trade | allows a country to specialize in the manufacture and export of products that can be produced most efficiently in that country while importing products that can be produced most efficiently in other countries |
| product lifecycle theory | Proposed by Raymond Vernon, this theory suggest that early in their life cycle, most new products are produced and exported from where they are developed. Later production starts in other countries and may be imported back to country of innovation |
| New trade theory | Paul Krugman stresses that in come cases countries specialize in the production and export of particular products not because of differences in factor endowments but because certain industries can support only a limited amount of firms |
| What industry is an example of the New Trade Theory | the airline industry |
| Why is America a major exporter of commercial aircraft | Because american firms like Boeing were first movers in the world market which built a competitive advantage for boeing that makes it difficult for firms in other countries to challenge |
| competitive advantage | describing attributes that allow an organization to outperform its competitors. These attributes may include access to natural resources, such as high grade ores or inexpensive power, highly skilled personnel, geographic location, etc. |
| Porter's national competitive advantage theory | an evaluation of how competitively a nation participates in international markets. |
| which two theories justify some limited government intervention in trade to support the development of certain export-oriented industries | New Trade Theory and Porter's theory of national competitive advantage |
| How did mercantilism maximize exports and minimize imports | by creating tariffs and quotas on imports while exports were subsidized |
| What was the flaw in the mercantilism theory according to David Hume, a classical economist | In the long run no country could sustain a surplus on the balance of trade. The country with surplus would have inflation and the country with lack would have deflation. The inflated country would buy from the deflated country and destroy trade balance |
| What is the major flaw with mercantilism | It is a zero-sum game |
| What is a zero-sum game | one in which a gain by one country results in a loss by another. |
| positive-sum game | a situation in which all countries can benefit |
| production possibility frontier | a graph showing the different combinations a country can produce with the amount of resources it has. It illustrates what production areas a country has an absolute advantage in |
| What became the newest middle income economy in Africa | Ghana |
| political economy of a nation | how the political economic and legal systems of a country are interdependent. |
| margaret thatcher | sold of state-owned companies. privatized more than 50 state-owned companies such as British Airways and Jaguar. Felt privatization as fundamental to Britain's success. She was called the Iron Lady. Was copied by other nations |
| What is also known as Athenian democracy | Pure-form democracy |
| What two systems are connected | Political ideology and econmic systems |
| What is the hallmark of law | That it is enforced. |
| why are legal systems important to business | because they regulate business practice, define how business transactions are executed, and identify rights and obligations of parties involve in business transactions |
| What two other theocratic law systems used to be observed | Hindu and Jewish |
| What is a christian theocratic nation | The vatican |
| What are two regional trade blocs | European union and the North American Free Trade Agreement (NAFTA) |
| What US industry fought hard to persuade the government to limit the imports by demanding quotas and tariffs | Textile industry |
| What is one of the key insights of international trade theory | that limits on imports are often in the interests of domestc producers but not domestic consumers |
| Why does Ghana export cocoa, Brazil export coffee, Saudi Arabia export oil, and China export crawfish | Climate and natural resource endowments |
| Why does Japan export automobiles, Switzerland export watches, and Bangladesh export garments? | they have differences in land, labor and capital. They have endowments in various factors of production |
| What is the argument for unrestricted free trade | the both import controls and export incentives are self defeating and a waste of resources |
| What do neomercantilists equate with political power | economic power and economic power with a balance of trade surplus |
| absolute advantage | when a country is more efficient than any other country in producing a product |
| What is Adam Smith's basic argument | that a country should never produce at home a product it can get from another country more cheaply |
| The production of any good (output) requires what? | an input such as land, labor, and capital |
| If Ghana and South Korea had 200 resources and it takes 10 resources to make 1 ton cocoa and 20 resource to make 1 ton rice in ghana what kind of production possibility could it have? | 20 tons of cocoa and no rice, 10 tons of rice and no cocoa, or some combination in between. |
| The different combinations that a country can produce with the resources it has is referred to as | the production possibility frontier |
| Imagine that South Korea and Ghana each have 200 resources and it takes 40 resource to produce 1 ton of cocoa in Korea and 10 resources to produce 1 ton of rice. what kind of production possibility could it have? | 5 tons of cocoa and no rice, or 20 tons of rice and no cocoa or some combination in between. |
| Between Ghana and South Korea in example. Who has the absolute advantage in cocoa and who in rice | Ghana for cocoa and Korea for rice |
