Ib Test 2

Front 1

Mercantilism

Back 1

-Buying or selling of commodities for the gain of both parties
-Pillage the lands- Doing whatever it takes to increase your trade surplus
-Used import barriers & export subsidies----encourages domestic trade
-increased national wealth but decreased satisfaction

Front 2

Neo-Mercantilism

Back 2

Countries that use protectionist trade policies in an attempt to run favorable balances of trade and/or accomplish particular social or political objectives

System of trade the U.S. has currently
-System of rules that help you benefit from yourself
-Uses unions

Front 3

Absolute Advantage

Back 3

-Adam Smith developed theory in 1776
-Free trade is better for everyone -Countries should specialize in something they are good at
-United States incorporated many ideals into their economy due to the time
-More goods as a whole can be made with A/A b./c each country will be fully utilizing their
resources

Front 4

Comparative Advantage

Back 4

-If one country is better at producing both goods, are you still better off trading?
Yes, most of the time
-The weakest country gets to the the stuff the strongest country does not benefit from doing or does not want to focus on

Front 5

Competitive advantage-Micheal Porter

Back 5

-Four components to attain global competitiveness
1. Factor endowments (resources)
2. Related and supporting industries (geographically)
3. Firm strategy, structure, rivalry
4. Demand conditions

Front 6

Hecksher-Ohlin Theory of Factor Endowments

Back 6

-If absolute and comparative advantage are true, each country will do what they do best
-Countries will tend to specialize in goods that utilize their abundant resources

Front 7

The Leontief Paradox

Back 7

Russia/USSR to dispute H-O Theory
U.S and other developed nations export many labor intensive goods, although they are capital-labor intensive countries.
EX: India is the most agriculturally rich country, U.S. farms but does not have the labor resources India does

Front 8

The Leontief Paradox Explanations

Back 8

Education, training, productivity

Front 9

Global Strategic Rivalry Theory

Back 9

How a company can be better than its competitors

Front 10

How to gain advantage through Global Strategic Rivalry Theory: (4)

Back 10

1. Owning intellectual property rights
2. Investing in research and development(new discoveries=new patents=more income)
3. Exploiting the experience curve(companies want people higher on the experience curve because they are more productive)
4. Achieving economies of scale or scope( Larger factories creates larger cost advantage, which creates higher margins, higher revenue)

Front 11

Economic Arguments for governmental effect on trade? (3)

Back 11

1. Unemployment
2. Infant Industry argument
3. Industrialization argument

Front 12

What is the Industrialization argument and what is an example?

Back 12

is infant industry on a larger scale and not just for one company
EX. Brazilian economy. Very volatile

Front 13

What is the Infant Industry and what is an example?

Back 13

US raises tariffs to help keep out foreign companies in an industry. This inflates the prices for the home industry and creates artificially high prices. Once tariffs are lowered, the company collapses because they cannot compete once the prices are lowered.
EX. US LCD industry

Front 14

What is the Unemployment argument and give an example?

Back 14

puts tariffs on imports to encourage domestic spending. However, you eventually will lose more jobs in other industries that use those items
EX. Putting a tarrif on aluminum to help out the US aluminum manufacturers will put the refrigerator makers out of business b.c the aluminum prices went up

Front 15

What are the four non-economic arguments

Back 15

1. Maintenance of essential industries
2. Prevention of shipments to unfriendly countries
3. Maintenance of Spheres of influence
4. Protection of national identity

Front 16

What is the maintenance of essential industries argument and give an example?

Back 16

Every countries has industries they want to protect
EX. U.S.= military & agriculture

Front 17

What is the prevention of shipments to unfriendly countries argument and give an example?

Back 17

Embargos

Cuba Embargo, North Korea & Nukes

Front 18

What is the maintenance of Sphere of influence argument and give an example?

Back 18

-Every super power has a sphere of influence they like to maintain. Trade with friends, trade with friends of you enemy

EX. China trading with Korea and giving them discount trade, lower interest or tariffs

Front 19

What is the protection of national identity argument and give an example?

Back 19

something the country sees as a “national pastime”

Front 20

4 components of Economic Relations

Back 20

1. Balance of Payment adjustments
2. Comparable access
3. Price control objectives
4. Restrictions as bargaining tool

Front 21

What are Balance of payment adjustments?

