International Business

globalization
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Terms in this set (83)
globalization
the reform process by which regional economies, societies, and cultures have become integrated through communication, transportation, and trade. eliminates barriers across countries
Emerging Market Economies
implementing more open trade and free-market policies to "compete with everyone from everywhere for everything." becoming the world's center of economic gravity through innovation, research and development
BRIC economies
Brazil, Russia, India, China
Arguments against globalization
• Job losses and income stagnation
• Loss of local control over economic policies and developments
• Disappearance of old industries • Related erosion of communities
International Business
All commercial transactions, both private and public between nations of the world
Trade
The two-way flow of exports and imports of goods (merchandise trade) and services (service trade)
Foreign Direct Investment
Inflows of capital from abroad for investing in domestic plant and equipment for the production of goods and/or services and for buying domestic firms
Benefits of International Trade
- A greater amount of choice in the availability of goods and services
- Competition results in lower prices for goods and services consumed
- Increased quality of life and higher living standards
PPP Conversion
the number of units of a country's currency that is required to buy the same amount of goods and services in the domestic market that a U.S. dollar would buy in the United States.
Mercantilism
An economic theory designed to increase a nation's wealth through the development of commercial industry and a trade surplus
SpecializationFree trade encourages countries to specialize in the production of those goods and services that they most efficiently produceFactor EndowmentsNations primarily export goods and services that intensely use their abundant factors of productionFactors Of ProductionEndowments used to produce goods and services: land (quantity, quality, and mineral resources beneath it), labor (quantity and skills), capital (cost), and technology (quality)Trade SurplusWhen the value of exports exceeds the value of imports; the opposite of a trade deficitAbsolute AdvantageThe ability of one country to produce a good or service more efficiently than another—Brazil coffee, US corn (EXTERNAL)Comparative AdvantageThe ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other (INTERNAL)The Heckscher-Ohlin (H-O) TheoryAttributes the comparative advantage of a nation to its factor endowments: land (quantity, quality, and mineral resources beneath it), labor (quantity and skills), capital (cost), and technology (quality).Key assumptions of the H-O theory- Perfect competition in the marketplace - Perfect immobility of factors of production among countries.Factor Price Equalization Theory- When factors are allowed to move freely among trading nations, efficiency increases, which leads to superior allocation of production of goods and services among countries. - Free mobility of factors will lead to efficient reallocation of resources (factors of production) until price equilibrium is reachedTrade PolicyAll government actions that seek to alter the size of merchandise and/or service flows from and to a countryInstruments of Trade Policy- Tariffs (custom duties) - Preferential duties - Most Favored Nation status - Nontariff BarriersTariffscustoms duties on imports that are collected by a designated government agency responsible for regulating importsSpecific TariffAn import tax that assigns a fixed dollar amount per physical unitAd Valorem TariffA tax on imports levied as a constant percentage of the monetary value of one unit of the imported goodPreferential DutiesAn import tariff established by a nation for goods of certain countries and not applied to the same goods of other countriesGeneralized System of Preferences (GSP)An agreement where a large number of developed countries perm duty-free imports of a selected list of products that originate from specific countriesExport SubsidyA negative tariff or tax aimed at boosting exportsExport TaxesTaxes meant to raise export cost and divert production for home consumptionRegional IntegrationImplementation of a multitude of economic and/or political steps by member states to increase their global competitiveness, including preferential trade access.Spatial TransformationsThe process of allowing efficient geographic distribution of business activities within and among countriesBenefits of Regional Integration*Creating a larger pool of consumers with growing incomes and similar culture, tastes, and social values. • Encouraging economies of scale in production, increasing the region's level of global competitiveness, and enhancing economic growth through investment flows. • Freeing the flow of capital, labor, and technology to the most productive areas in the region. • Increasing cooperation, peace, and security among countries in the region. • Encouraging member states to enhance their social welfare to match that of the most progressive states.Costs of Regional Integration• Undermining the most-favored-nation status rule, an essential principle of the WTO. • Imposing laws and regulations that are uniform, and that at times do not take into account national economic, cultural, and social differences. • Eliminating jobs and increasing unemployment in protected industries. • Losing sovereignty, national independence, and identity. • Reducing the powers of the national government. • Increasing the problems of illegal drugs and terrorism due to the ease of cross-border labor movement.Economic GeographyThe study of principles that govern the efficient spatial allocation of economic resources and the resulting consequencesBalance of Payments (BOP)shows all transactions between one country and the rest of the world for a given period of time.current accountshows the activities of consumers and businesses in the economy with respect to the trade balance, services balance, income balance, and net transfersfinancial accountconsists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives.Risk PremiumThe added return required by investors for risk associated with a security or assetForeign Direct Investment (FDI)The purchases of fixed assets (such as factories and equipment) abroad used in the manufacture and sales of goods and services abroadStatistical DiscrepancyReconciles imbalances between the current account and financial account to ensure that debit and credit entries in the BOP statement sum to zeroBid-Ask SpreadThe difference between bid and ask prices of a currency; the transaction fee earned by the bankDirect QuotesPrices of a foreign currency in dollars, or the number of dollars per one unit of foreign currencyIndirect QuotesThe reciprocal of the direct quote, or the prices of a dollar (for