| If Ghana and Korea didn't trade with each other and split their 200 resources in half how much cocoa and rice could they consume | Ghana: 5 tons rice and 10 tons cocoa. Korea: 10 tons rice and 2.5 tons cocoa. |
| If Ghana and Korea were to specialize in producing the good for which it had absolute advantage what would be the result | Ghana would produce 20 tons of cocoa and Korea would produce 20 tons of rice. |
| If the two countries didn't trade what would be the total production of cocoa and the total production of rice | 12.5 tons cocoa (5 tons plus 2.5 tons) and 15 tons rice (5 tons + 10 tons) |
| What would be the increase in production that results in specialization | 7.5 tons of cocoa (20 tons - 12.5 tons) and 5 tons of rice (20 tons - 15 tons) |
| What is the advantage of Ghana and Korea trading | each can consume more cocoa and rice |
| According to Ricardo's theory of comparative advantage it makes sense to specialize in product of goods that it produces most efficiently and buy goods that it produces less efficiently even if it means | that it's buying goods from other countries that it could produce more efficiently itself |
| In a comparative advantage example Ghana can produce more efficiently both cocoa and rice. 10 resource for 1 ton coco and 13 and a half resource for 1 ton rice. In korea 40 resource for 1 ton coco and 20 resource 1 ton rice. What is the PPF | Ghana - 20 tons of coco and no rice, 15 tons of rice and no coco or any combination between. Korea - 5 tons coco no rice or 10 tons rice no coco or any combination between. |
| under comparative advantage without trade and 200 resources and given examples what is the production of each country if they split resources in half | ghana - 10 tons of coco and 7.5 tons of rice. Korea - 2.5 tons of coco and 5 tons of rice |
| In light of ghana's absolute advantage in the production of both goods why should it trade with korea | Because it has a comparative advantage only in the production of coco. Can produce 4 times as much coco as korea but only 1.5 times more rice. |
| The basic message of the theory of comparative advantage is | that potential world production is greater with unrestricted free trade than it is with restricted trade. |
| Yes or No - the theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains more than in absolute advantage | Yes |
| If a textile worker loses their job can they easily become a software developer | No. because resources don't always move from one economic activity to another. The process creates friction and human suffering too. |
| constant returns to specialization | units or resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier. |
| Diminishing returns to specialization | When more units of resources are required to produce each additional unit. 10 units of resource increase output of coco from 12 to 13. 11 units of resource increase 13 to 14, 12 units for 13 to 14 and so on. |
| What is the graph for diminishing returns | convex line |
| What is the first reason for diminishing returns | As a country tries to increase a good it may need to draw on more marginal resources resulting in ever more resources to produce an equal increase in output |
| What is the second reason for diminishing returns | different goods use resources in different proportions. |
| What does diminishing returns to specialization suggest | gains from specialization are likely to be exhausted before specialization is complete. |
| What is Paul Samuelson's critique | Being able to purchase groceries 20 percent cheaper at Wal-Mart (due to international trade) does not necessarily make up for the wage losses (in America). |
| Which countries enjoy higher growth rates: those that are more open to international trade, or those that are not | those that are open to international trade |
| factor endowments | the extent to which a country is endowed with such resources and land, labor and capital |
| The more abundant a factor endowment | the lower its cost |
| According to the Hecksher-Ohlin theor countries will export goods that make use of factors that are | locally abundant. and import those that are not |
| What is the difference between Ricardo's theory and Heckscher-Ohlin theory | that patterns in internation trade is determine by differences in factor endowments rather than differences in productivity |
| The leontief paradox | That since the US was relatively abundant in capital it would be an exporter in capital intensive goods. The opposite was found to be true. |
| Who is Vassily Leontif | 1973 Nobel Prize winner in economics |
| What is a possible reason for the Leontief paradox in regards to the US | US has a special advantage of producing new products and technology. May be less capital intensive. May be exporting things that use skilled labor and innovation while importing heavy manufacturing products that need lots of capital. |
| Which theory actually predicts trade patterns more accurately | Ricardo's theory of comparative advantage |
| What is a key assumption of the Hecksher-Ohlin theory | That technologies are the same across countries |
| Differences in technologies may lead to | differences in productivity which drives international trade patterns |
| Which trade theory becomes more predictive if differnces in technology on productivity is controlled for | Heckscher-Ohlin theory |
| Which Country produced most of the world's new products | The United States |
| Demand for most new product tends to be based on | Nonprice factors |
| In the 21 century what is now the tendency of product-lifecycle | That many new products are now introduced from countries other than the US. |
| Vernon's theory was more relevant when | The US had more global dominance |
