International Business Quiz 1

Front 1

globalization

Back 1

the shift towards a more integrated and interdependent world economy

Front 2

globalization of markets

Back 2

the merging of historically distinct and separate national markets into one huge global marketplace

Front 3

globalization of production

Back 3

sourcing goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production

Front 4

factors of production

Back 4

labor, energy, land, and capital

Front 5

General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO)

Back 5

primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states

Front 6

International Monetary Fund and World Bank

Back 6

created in 1944 by 44 nations to promote economic development

Front 7

United Nations

Back 7

established Oct. 24, 1945 by 51 countries committed to preserving peace through international cooperation and collective security

Front 8

G20

Back 8

comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the EU and European Central Bank

established to formulate a coordinated policy response to financial crises in developing nations, it became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis

Front 9

International Trade

Back 9

when a firm exports goods or services to customers in another country

Front 10

Foreign direct investment (FDI)

Back 10

when a firm invests resources in business activities outside its home country

Front 11

Moore's Law

Back 11

predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months

Front 12

stock of FDI

Back 12

total cumulative value of foreign investments

Front 13

multinational expertise (MNE)

Back 13

any business that has productive activities in two or more countries

Front 14

international business

Back 14

any firm that engages in international trade or investment

does not have to become a multinational enterprise, investing directly in operations in other countries, to engage in international business, although multinational enterprises are international businesses

Front 15

Two factors seem to underlie the trend toward globalization:

Back 15

1. declining trade barriers
2. changes in communication, information, and transportation technologies

Front 16

political economy

Back 16

refers to how the political, economic, and legal systems or a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being

Front 17

political system

Back 17

the system of a government in a nation, which is assessed according to:
- the degree to which the country emphasizes collectivism/individualism
- the degree to which the country is democratic/totalitarian

Front 18

collectivism

Back 18

a political system that stresses the primacy of collective goals over individual goals

Front 19

socialism

Back 19

advocates state ownership of the basic means of production, distribution, and exchange to benefit society as a whole, rather than individual capitalists

Front 20

communist

Back 20

believes that socialism would be achieved through VIOLENT revolution and totalitarian dictatorship

Front 21

social democrats

Back 21

committed to achieving socialism by democratic means

Front 22

privatization

Back 22

selling state-owned enterprises to private investors

Front 23

individualism

Back 23

refers to philosophy that an individual should have freedom in his own economic and political pursuits

Front 24

democracy

Back 24

refers to a political system in which government is by the people, exercised either directly or through elected representatives

Front 25

representative democracy

Back 25

where citizens periodically elect individuals to represent them

Front 26

totalitarianism

Back 26

a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties

Front 27

communist totalitarianism

Back 27

found in states where the communist party monopolizes power (e.g. cuba)

Front 28

theocratic totalitarianism

Back 28

found in states where political power is monopolized by a party, group, or individual that governs according to religious principles (e.g. saudi arabia, iran, iraq)

Front 29

tribal totalitarianism

Back 29

found in states where a political party that represents the interests of a particular tribe monopolizes power (e.g. zimbabwe)

Front 30

right-wing totalitarianism

Back 30

permits some individual economic freedom,but restricts individual political freedom (e.g. China to some extent, Germany and Italy before WWI)

Front 31

market economy

Back 31

all productive activities are privately owned and production is determined by the interaction of supply and demand

government encourages free and fair competition between private producers (individualistic)

Front 32

command economy

Back 32

government plans the goods and services that a country produces, the quantity that is produced, and the prices at which they are sold

businesses are state-owned and resources allocated for "the good of society" (collectivistic), tend to stagnate

this assumes that the gov't knows the optimum value to sell at and that it is HONEST

Front 33

mixed economy

Back 33

certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning

gov't tends to own firms that are considered important to national security (e.g. weapons mkt)

Front 34

legal system

Back 34

the rules that regulate behavior along with the processes by which the laws are enforced and through whih redress for grievances is obtained

Front 35

Three types of legal systems

Back 35

1. common law: based on tradition, precedent, and custom
2. civic law: based on detailed set of laws organized into codes
3. theocratic law: law is based on religious teachings