example) in foreign currency termsForward RateThe price at an earlier time of a currency in terms of another currency established for future delivery in the forward marketDiscountThe selling of a currency at a spot rate that is less than the forward ratePremiumThe selling of a currency at a spot rate that is more than the forward rateHedgeInsurance that reduces future riskGold StandardA monetary system that pegs currency values to the market value of goldClean FloatCurrency monetary system with minimal government intervention; largely market determinedDirty FloatCurrency monetary system with varying degrees of government intervention to maintain a range of acceptable values against other currenciesDollarizationThe practice of using the dollar or some other foreign currency together with, or instead of, a domestic currency in a countryHard CurrenciesLeading world currencies of developed industrialized countries, including the dollar, euro, yen, and poundSoft CurrenciesEmerging market countries' currencies that are less stable in value than hard currencies and are sometimes pegged to hard currency valuesArbitrageBuying goods in a lower priced market and selling them in a higher priced market to make profitsPPP Purchasing Power ParityTheory stating that a basket of goods should have approximately the same prices across different countriesThe Big Mac IndexA calculation using the cost of a Big Mac sandwich to assess the relative values of currenciesEmpirical tests of PPP have found mixed results- PPP appears to hold in the long run for periods exceeding five years, but not hold in shorter periods. - For countries with little difference in inflation rates, PPP does not reliably explain exchange rate changes.PPP predictions are affected by- Transportation costs and trade barriers - Government intervention in trade and exchange rates - Multinational firms with pricing power - Market expectations about economic factors - Goods not traded but that affect internal pricesVerbal communicationA message's actual contents intended to be conveyed to the receiver (i.e., what the message says)Non-verbal CommunicationTone of voice, gestures, eye contact, body positions, facial grimaces, and other body language that accompanies verbal communicationBackward TranslationTranslating a message from English into a foreign language, then translating it back into English to check for accuracySocial InstitutionsThe way people in a society relate to one another within group settingsSocial StratificationThe extent to which groups at the top of the social pyramid exert control over others at lower levels of the pyramidcorruption- A situation where businesses are able to illegally alter relevant private and/or public decision making by way of bribes, kickbacks, blackmail, extortion, and related activities - Business corruption involving other private businesses, Private individuals, or groups corruptionPublic corruptionThe practice of making illegal payments to government officials or engaging in blackmail, extortion or other related activities to obtain government contracts or governmental approval for business activitiesCollusion- The practice of companies acting in a manner which secretly thwarts competition amongst themselves • Dividing up markets • Collaborating to fix prices on goods and servicesMonopolyThe situation where there is only a single seller of a product in an industry and there are very high barriers to enter that industryProduct Safety LawEstablishes the standards of product safety to which the manufacturers and sellers of products are heldIntellectual PropertyProperty that is the product of intellectual rather than physical activityIntellectual Property ProtectionsThe limited monopoly rights legally granted by a nation to the creator of intellectual property • Patent • Trademark • Copyrightsocial responsibilitythe managers duty to nurture, protect, and enhance the welfare of stakeholdersobstructionist responsemanagers may choose not to be socially responsible, illegally or unethically. hiding/covering up problemsdefensive responsemanagers stay within the law but make no attempt to exercise additional social responsibility - putting shareholder interest over stakeholders.accommodative responsemanagers realize the need for social responsibilityproactive responsemanagers actively embrace social responsibilityEthicsThe branch of philosophy that addresses the values pertaining to human behavior, with regard to the "rightness" and "wrongness" of actions and to the "goodness" and "badness" of the intent and results of such actionsIntegrityAdherence to moral and ethical principles; soundness of moral character; honesty. As a practical matter, a person of integrity knows what is right and has the courage to do itDeontological EthicsThe normative ethical position that judges the morality of an action based on the action's adherence to a rule or rules. It is sometimes described as "duty-" or "obligation-" or "rule-" based ethics, because rules "bind you to your duty.Ontological EthicsThe normative ethical position that judges the morality of an action based on the outcomes or consequences of an actionegotismWhat makes something good or bad, right or wrong, is that it satisfies one's desires, or meets one's needs. Basic Principle: Self-interest of person doing, considering, or affected by the action. One should chose the action which most realizes or conduces to one's own self-interestutilitarianismWhat makes something good or bad, right or wrong, is that it produces the greatest amount of pleasure (or lack of pain) for the greatest number of people Basic Principle: "Greatest Happiness Principle" Maximizing positive outcomes for the largest number of people, negative outcomes for lowest number of peopleVirtue ethicsWhat makes something good or bad, right or wrong, is that it actually embodies or promotes traits culturally acknowledged as good or bad (e.g. courage, justice) These in turn lead to greater or lesser realization of potential for fully human lives ("flourishing)" Basic Principle: actions reflective or productive of good or bad character, embodied in developed and lasting traits or habitsJusticeRawls's theory of justice revolves around the adaptation of two fundamental principles of justice which would, in turn, guarantee a just and morally acceptable society. The first principle guarantees the right of each person to have the most extensive basic liberty compatible with the liberty of others. The second principle states that social and economic positions are to be (a) to everyone's advantage and (b) open to all.BASIC STEPS IN ETHICAL DECISION-MAKING-Define all the facts and circumstances, including who, what, where, when, and how. -Identify the people affected by the situation and their rights and obligations. -Identify the alternative decisions and consequences. -Make the decision: determine the right thing to do and then do it.