| economies of scale | unit cost reductions associated with a large scale of output. |
| What are the sources of economies of scale | ability to spread fixed costs over a large volume and the ability of lare-volume producers to use more efficient special workers and equipment than less special workers and equipment. |
| what is a major source of cost reduction in many industries | economies of scale |
| What are the two important points of new trade theory | through its impact on economies of scale trade can increase the variety of goods to consumer and decrease costs of goods and second if output required for eco of scale represents big portion of demand market may only be able to support few suppliers. |
| first move advantages | economic and strategic advantages that accrue to early entrants into an industry |
| What is an important first move advantage | the ability to capture scale economies ahead of later entrants and thus benefit from a lower cost structure |
| Airbus was the first to produce superjumbo jet aircraft which gave them first mover advantage this will result in | the European Union becoming the leading exporter of very large jet aircraft |
| What is the first implication of New Trade theory | that nations may benefit from trade even when they do not differ in resources or technology |
| What is the second implication of New Trade theory | that a country may predominate in the export of a good simply because they had more first movers. |
| A study by harvard business historian Alfred Chandler suggest | the existence of first-move advantages is an important factor in explaining the dominane of firms from certain nations in specific industries |
| Porters diamond | four broad attributes of a nation shape the environment in which local firms compete and these attributes promote or impede the creation of competitive advantage |
| What are the for attributes of porters diamond | factor endowments, demand conditions, related and supported industries, firm strategy, structure, and rivalry |
| What is porters factor endowments | a nations position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry |
| what is porters demand conditions | the nature of home demand for the industry's product or service |
| what is porters related and supporting industries | the presence or absence of supplier industries and related industries that are internationally competitive |
| porters firm strategy, structure, and rivalry | the conditions of governing how companies are created, organized, and managed and the nature of domestic rivalry |
| What two additional variables can influence the national diamond | chance and government |
| basic factor endowments | natural resources, climate, location, demographics |
| advanced factor endowments | communication infrastructure, skilled labor, research facilities, technology |
| Porter argues that advanced factors are | significant to competitive advantage |
| What are the two important points of porters fourth broad attribute of national competitive advantage | There is a strong association between domestic rivalry and the creation of a competitive advantage and different nations have different management ideologies |
| Where did common law originate | In great britain |
| Common law is also known as | Judge-made law |
| nigeria gained its independence when | 1960 |
| What is the worst offender of international trademark laws | China, |
| World Intellectual property organization | made up of 85 countries that enforce international copy laws |
| civil liability laws | call for payment or monetary damage |
| criminal liability laws | call for prison or fines |
| 2 implications for managers in regards to the political legal and economic systems of a country | 1 raises ethical issues for an international business 2. influences the over attractiveness of a country as a potential market or investment opportunity |
| What makes a country attractive to do business with | it has a democratic political institution, market based economies, and strong legal systems that protect property rights and limit corruption |
| trade theory | shows why it is beneficial for a country to engage in international trade even for products it is able to produce for itself |
| international trade allows a country to | specialize in the products it can produce efficiently and import products that can be produced more efficiently elsewhere |
| When is free trade gains not as great as predicted | immobile resources, diminishing returns, dynamic effects and economic growth, the samuelson critique |
| due to diminishing returns | its more worthwhile to specilize up until that point where the resulting gains from trade are offset by diminishing returns |
| opening a country to trade could increase two types of dynamic gains | a country's stock of resources as increased supplies become available.2 The efficiency or resource utilization and free up resources for other uses. |
| According to Paul Samuelson a rich country trading with a poor country can result in | lower wages in the rich country |
| Porters diamond is | a mutually reinforcing system - each attribute is contingent on the state of the others. |
| relative and supporting industries in porters diamond of competitive advantage can | spill over and contribute to other industries and can be grouped into clusters. |
| government policy can | affect demand through product standards, influence rivalry through regulation and antitrust laws and impact the availablity of highly educated workers and advanced transportation infrastructure |
| What are the location implication for managers in trade | a firm should disperse its various productive activities to those countries where they can be performed most efficiently. Firms that do not may be at a competitive disadvantage |