Front 36

contract

Back 36

a document that specifies the conditions under which an exchange is to occur and details the rights an obligations of the parties involved

Front 37

contract laws

Back 37

the body of law that governs contract enforcement

Front 38

United Nations Convention on Contracts for the International Sale of Goods (CIGS)

Back 38

establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between buyers and sellers who have their places of business in different nations

Front 39

property rights

Back 39

the legal rights over the use to which a resources is put and over the use of made of any income that may be derived from that resource

intellectual property is hard to claim rights to, there is no incentive to make something if there is poor protection of property rights (e.g. AIDS medicine)

Front 40

private action

Back 40

theft, piracy, blackmail, and the like by private individuals or groups

Front 41

public action

Back 41

when public officials, such as politicians and bureaucrats, extort income, resources, or the property itself from property holders

high level of corruptions reduce FDI, the level of intl trade, and the economic growth rate in the country

Front 42

Foreign Corrupt Practices Act

Back 42

makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority

Front 43

Intellectual Property

Back 43

property that is the product of intellectual activity

-world intellectual property organization
-paris convention for the protection of industrial property

Front 44

Intellectual Property can be protected using:

Back 44

1. Patents: exclusive rights for a defined period to the manufacture, use, or sale of that invention
2. copyrights - the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit
3. trademarks: design and names by which merchants or manufacturers designate and differentiate their products

Front 45

product safety laws

Back 45

set certain standards to which a product must adhere

Front 46

product liability

Back 46

holding a firm and its officers responsible when a product causes injury, death, or damage

Front 47

Two ways to measure levels of economic development:

Back 47

1. Gross national income (GNI) per head of population: measures the total annual income received by residents of a nation
2. Purchasing power parity (PPP): involves adjusting GNI by purchasing power, allows for a more direct comparison of living standards in different countries, with the base for the adjustment being the cost of living in the US

should also consider currency exchange

Front 48

How does political economy influence economic progress?

Back 48

For long-run economic growth:
- innovation and entrepreneurship
- market economy and strong property rights
- democratic is good so you can innovate and compete
- economic growth leads to the establishment of democratic regimes

Front 49

How is the political economy changing? Two trends:

Back 49

1. democratic revolution
2. a move away from centrally planned and mixed economies

Front 50

The shift toward market-based system involves:

Back 50

1. deregulation: removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate
2. privatization: transfers the ownership of state property into hands of private investors
3. the creation of a legal system to safeguard property rights

Front 51

first mover advantages

Back 51

advantages that accrue to early entrants into a market

Front 52

political risk

Back 52

the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise

Front 53

economic risk

Back 53

the likelihood that economic mismanagement will cause drastic change in a country's business environment that adversely affects the profit and other goals of a business enterprise

Front 54

legal risk

Back 54

the likelihood that a trading partner will opportunistically break a contract or expropriate property rights

Front 55

culture

Back 55

a system of values and norms that are shared among a group of people and that when taken together constitute a design for living

Front 56

values

Back 56

abstract ideas about what a group believes to be good, right, and desirable

provide the context within which a society's norms are established and justified and form the bedrock of a culture

Front 57

norms

Back 57

the social rules and guidelines that prescribe appropriate behavior in particular situations

Include
-folkways: the routine conventions of everyday life
-mores: norms that are seen as central to the functioning of a society and to its social life

Front 58

society

Back 58

a group of people who share a common set of values and norms

Front 59

Determinants of culture:

Back 59

-religion
-political and economic philosophies
-education
-language
-social culture

Front 60

social structure

Back 60

a society's basic social organization

The degree to which
-the basic unit of social organization is the individual, as opposed to the group
-a society is stratified into classes or castes

Front 61

group

Back 61

an association of two or more people who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's behavior

Front 62

social mobility

Back 62

the extent to which individuals can move out of the strata into which they are born

Front 63

caste system

Back 63

closed system of stratification in which social position is determined by the family into which a person is born

change is usually not possible during an individual's lifetime

Front 64

class system

Back 64

form of open social stratification

position a person has by birth can be change through achievement or luck

Front 65

class consciousness

Back 65

a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with others

Front 66

religion

Back 66

a system of shared beliefs and rituals that are concerned with the realm of the sacred

Front 67

Four religions dominate society:

Back 67

Christianity
Islam
Hinduism
Buddhism

Judaism?

