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MKT Test 3 Highlight Cards
Terms in this set (69)
What are the 3 stages of economic development?
1. MDC (more developed)
2. LDC (less developed)
3. LLDC (least developed)
What are the traits for MDCs (more developed countries)?
- Industrialized, high per capita income
- Canada, England, France, Germany, Japan, and the United States
What are the traits for LDCs (less developed countries)?
§ Industrial developing, just entering world trade, low per capita incomes
§ Asia and Latin America
What are the traits for LLDCs (least developed countries)?
§ Central Africa and Asia
§ Industrial underdeveloped, agrarian, rural populations, extremely low per capita income, little world trade
What are NICs? (newly industrialized countries)
Refers to countries that are building up their industries and infrastructure. These countries are generally shifting from an agricultural to an industrial economy.
Do not fit as LDCs or MDCs
Example countries of NICs
• Chile, Brazil, Mexico, South Korea, Singapore, and Taiwan
Big Emerging Markets account for ___ of the world's population and __ of the worlds GDP
What are the traits of Big Emerging Markets (BEMs)
§ Have significant populations
§ Have strong rates of growth or the potential for significant growth
§ Have undertaken significant programs of economic reform
What is NAFTA?
North American Free Trade Agreement
Allows open trade between the US, Mexico, and Canada.
What is USMCA?
United States-Mexico-Canada Agreement
- NAFTA 2.0
- replaced/updated NAFTA
What is Mercosur?
Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area
What is the second largest common-market agreement in the Americas? (after NAFTA)
Dominican Republic-Central America Free Trade Agreement
§ Agreement among U.S., most Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua) and Dominican Republic
§ Aimed at increasing trade and employment between the seven countries by reducing tariffs
• Caribbean Community and Common Market (CARICOM)
• Aim is to achieve true regional integration by having a common currency for all members
• It continues to seek stronger ties with other groups in Latin America and has signed a trade agreement with Cuba
The advantages of economic union must be clear-cut and significant
Benefits must outweigh the disadvantages before nations forgo sovereignty
What are the 4 reasons for economic unions?
1. Economic Factors
2. Political Factors
3. Geographical and Temporal Proximity
4. Cultural Factors
What Economic Factors cause the formation of economic unions?
§ Markets are enlarged through
§ Preferential tariff treatment for participating members
§ Common tariff barriers against outsiders
§ Nations with complementary economic bases
§ Least likely to encounter frictions in the development and operation of a common market unit
What political factors affect the formation of an economic union?
§ Countries should have political compatibility
§ State sovereignty is one the most cherished possessions of any nation
What geographical/temporal proximity reasons affect the formation of an economic union?
§ Closeness facilitates the functioning of a union
§ Similar time zones may be more important than geographical closeness
What cultural factors affect the formation of an economic union?
§ Similar cultures are able to see one another's viewpoints
§ EU's Christian heritage
What are the 5 patterns/levels of multinational cooperation?
1. Regional Cooperation Groups
2. Free Trade Area
3. Customs Union
4. Common Market
5. Political Union
Which patterns/levels of multinational cooperation: Governments agree to participate jointly to develop basic industries beneficial to each economy
Regional Cooperation Groups
Which patterns/levels of multinational cooperation: Reduces or eliminate customs duties and nontariff trade barriers among partner countries. Members maintain individual tariff schedules for external countries
, like NAFTA (now USMCA)
Free Trade Area
Which patterns/levels of multinational cooperation: Reduces or eliminates internal tariffs, PLUS adopts a common external tariff on products imported from countries outside the union
Which patterns/levels of multinational cooperation: Eliminates all tariffs and other restrictions on internal trade; Adopts a set of common external tariffs; PLUS removes all restrictions on the free flow of capital and labor among member nations
Which patterns/levels of multinational cooperation: Involves complete political and economic integration, either voluntary or enforced
A voluntary organization that provides for the loosest possible relationship classified as economic integration
The most notable enforced political union was the______, a centrally controlled group of countries organized by the Soviet Union
Council for Mutual Economic Assistance (COMECON)
Two new political unions came into existence in the 1990s. What were they?
The Commonwealth of Independent States (CIS)
- Republics of former Soviet Union
The European Union (EU)
- Created in 1992 with Maastricht Treaty
What was the predecessor of the EU?
- European Economic Community
- Established after WWII
- Treaty of Rome, 1957
What treaty created the EU?