| Why should managers be a first mover | a first mover advantage can help a firm dominate globally |
| what are the government policy implications for managers and trade. | firms should work to encourage governmental policies that support free trade |
| balance-of-payments accounts | keep track of the payments to and receipts from other countries for a particular time period. |
| What are the three balance of payment accounts | current account, the capital account and the financial account. All accounts should equal 0 |
| current account | records transactions of goods, services, and income, receipts, and payments. |
| current account deficit | country imports more than exports |
| current account surplus | country exports more than it imports |
| capital account | records one time changes in the stock of assets |
| financial account | records transactions that involve the purchase or sale of assets including the net change in US assets owned abroad and foreign owned assets int he US |
| What are the seven main instruments of trade policy | tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties |
| What is the oldest and simplest instrument of trade policy | tariffs |
| What is a tariff | a tax levied on imports or exports |
| What are the two categories of tarriffs | specific tariffs and ad valorem tariffs |
| specific tariff | levied as a fixed charge for each unit of a good imported |
| ad valorem tariff | levied as a porportion of the value of the imported good. |
| who gains and who loses with an import tariff | the government (increases revenue) and producers gain (protects their industry) but the consumer loses (through higher prices) |
| sometimes tariffs are levied on exports - why? | to raise revenue for the government and to reduce exports from a sector in order to alleviate tensions with trade partners |
| subsidy | a government payment to a domestic producer |
| What are some forms of subsidies | grants, low-interest loans, tax breaks, and government equity participation in domestic firms |
| Who do subsidies help domestic producers lower production costs | 1. competing against foreign imports, 2. gaining export markets. |
| what are import quotas | a direct restriction on the quantity of some good that may be imported into a country. |
| How are import quotas enforced | by issuing import licenses to a group of individuals or firms |
| tariff rate quota | a lower tariff rate is applied to imports within the quota that those over the quota |
| voluntary export restraint | a quota on trade imposed by the exporting country typically at the request of the importing country's government. |
| quota rent | The extra profit that producers make when supply is artificially limited by an import quota |
| local content requirement | a requirement that some specific fraction of a good be produced domestically |
| What are the dynamic economic gains of free trade | it stimulates economic growth and creation of wealth |
| What are the static economic gains of free trade | a higher level of domestic consumption and more efficient utilization of resources |
| How much has the European Union been paying out in Farm Subsidies | 44 billion annually |
| What did the farm bill of 2007 allow | 289 billion in farm subsidies over the next 10 years |
| What is a side-effect of subsidizing a company | it can give it an unfair economic advantage |
| What is one industry that the US has a quota on | On cheese imports |
| How does the US regulate cheese imports | only certain firms are allowed to import cheese. They can only import so much cheese. |
| Buy America act | government agencies must give preference to American products unless the foreign product gives a significant price advantage. |
| According to the Buy America Act how much of a products materials have to be American | 51 percent |
| administrative trade policies | bureaucratic rules designed to make it difficult for imports to enter a country |
| dumping | selling goods in a foreign market below their fair value |
| What was a dumping scandal in the US in 1997 | Two south korean manufactures of seminconductors, Hyundai and LG semicon sold Dramm at below market costs to the US market |
| antidumping policiies | designed to punish foreign firms that engage in dumping. |
| What is the ultimate objective of antidumping policies | protect domestic producers from unfair foreign competion |
| Where can a producer file a complaint if someone is dumping | the commerce department and the International Trade commission |
| countervailing duties | A special tariff that is taxed on foreign imports of firms accused of dumping |
| What are some political arguments for intervention | preserving jobs, protecting industries, retaliating against unfair foreign competition, protecting consumers against dangerous products, furthering the goals of foreign policy and advancing the huamn rights of individuals |
| What is the most common political argument for government intervention | that it is necessary for protecting jobs and industries from unfair foreign competition |
| Who put tariffs on imports of steel in 2002 that raised steel prices for american consumers | George W. Bush |
| What is Common Agricultural Policy CAP | restricts imports of agriculture to Europe but raises prices for European consumers. |
| What sort of industries are deemed important for national security and should be protected from foreign imports | Defense-related industries such as aerospace, advanced eletronics and semiconductors |
| What is the Sematech consortium | 14 US semiconductor companies that accounted for 90 percent of the US industry revenues whose mission was to conduct joint research into manufacturing techniques that could be parceled out to members |