Front 68

Language

Back 68

the spoken and unspoken (nonverbal such as facial expressions, personal space, and hand gestures) means of communication

Front 69

Four dimensions of culture in the workplace:

Back 69

1. power distance: how a society deal with the fact that people are unequal in physical and intellectual capabilities
2. uncertainty avoidance: the relationship between the individual and his fellows
3. individualism vs. collectivism: the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity
4. masculinity vs. femininity: the relationship between gender and work roles

Front 70

Does culture change?

Back 70

-culture evovles over time
changes in value systems can be slow and painful for a society
- social turmoil: an inevitable outcome of cultural change
as countries become economically stronger, cultural change is particularly common

Front 71

What do cultural differences mean for managers?

Back 71

1. It is important to develop cross-cultural literacy
- must be aware of ethnocentric behavior (belief in superiority of one's own culture)
2. There is a connection between culture and the national competitive advantage

Front 72

The benefits of doing business in a country are:

Back 72

- a function of the size of the market (population)
- its present wealth (purchasing power)
- its future growth prospects

Front 73

free trade

Back 73

a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country

Front 74

International trade allows a country to:

Back 74

- specialize in the manufacture and export of products that it can produce efficiently
-import products that can be produced more efficiently in other countries

Front 75

mercantilism

Back 75

-suggests that it is in a country's best interest to maintain a trade surplus (to export more than it imports)
-advocates govt intervention to achieve a surplus in the balance of trade
-views trade as a zero-sum game (one in which a gain by one country results in a loss by another)

Front 76

Smith's Theory of Absolute Advantage

Back 76

- suggests that countries differ in their ability to produce goods efficiently
- also suggests that a country should specialize in producing goods in areas where it has an absolute advantage and import goods in areas where other countries have absolute advantages
- this assumes that no country has absolute advantage in everything

Front 77

Ricardo's Theory of Comparative Advantage

Back 77

-suggests that countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries
-even if this means buying goods from other countries that they could produce more efficiently at home
-provides a strong rationale for encouraging free trade

Front 78

constant returns to specialization

Back 78

the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter where one is on acountries production possibility frontier (PPF)

Front 79

diminishing returns to specialization

Back 79

occurs when more units of resources are required to produce each additional unit

Front 80

Heckscher-Ohlin Theory:

Back 80

-comparative advantage arises from differences in national FACTOR ENDOWMENTS: the extent to which a country is endowed with resources like land, labor, and capital
-predict that countries will export goods that make intensive use of those factors that are locally abundant, and import goods that make intensive use of factors that are locally scarce

Front 81

Leontief Paradox

Back 81

-theorized that since the US was relatively abundant in capital compared to other nations, the US would be an exporter of capital intensive goods and an importer of labor-intensive goods
-but instead, found that US exports were less capital intensive than US imports

Front 82

Vernon's product life-cycle theory

Back 82

-as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade
- production became concentrated in lower-cost foreign locations, and the US became an importer of the result of the production

Front 83

Diamond of Competitive Advantage (four attributes that promote or impede the creation of competitive advantage)

Back 83

1. Factor endowments
2. Demand Conditions
3. Relating and supporting industries
4. Firm strategy, structure, and rivalry

Front 84

Implications of Trade Theory

Back 84

1. Location Implications: a firm should disperse its various productive activities to those countries where they can be performed most efficiently
2. First-mover implications: a first-move advantage can help a firm dominate global trade in that product
3. Policy implications: firms should work to encourage governmental policies that support free trade

Front 85

current account

Back 85

pertains to goods, services, and income, receipts and payments

Front 86

capital account

Back 86

records one time changes in the stock of assets

Front 87

financial account

Back 87

records transactions that involve the purchase or sale of assets

Front 88

tariffs

Back 88

taxes levied on imports that effectively raise the cost of imported products relative to domestic products