What was the goal of the Maastricht Treaty's formation of the EU?
Goal of complete economic and political union
Provision of Maastricht Treaty that established parameters for the Euro
Which EU institution:
- Sets agenda, but no power
- Comprised of heads of state and president
Which EU institution: Lawmaking body that Represents EU citizens
Which EU institution: Lawmaking body that represents the governments
Council of the EU
Which EU institution: Lawmaking body that represents the interests of EU as a whole
In the EU, the _____ proposes laws, then the ___ & ___ adopt the laws.
European Parliament and Council of the EU
What is the EU's Supreme Court?
European Court of Justice
What are 4 issues the UE is facing?
1. Monetary Policy and Future of Euro
2. Member Participation
3. Expansion of EU (with immigration being a potential problem)
4. National Sovereignty
In 1949, China was divided into 2 parts:
1. People's Republic of China (PRC)
3. Taiwan (Republic of China)
Are Taiwan and the PRC parts of the EU?
Yes! Taiwan was a founding member. PRC joined in 1971.
Old China vs. New China
Old China - burdened by communistic ideology
New China - embracing capitalism
What 2 MAJOR events had a huge affect on China's economy?
1. Admission to the WTO
2. Us granting normal trade relationship to China on a permanent basis
What 2 steps does China need to take to continue smooth economic growth?
1. Improve human rights
2. Reform the legal system
What part of China is Hong Kong under?
It used to be under British rule, but converted to PRC. It is now considered a SAR (special administrative region)
What are 3 tenants of Hong Kong's Basic Law?
1. One country, two systems
2. HK autonomy for 50 years
3. China's gov responsible only for foreign affairs and defense
What countries are in the Asian Tigers? (AKA Asian Dragons/East Asian miracle)
South Korea, Taiwan, Hong Kong, Singapore
Why are they called the Asian Tigers?
• First countries in Asia, after Japan, to move from developing to newly industrialized countries
• Replacing Japan as the dominant investment leader in the area
This trade association consists of 10 counties. It is the primary trade group in Asia.
ASEAN (Association of Southeast Asian Nations)
This trade association consists of ASEAN countries as well as China, Japan and South Korea. It was created as a result of the financial crisis of 1997.
What are the 3 countries associated with ASEAN+3?
China, Japan, South Korea
What was the purpose of ASEAN+3?
Devised a system of sharing countries' foreign exchange reserves to defend their currencies
What is APEC?
Asian Pacific Economic Corporation
Provides formal structure to discuss mutual interests in open trade and economic collaboration
What are the four different modes of foreign market entry?
2. Contractual Agreements
3. Strategic international alliances
4. Direct foreign investments
Each are based on equity requirements, which affects risk, return and control.
The company sells to a customer in another country
The company sells to a buyer (importer or distribution) in the home country, who in turn exports the product
Who uses direct sales?
¤ Particularly for high technology and big ticket industrial products
Long-term, non-equity association between a company and another in a foreign market
Involves granting partner patent rights, trademark rights, and the rights to use technological processes. May be granted for production processes, use of a trade name, or distribution of imported products
What are some common industries of contractual agreements?
TV programming and pharmaceuticals
A form of licensing in which
1. The franchiser provides a standard package of products, systems, and management services
2. The franchisee provides market knowledge, capital, and personal involvement in management
What is expected to be the fastest-growing market entry strategy?
A business relationship established by two or more companies To cooperate out of mutual need & To share risk in achieving a common objective
strategic international alliance
What are the two goals of strategic international alliances?
A business relationship established by two or more companies
1. To cooperate out of mutual need
2. To share risk in achieving a common objective
A partnership of two or more participating companies that have joined forces to create a separate legal entity
International Joint Venture
What are the four characteristics of international joint ventures?
1. Established, separate, legal entities
2. Intent by the partners to share in the management of the JV
3. Partnership is between legally incorporated entities (companies, chartered organizations, or governments) and not between individuals
4. Equity positions are held by each of the partners
Similar to joint ventures, except for two unique characteristics:
1. Typically involve a large number of participants
2. Frequently operate in a country or market in which none of the participants is currently active
What type of venture is often used to build huge construction projects?
Why might a company invest locally?
- capitalize on low cost labor
- avoid high import taxes
- reduce the high costs of transportation to market
- gain access to raw materials and technology or
- as a means of gaining market entry
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