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130 Cards in this Set
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globalization
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shift towards interdependent global econ. and away from a closed market
shift towards integrated and interdependent world economy 2 facets: globalization of mkts. gloablization of production |
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globalization of markets
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merging of distinct and serperate markets into one huge market-place
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causes of globalization of markets
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- falling trade barriers make it easy to sell internationally
- tastes and preferences of consumers around the world are turning into a global norm - firms can create their markets by offering same general products around the world |
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globalization of prodcution
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sourcing of goods and services from locations around the world to take advantage of differences of costs and quantities of factors of production
- companies can compete more effectively by lowering their costs in this way |
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World Trade Organization (WTO)
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came after GATT
polices world trade system and makes sure that nation-states adhere to rules laid out in trade treaties signed by WTO members promotes lower barriers to trade and investment 150 nations/97% of world trading nations are members |
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international monetary fund (IMF)
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created in 1944
established to maintain order in the international monetary system |
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world bank
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created in 1944
established to promote economic development |
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united nations (UN)
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established in 1945 to:
- maintain international peace and security - develop friendly relations among nations - cooperate in solving international problems and promoting human rights - harmonizing the actions of nations |
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drivers of globalization
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delcining barriers to free flow of goods, services, and capital that has appeared since WWII -- tarrifs have fallen since 1950 and are now at about 4%
technolocigal change |
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international trade
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firm exports goods or services to other countries
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declining trade barriers
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firms can view the world as their mkt.
firms can base production in locations for optimal productivity |
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role of technological change
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made globalization possible
advancements have occurred in: - telecommunications and microprocessors - internet - transportation role of technology: - lower transportation costs so firms can do business and produce around the world - lower telecommunications costs so that firms can manage global markets - low costs telecommunications create global mkt. place - global communication networks and media are creating a worldwide culture |
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global economy of the 21st century
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moving towards a more global economic system, but globalization is not in inevitable
can bring risks like the s/e asia financial crisis |
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multinational enterprises (MNEs)
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business that have productive activities in 2+ countries
- there has been a rise in non-US multinationals - growth in mini-mulinationals |
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changing world order
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communism is disappearing
communist nations in europe and asia are now moving towards more free market and democratic govts. this means these countries have many investment oppurtunities due to unrest, risk is high, but return can also be very high China is moving from 3rd world to industrial superpower democratic reforms are taking hold in latin america. inflation and debt are decreasing -- substantial opportunities but also high risks |
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globalization debate
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supporters: increased trade and investment can mean lower prices, higher economic growth, higher income, and more jobs
critics: can cause job losses, damage to the environment, and cultural imperialism of MNEs and global media |
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anti-globalization protests
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40,000+ protesters came out for 1999 seattle WTO meeting in 1999 -- meeting was about cutting barriers to cross border trade and investment
protestors now regulary appear at most WTO and other global institution events |
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globalization, jobs, and income
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critics: globalization is causing a loss of manufacturing jobs in advanced countries
supporters: benefits of this trend outweigh costs -- countries specialize in what they do best and export the rest. everything evens out |
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globalization and the world's poor
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supporters: best way for developing nations to get stronger is to welcome free trade and begin to adopt democratic and free mkt. policies for debt foregiveness for debt incurred under totalitarian regimes
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managing global businesses
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keep in mind:
- countries are different - wider range of problems confronted in international business - firms must find ways to work work within limits imposed by govts. - transactions involve changing foreign currency |
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political economy
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how the political, economic, and legal systems of a country are interdependent; they interact and influence each other and in doing so affect the level of economic well-being
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political system
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refers to the system of govt. in a nation
can be assessed according to: - individual vs. collectivism - democratic vs. totalitarian |
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collectivism
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political system that stresses the primacy of collective goals over individual goals; needs of society are considered more important than individual freedoms
- socialism - communism - social democrats |
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individualism
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individuals should have freedom in their own economic pursuits; individual interests should take precedence
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democracy
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govt. is by the people, exercised directly or through elected representatives
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totalitarianism
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form of govt. in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties
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legal system
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rules that regulate behavior and processes are enforced and punishment for grievances are obtained
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common law
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based on tradition (country's legal history), precedent (cases that have come before courts in the past), and custom (ways in which laws are applied to certain situations)