| What did the US do with the Sematech consortium | Protected it from antitrust laws. Provided it initially with 100 million per year in subsidies. Since 1996 consortium is privately funded. |
| What did the US government do to force the Chinese to enforce intellectual property laws | threatened to inforce 100 percent tariffs on a range of Chinese imports |
| What can happen if governments use retaliation through the use of punitive tariffs against an offending nation | That nation can also raise trade barriers of its own |
| What is an indirect effect of regulations to protect consumers against unsafe products | the limitation or ban of importation of such products |
| What was an example of bans made to protect consumers | Japan and South Korea banned US meat imports due to a case of Mad Cow disease in 2003 |
| What is a limitation that still remains from the ban of meat from the US into Japan and Korea | all cattle must be 21 months of age or less |
| Governments can use trade policy to further their ____ policy efforst to build strong relations with specific countries and/or presure or punish "rogue states" | foreign |
| Why did the UN place trade sanctions on Iraq | to persuade the rogue state to comply with several UN resolutions. |
| Why did the US maintain trade sanctions against Cuba | to impoverish the state and end communism there |
| Why did the US place trade sanctions on Libya and Iran | because they were accused of supporting terrorist action against US interests and building weapons of mass destruction |
| What is an important element of foreign policiy for many democracies | the protection and promotion of human rights |
| What are two nations that the US had trade sanctions in place due to violations in human rights | Myanmar and South Africa (for apartheid) |
| infant industry argument | many developing countries with new industries can't compete with established industries in developed countries. To support new industries governments should have tariffs, quotas and subsidies until they grow |
| Who has recognized the infant industry argument as a valid reason for protectionism | GATT |
| What are two criticisms of the infant industry argument | 1. it only is good if it makes the industry efficient. 2. It assumes that new infant industries aren't able to get loans |
| What are the two parts of the Strategic trade policy argument | with appropriate actions governments can raise national incomes if domestic enterprises gain first mover advantages. Second part is that it might pay for a government to intervene in an industry by helping domestic firms overcome barriers to entry. |
| What is the suggestion of strategic trade theory in the case of free trade | that there is an economic justification for government intervention in international trade |
| What does the justification of strategic trade theory challenge | the rational for free trade found in the work of classic trade theorists |
| What is the first argument of Paul Krugman against Strategic Trade policy | That it is a beggar they neighbor approach that boosts national income at the expense of other countries. |
| What is a second argument from Paul Krugman against strategic trade policy | It tends to be influenced by important special interest groups which will distort it to their own ends and benefit producers but not consumers. |
| What is an example of Paul Krugman's second argument | The CAP in EU benefits inefficient farmers and the politicians who rely on the farm vote. consumers end up paying more for food |
| Which was the first nation to embrace free trade in 1846 | Great Britain |
| What is the Smoot-Hawley act | An enormous wall of tariff barriers erected by the US to avoid rising unemployment by protecting domestic industries and steering consumers away from foreign products. |
| What happened because of the Smoot-Hawley act | other nations erected trade barriers and the world slid further into the Great Depression |
| What were the reasons for the rise in protectionism in the 1980's | Economic success in Japan straining the world trading system, bilateral voluntary export restratings circumventing GATT agreements, persistent trade deficit in the US |
| Why is WTO more successful than GATT | because the WTO has enforcement mechanisms that make it more effective at policing global trade |
| What is the loophole that many countries are exploiting to pursue protectionism when dealing with antidumping | the vague definition of dumping |
| What was the main objective of GATT | to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like. |
| What do developing countries use local content requirements for | to move their manufacturing base from simple assembly to manufacturing component parts |
| What are governments claiming to protect when they intervene in fair trade | industries and jobs |
| What are the ongoing priorities for the WTO | high level of protectionism in agriculture, high tariff rates on services, lack of strong protection of intellectual property, antidumping policies |
| Which of the following are reasons for the rise in protectionism during the 1980's | economic success of japan straining the world trading system, bilateral voluntary export restraints circumventing GATT agreements, and a persistent deficit in the US |
| Gatt negotiations continue to deal with additional issues such as | agricultural subsidies, services, and intellectual property |
| administrative trade policies | bureaucratic rules to restrict imports and boost exports |
| What are the two main forms of foreign direct investment | greenfield investment, or acquiring or merging with another firm |
| greenfield investment | the establishment of a new operation in a foreign country |
| flow of fdi | the amount of fdi undertaken over a given time period |