Back 21

when countries are in debt, they try to raise tariffs but usually does not work out in long run

Front 22

What is comparable access

Back 22

The US has the power to make a country lower it’s tariffs

Front 23

What are Price control objectives?

Back 23

Using tariffs to keep a product below market value
EX. Vietnam sets their imports on rice so high that nobody can compete with Vietnam’s domestic rice prices

Front 24

What is the Restrictions as bargaining tool

Back 24

scare tactics

Front 25

What is a the first form of trade control?

Back 25

Tariffs

Front 26

What is a tariff?

Back 26

Simplest tool for blocking goods from entering the country
A high tariff rate=poor country

Front 27

What are the first 5 non-tariff barriers

Back 27

Subsidies, Aids&Loans, Customs valuation,Quotes,"Buy Local" Legislation

Front 28

What are the last 5 non tariff barriers

Back 28

Standards and labels, Specific Permission, administrative Delays, Reciprocal demands, Restrictions on Services Business

Front 29

What are the 4 types free trade

Back 29

a. Free Trade Area-no tariffs
b. Customs Union-no internal tariffs but external tariffs remain the same
c. Common Market- customs union plus factors of production free
d. Complete Economic integration

Front 30

What is regional integration

Back 30

creation of higher authority to stop "trade wars"

Front 31

What is the WTO, how many countries, and what are the 4 primary goals?

Back 31

World Trade Organization, 144,

1.Promote trade by encouraging non-discriminatory, predictable trade policies
2.Reduce trade barriers through multi-lateral negotiations
3.Establish impartial procedures for resolving trade disputes
4.Enforcement through arbitration and allowing one round of retaliation

Front 32

What are the 4 Exchange Rate Types

Back 32

1. Free Floating
2. Pegged
3. Banded Pegged
4. Non-convertible currencies

Front 33

What is a free floating currency?

Back 33

Constantly changing, traded in open markets

Front 34

What is a pegged currency?

Back 34

- the country doesn’t feel they have the power to be free floating. They define a price for their money and buy the other countries money to keep it a the specified price ratio

Front 35

What is a banded peg currency?

Back 35

does not have a specific ratio for exchange, but stays within a range-the “band” instead.

Front 36

What is a non-convertible bond?

Back 36

money that only has value in its own country

Front 37

What are the 2 types of exchnage markets?

Back 37

OTC Market and Exchange traded(commodity) markets

Front 38

What is an OTC Market?

Back 38

these are the kiosks at the mall that will sell you US dollars for foreign currency.

Front 39

What is an Exchange traded(commodity) markets

Back 39

the stereotypical pits of guys in sits yelling at other people to buy or sell their currencies. These are fast paced but are being replaced by computers

Front 40

What is a spot transaction?

Back 40

currencies within a 2 day window. Very fast paced

Front 41

What is a Forward contract?

Back 41

currencies traded at a specified rate and date at LEAST 3 days out. IF it is January and I want to lock in a certain rate for a currency in August, I would get a forward contract.

Front 42

What is a FX swap?

Back 42

simultaneous spot and forward transactions

Front 43

What is a currency swap?

Back 43

swap of currency and interest at a specified date. It’s two countries trading a loan

Front 44

What is a call option?

Back 44

right to buy a currency at a specified date

Front 45

What is a put opiton?

Back 45

right to sell a currency at a specified

Front 46

What is currency arbitrage and what are the 2 ways of achieving it?

Back 46

The ability to make risk-free profits from trading currency. Geographical and cross-rate

Front 47

What are Eurocurrencies?

Back 47

any currency held outside their home country

Front 48

What is a Eurodollar?

Back 48

US dollar held outside the US

Front 49

What is a eurobond?

Back 49

bonds sold by a country or entity using a different currency then their home country

Front 50

What is a foreign bond?

Back 50

bolds sold outside the country of the currency in which they are denominated

Front 51

Info regarding the US dollar as a world currency? (3)

Back 51

-85% of all currency transactions have the USD as half the transaction
**Most countries trade in the USD more than their own currencies**
-US Dollar is used as a reserved in many central banks
-The US Dollar is the primary invoice currency

Front 52

What are 3 Global Equity Markets

Back 52

1. Foreign Stock
2. Euro equity offering
3. Global equity offering

Front 53

What is a euro equity offering?