Front 89

specific tariffs

Back 89

levied as a fixed charge for each unit of a good imported

Front 90

ad valorem tariffs

Back 90

levied as a proportion of the value of the imported good

Front 91

subsidies

Back 91

government payments to domestic producers

Front 92

import quotas

Back 92

restrict the quantity of some good that may be imported into a country

Front 93

Voluntary Export Restraints

Back 93

quotas on trade imposed by the exporting country, typically at the request of the importing country's government

Front 94

Local Content Requirements

Back 94

demand that some specific fraction of a good be produced domestically

Front 95

Administrative Policies

Back 95

bureaucratic rules designed to make it difficult for imports to enter a country

Front 96

Antidumping Policies (aka countervailing duties)

Back 96

designed to punish foreign firms that engage in dumping and protect domestic producers from "unfair" foreign competition

Front 97

Two main arguments for government intervention in the market:

Back 97

1. political arguments
2. economic arguments

Front 98

What are the political arguments for government intervention?

Back 98

1. Protecting jobs
2. Protecting industries deemed important for national security
3. Retaliating to unfair foreign competition
4. Protecting consumers from "dangerous" products
5. Furthering the goals of foreign policy
6. Protecting the human rights of individuals in exporting countries

Front 99

What are the economic arguments for government intervention?

Back 99

1. the infant industry argument
2. strategic trade policy

Front 100

What do trade barriers mean for managers?

Back 100

1. Trade barriers raise the cost of exporting products to a country
2. Voluntary export restraints (VERs) may limit a firm's outside ability to serve a country from locations outside that country
3. To conform to local content requirements, a firm may have to locate more production activities in a given market than it would otherwise

Front 101

Foreign direct investment (FDI)

Back 101

when a firm invests directly in new facilities to produce and/or market in a foreign country (firm then becomes a multinational enterprise)

Front 102

greenfield investments

Back 102

the establishment of wholly new operation in a foreign country

Front 103

stock of FDI

Back 103

refers to the total accumulated value of foreign-owned assets at a given time

Front 104

gross fixed capital formation

Back 104

the total amount of capital invested in factories, stores, office buildings, and the like

Front 105

exporting

Back 105

producing goods at home then shipping them to the receiving country for sale

Front 106

licensing

Back 106

granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit that the foreign entity sells

Front 107

internalization theory (aka market imperfections theory)

Back 107

suggests that licensing has three major drawbacks compared to FDI
-firms could give away valuable technological know-how to a potential foreign competitor
-does not give a firm the control over manufacturing, marketing, and strategy in the foreign country
- the firm's competitive advantage maybe be based on its management, marketing, and manufacturing capabilities

Front 108

multipoint competition

Back 108

when two or more enterprises encounter each other in different regional markets, national markets, or industries

Front 109

How does FDI benefit the host country?

Back 109

1. Resource transfer effects
2. Employment effects
3. Balance of payments effects
4. Effect on competition and economic growth

Front 110

Inward FDI has three main costs:

Back 110

1. Adverse effects of FDI on competition within the host nation
2. Adverse effects on the balance of payments
3. Perceived loss of national sovereignty and autonomy

Front 111

Benefits of FDI for the home country include:

Back 111

1. The effect on the capital account of the home country's balance of payments from the inward flow of foreign earnings
2. the employment effects
3. the gains from learning valuable skills from foreign markets that can be subsequently transferred back to the home country

Front 112

regional economic integration

Back 112

agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other

Front 113

free trade area

Back 113

eliminates all barriers to the trade of goods and services among member countries

Front 114

customs union

Back 114

eliminates trade barriers between member countries and adopts a common external trade policy

Front 115

common market

Back 115

has no barriers to trade between members countries, a common external trade policy, and the free movement of the factors of production

Front 116

economic union

Back 116

has the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rate, and a common monetary and fiscal policy

Front 117

political union

Back 117

involves a central political apparatus that coordinates the economic, social, and foreign policy of member states