| stock of FDI | refers to the total accumulated value of foreign owned assets at a given time |
| outflows of FDI | the flow of FDI out of a country |
| Inflows of FDI | the flow of FDI into a country |
| Acquisitions can be done in three ways, what are they | minority (10 to 49 percent), majority (50 to 99 percent), or full outright stake (100 percent) |
| Why hasn't Africa been able to attract greater investment | because of the political unrest, war, and frequent changes in economic policy. |
| What country has been a major investor in Africa | Chinese enterprises |
| What country is the most important within developing nations for FDI | China is |
| Latin America is the next important region for FDI How much did the continent make in 2011 | 216 billion |
| What country is the top recipient of FDI in Latin America | Brazil is |
| What country is the largest source for FDI | The United States is |
| Besides the US what are the 5 top source countries for FDI | UK, France, Germany, the Netherlands, and Japan |
| What are the reasons for FDI in China | China represents the world's largest market. 1,3 billion people |
| What is most FDI directed towards | developed countries |
| 40 to 80 percent of all FDI inflows were in what form of FDI | acquisitions and mergers |
| 2/3 of FDI flows in developing nations is mostly | Greenfield due to the lack of target firms to acquire in developing nations. |
| When do firms prefer to acquire existing assets rather than undertake greenfield investments | 1. mergers and acquisitions are quicker to execute than greenfield investments. 2. Foreign firms are acquired because they have good strategic assets. 3. They believe they can improve the asset trhough tech. capital. or good management skills. |
| eclectic paradigm | An eclectic paradigm is a theory that provides a three-tiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment. |
| exporting | involves producing goods at home and then shipping them to the receiving country for sale |
| Licensing | involves granting a foreign entity the right to produce and sell the firms product in return for a royalty fee on every unit sold |
| What constrains exporting strategy | transportation costs and trade barriers |
| When does it become unprofitable to ship some products over long distances | when you add transportation costs to production costs. If a product has a low value-to-weight ratio then the attractiveness of exporting is ceased. |
| internalization theory | seeks to explain why firms prefer direct investment over licensing. |
| market imperfections | entering foreign markets through foreign direct investment instead of licensing. |
| Licensing has three major drawbacks as a way to exploit foreign markets | 1. it may result in the firm giving away tech know-how to competitors. 2. it doesn't give firm control over manufacturing, marketing and strategy in a foreign country. 3. when a firms skills and know-how are not amenable to licensing |
| A foreign direct investment strategy is favored over exporting when | transportation costs or trade barriers are prohibitive |
| oligopoly | an industry made up of a number of large firns where the is an interdepence of the maro plays |
| Why would a firm want control over the strategy of a foreign entity | because it might want the subsidiary to price and market aggressively to keep foreign competitors in check. |
| why would a firm want control of the operations of a foreign entity | because the firm might want to take advantage of differences in factor costs across countries, producing only part of its final product in a given country while importing other parts from elsewhere where they can be produced at a lower cost. |
| When will a firm favor foreign direct investment over exporting as an entry strategy | when transportation costs or trade barriers make exporting unattractive. or when it wishes to maintain control over its tech know how or its operations and business strategy |
| The interdependence between firms in an oligopoly leads to | imitative behavior. Firms will try to match the behaviors of other firms in a oligopoly in order to stay competitive |
| What is another reason that firms undertake foreign direct investment | as a response to actual or threatened trade barriers such as import tariffs or quotas. |
| What did F.T. Knickerbocker do | looked at the relationship between FDI and rivalry in oligopolistic industries. Created the imitative theory |
| multipoint competition | arises when two or more enterprises encounter each other in different markets, national markets, or industries. Firms will try to match each others moves in different markets to try to hold each other in check. |
| Which theory better addresses why the first firm in an oligopoly decides to undertake FDI rather than to export or license | internalization theory |
| location specific advantages | the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location that a firm finds valuable to combine with its own unique assets. |
| What is the argument of internatilization theory | that it is difficult for a firm to license its own unique capabilities and know-how |
| In order to exploit foreign resources such as oil or other minerals, what must a firm do? | It must undertake FDI |
| What has long been known as the epicenter of the computer and semiconductor industry | Silicon Valley |
| externalities | knowledge "spillovers" from places like Silicon valley. Firms can benefit from these by locating close to their source, which is why there are so many tech firms close to each other in Silicon Valley |
| What does the radical view feel about MNEs | That they are an instrument of imperialist domination |
| Why do radicals feel that MNEs are evil | they extract profits from host countries to the exclusive benefit of the capitalist-imperialist home country |