Back 53

Weak markets with a great company will go to a well known stock exchange to sell their stock. Have to follow exchange’s rules

Front 54

What is a global equity offering?

Back 54

Issuing stock in multiple currencies and world stock markets

Front 55

Money is a ________________

Back 55

Storage Medium for trust

Front 56

What was the Bretton Woods System?

Back 56

Set up the IMF and what is now the World Bank. It came about after WW2 and fixed the US dollar to gold while other nation's fixed their currency to the Dollar.

Front 57

Who eliminated the Gold Standard?

Back 57

Nixon

Front 58

What are the 5 purposes of the IMF

Back 58

1. To promote exchange rate stability
2. To facilitate the international flow of currencies and enhance the balanced growth of trade

Front 59

What are Special Drawing Rights(SDRs) and who do they consist of?

Back 59

SDRs are IMF funds based off the weighted avg of 4 currencies, the USD, euro, the yen, and the pound. 41%, 38%, 11%, 10%

Front 60

What are the goals/purposes of Central Banks?

Back 60

1. To policies for currency manipulation***
2. Buy and sell currencies to try to affect value
3. Hold reserves in gold, SDR, and other countries

Front 61

What is the Purchasing Power Parity(PPP)

Back 61

number of units of a countries currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country
*-a tradable good SHOULD be the same price everywhere around the world
*-You can calculate the exchange rate between 2 countries by comparing the cost of their goods

Front 62

What is the Big Mac Index?

Back 62

- Can tell the currency difference between countries
-indication of where currencies are going
-provides an advantage in arbitrage

Front 63

What is the International Fischer Effect?

Back 63

A way to predict inflation
Nominal interest rates+real+inflation
Due to money being the "same" everywhere, real rates should be
High Inflation=weakening economy-Zimbabwe

Front 64

What is the effectiveness of PPP & IFE

Back 64

-Both are fairly effective in the long run
-Both are useless in the short term
-Govt can have significant short term effects

Front 65

What is Strategy Primer?

Back 65

A tool for devising how you gain monopoly(real profits).
You win by beating others(RC cola vs Pepsi & Coke).
It is about beating everyone, not being the best

Front 66

What are the 3 generic strategies for beating your competition and who created it?

Back 66

Low Cost, Differentiation*, Nice
Micheal Porter

Front 67

What is the Low Cost Strategy? Give an example of a company that uses this strategy.

Back 67

Having the lowest cost enables you to have the lowest price. Works for only one company in an industry. Wal-Mart

Front 68

What is the High Quality Differentiation strategy? Give an example.

Back 68

Convince consumer it is worth extra money. Bose Speakers

Front 69

What is the Perceived High Quality Differentiation strategy? Give an example

Back 69

Making consumers think you have a better product. LG &Sony tvs.

Front 70

What is the technical leadership differentiation strategy? Give an example

Back 70

Convincing the consumer that you have the latest & greatest. Latest & Greatest usually have bugs. BMW

Front 71

What is the special features differentiation strategy? Give an example.

Back 71

People would rather buy something that they feel is specially made for them. Blackberry & global-edition translation

Front 72

What is the Better Service differentiation strategy? Give an example

Back 72

Better service. KIA

Front 73

What is the Niche Strategy?

Back 73

Finding a little group/area that you can take advantage of. Selling BBQ sauce to cannibals

Front 74

What is a transnational strategy? *Not in lecture

Back 74

-New way around 3 dominant perspectives(multinational, global, multidomestic)
-Outsource anything that isn’t exceptionally good
-Modify the product to meet each important cultural expectation
-Must have excellent understanding of each national and local market
-Must be able to train people who can understand multiple countries and company skill sets
-Has difficulty in day-to-day operations because there are so many countries involved

Front 75

What is the international strategy process?

Back 75

1.Mission Statement-What are you trying to do?
2.Environment assessment- what does the world(including competitors)look like
3.Multinational Corporation Organization Analysis- what does my company look like
4.International objective formulation- how am I going to do it?
5.International alternatives
6.Choice of international strategy
7.International strategy implementation
8.Evaluation and control

Front 76

What is International Strategy Implementation #7

Back 76

-must consider procedural justice-make the ppl feel like they are a part of the strategy making process
-focus on both short and long term policies
-be consistent with company image
-Promote trust and confidence in local management

Front 77

What does International Environmental Analysis consider?

Back 77

culture, markets, laws, finance, technology, HR, operations

Front 78

How would a company gain an advantage?(9)

Back 78

1. Host govt policies- Take advantage of a countries policies and methods
2. Overcome operational obstacles
a. Target using small trucks to be able to navigate tiny greek roads
b. Target bulding up in Greek
3. Effeciencies of standardization
a. Blu-Ray- Panasonic vs Sony. Panasonic has to pay sony when they make a Blu Ray player b.c it has become the standard
4. Product shifting-always chasing the lowest factory cost
5. Minimize taxes- “companies that pay more than 1 or 2% in taxes are “stupid”-Sweo
6. Financial and information arbitrage- knowing something before someone else does
7. Leveraged resources-utilizing the resources you have to create an advantage
8. Unique markets- similar to niches(Burqa-kinis)
9. Political control- some companies are worth more than the country in which they are doing business in. Are they willing to abuse the govt to get what they want?

Front 79

What are factors that influence business structure?(5)

Back 79

-Geographic Breadth-How many countries is the company in?
-Number of Lines of businesses-Apple basically makes one line, while GE makes thousands
-Product diversity-How different are its products? Apple makes Iphone, Ipod, while GE makes lightbulbs, jet engines, toasters, etc
-Customer differences in tastes-Can I sell this product everywhere or will I have to constantly change it?
-Specialized skill involved in production-how hard is it for employees to changes divisions?
Ipod to Ipad division vs Toaster to Jet engine division

Front 80

What are the 3 single product line companies?

Back 80

1. Global Functional, geographic Model, Single Matrix Model

Front 81

What is are the adv and disadv of global functional model?

Back 81

Adv-Efficient, economies of scale, rapid transfer of skill
Disadv-inflexibility, local dysfunctions, market rejection due to global specialization, bureaucracy, discourages initiative

Front 82

What are the characteristics of a Global functional model?

Back 82

a. CEO-driven
b. Divided by SKILL set and not location
c. All accountants report to head of accounting, marketing to marketing, etc
d. For those with technical skills
e. Limited divisional interaction

Front 83

What are the adv and disadv of geographical model?

Back 83

Adv- flexibility, local needs, quickly adapts to markets
Disadv- inefficient, diseconomies of scale, duplication(every country has a "mini" corporation, poor at serving global customersWhat

Front 84

What are the characteristics of a geographical model?

Back 84

a. Built more around taste oriented products
b. Divided by regional HQ, not skill sets
c. Japanese will report to Japanese, French report to French
d. Works well for companies that need a lot of customization

Front 85

What are the adv and disadv of a single martix model?

Back 85

Adv-efficiencies, local representatives
Disadv-power struggles, role ambiguity, diliution of responsibility, cost inefficiencies, cost of compromise**biggest cost

Front 86

What are the characteristics of a Single matrix model?

Back 86

a. Each local manager reports to 2 people-skill set boss from #1 and regional boss from #2
b. Consulting firms, service oriented firm tend to be this type
c. Someone who is good at politics should work in single matrix

Front 87

What are the adv and disadv of a multi-business global product division?

Back 87

Adv-flexibility, local needs, global coordination
Disadv-duplication of efforts, lack of local representatives

Front 88

What are the characteristics of a multi-business global product division?

Back 88

a. similar to global functional model but with an extra layer for each business line
b. every business line requires its own departments-acct, mrktg, HR, etc

Front 89

What is a multi-business geographical model?

Back 89

Regional HQ comes first, underneath that are all of the different products/businesses

Front 90

What are the adv and disadv of a multi-business matrix model?

Back 90

Adv-Global efficiencies, local responsiveness
Disadv-Power struggles, role ambiguity, cost inefficiencies, cost of compromise

Front 91

What are characteristics of a Multi-business matrix model

Back 91

1 Political Genius
2. Up or out corporations
3. Local manager has 3 bosses
4. Extremely political

Front 92

What are the characteristics of a Hybrid model?

Back 92

a. Mixing and matching any of the models
b. Most are so complex, there is no clear oversight
c. not very efficient
d. not common in US