| What do Radicals feels should be done with existing MNEs in a developing country | They should be immediately nationalized |
| Why did the radical position retreat by the 1990's | 1. the collapse of communism. 2. the abysmal economy of countries that took that position. 3. the strong economies of countries that took a capitalist position |
| What does the free market view feel about MNEs | it is an instrument for dispersing production of goods and services to the most efficient locations around the globe. It increases the overall efficiency of the world economy |
| What is a contrast with the free market theory and the radical view | Free market theory states that resource transfer benefit the host country and stimulates its economic growth. |
| pragmatic nationalism | Views FDI as having both benefits and costs. FDI can benefit by bringing capital, skills, technology, and jobs but they come at a cost. It wants to maximize national benefits and minimize national costs. |
| The main benefits of inward FDI for a host country arise from | resource-transfer effects, employment effects, balance-of-payments effects and effects on competition and economic growth |
| Critics to FDI argue about new jobs that | that the new jobs gained do not offset the old jobs lost |
| balance-of-payment accounts | track both its payments to and its receipts from other countries. |
| When are governments concerned about their balance-of-payments accounts | when they are running a deficit in the current acount |
| current accoutn | tracks imports and export of goods and services |
| trade deficit | when a country is importing more goods than exporting |
| What is the only way a current account deficit can be supported | by selling off assets to foreigners |
| What is the substitution effect | when some jobs created are offset by jobs lost |
| When the telecommunications networks were privatized and opened to foreign investment, what was the result | modernization of networks around the world and lower prices |
| What is the possible effect of a foreign investor acquiring two or more firms in a host country and merges them | reduces the level of competition, creates a monopoly, reduces consumer choice, and raises prices |
| offshore production | FDI undertaken to serve the home market |
| What two factors cause major adverse effects on a host country's balance of payments | the outflow of earnings from a foreign subsidiary to its parent company and a foreign subsidiary importing a large number of inputs from abroad |
| What are three benefits from FDI to a home country | foreign subsidiary creates demand for home-country exports, MNE learns skills from exposure to foreign markets, Inward flow of foreign earnings |
| To further encourage FDI many countries have eliminated | double taxation of foreign income |
| What are two ways governments can restrict FDI | ownership restraints and performance requirements |
| What are some of the incentives that governments offer to encuorage FDI | tax concessions, low-interest loans, grants, subsidies. |
| The relative bargaining power of a country depends on which factors | Each party's time horizon, the value each side palces on what the other has to offer, the number of alternatives |
| time horizon | a fixed point of time in the future at which point certain processes will be evaluated or assumed to end. It is necessary in an accounting, finance or risk management regime to assign such a fixed horizon time so that alternatives can be evaluated |
| One of the aspects of FDI that the various theories try to explain is the | pattern of FDI flows |
| Pattern of FDI flows | deals with why certain locations are favored as targets of FDI |
| stock of FDI | the total accumulated value of a company's foreign-owned assets during a specific time |
| The World Trade organization was formed | in 1995 |
| What are three potential costs of FDI to host countries | loss of sovreignty and autonomy, adverse effects on competition, adverse effects on balance of payments |
| What are three costs of FDI for a home country | Balance of Payments adversely affected |
| Firms for which licensing is not a good option include | industries with intense costs pressures, high-tech industries, and global oligopolies |
| What are some broad issues concerning negotiations with host governments regarding FDI? | The concessions the firm must make to be allowed to invest and the incentives the host government is prepared to off the firm |
| FDI has outpaced world trade and world output - why? | FDI is driven by political and economic changes in developing nations. Even though trade barriers are diminishing, firms still fear protectionist measures |
| What is an indirect effect of FDI | support jobs being created outside of the foreign industry |
| What is the reason for ownership restraints to FDI | Local owners can help maximize the employment benefits of FDI for the host country |
| According to the Product life cycle theory once a product becomes more standardized, the main competitive weapon a company has is | price |
| Foreign retailers selling more than one brand can enter the retail market if they have less than 51 percent in what country | India |
| FDI is 3.9 percent in what country | Japan |
| The flow and stock of FDI has increase over | the last 35 years |
| After the united states which nation has the most inflow of fdi | china does |
| Quanxi | the relationship networks in china that are important to build business |
| Knickerbocker theory | FDI flows are a reflection of strategic rivalry between firms in the global marketplace |
| John Dunning's eclectic paradigm | considers location specific advantages and externalities |
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