- more flexible - judges have the power to interpret law to certain cases |
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civil law
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based on detailed set of law organized into codes
- less flexible that common - judges only have power to apply laws - ex.: germany, france, russia, japan, etc. |
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theocratic law
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law is based on religious teachings
- ismalic is the most widely practiced |
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contract
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doc. that specifies conditions under which exchange is to occur and details of the rights and obligations of the parties involved
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contract law
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body of law that governs contract enforcement; parties normally resort to this when once feels that the other has violated the agreement
- common law tends to draw up more specific contracts b/c of the vagueness of their gen. laws - civil law contracts tend to be less detailed - more expensive to draw up contracts under common law but greater flexilibty in judges handling disputes - hard to approach contract disputes when contract has been violated in civil law system but was drawn up under contract law |
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united nations convention on contracts for the international sale of goods (CIGS)
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establishes 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
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cross-cultural literacy
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how cultural differences across and within nations affect the way that business is practiced
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culture
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system of values and norms that are shared among a group of people constitute a design for living
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values
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abstract ideas about what a group believes to be good, right, and desirable
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norms
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social rules and guidelines that prescribe appropriate behavior in certain situations
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society
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group of people who share a common set of norms and values
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culture, society, and the nation state
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no strict one-to- one relationship between a society and a nation state
nation states are political creations that can create one or more cultures a culture can also embrace several nations |
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determinants of culture
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values and norms of culture are the evolutionary product of a number of factors at work in a society such as religion, political and economic philosophies, education, and social structures
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social structure
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society's basic social organization
2 dimensions: - degree to which the basic unit of social organization is the individual as opposed to the group - degree to which a society is stratisfied into classes/castes |
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individual
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building block of social org. in most western societies
high degree of managerial mobility can make it hard to build teams leads to dynamism and success of US econ. leads to lack of company loyalty, more company competition, less ability to do team work |
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group
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association of 2+ people who have shared sense of indentity and who interact with eachother in structured ways on basis of common expectations about eachother's behavior
in asian countries group is the primary building block of social structure can discourage job switching and lead to business cooperation can suppress individual creativty and initiative |
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social strata
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hierarchal social categories; defined on the basis of characteristics such as family background, occupation, and income; people are born into a certain stratum
they differ by: - degree of mobility - significance attached to strata |
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social mobility
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extent to which people can move out of the strata that they were born in to; varies
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caste system
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closed strata system in which social position is determined by birth into a certain family; can be tied to a certain occupation
- india |
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class system
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less rigid form of social strata; position by birth can changed through acheivements or luck; people can go up or down
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class conciousness
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people tend to percieve themselves in terms of class background and this influences their relationships with other classes
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ethics
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accepted principles of right and wrong that govern conduct
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ethical strategy
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course of action that does not violate accepted principles
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employment practice ethics
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if work condition in host nation are clearly inferior multinational's home nation, business should apply:
- home country stds.? - host country std.? - something in between? establish min. accecptable standards that protect human rights and dignity of workers and audit on reg. basis |
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human rights ethics
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in many developing countries basic human rights are take for granted while in many developing countries they may not exist
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ethical delimmas
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situations where no available alternatives seem ethically acceptable
obligations of a firm are not always clear cut |
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ethical decision making
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to make sure ethical decisions are considered in business, firms should:
- favoring hiring and promoting people with a good sense of personal ethics - build culture that places high value on ethics - make sure leaders articulate rhetoric of ethical behavior and act on it - put decision making process in place that requires people to consider ethics in decision making - develop moral courage |
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organizational culture and leadership
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to foster ethical behavior firms must:
- explicitly articulate values that place strong emphasis on ethical decisons -- code of ethics - repeatedly emphasizing the importance of ethics - system of incentives for people who act on ethics |
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ethics officers
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ensure that:
- employees are always trained in ethics - ethics is considered in the decision making process - company's code of conduct is followed |
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moral courage
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enables managers to walk away from decisions that are profitable but unethical
gives employee strength to say no when a superior tries to get him to do something unethical gives employees courage to blow whislte on unethical behavior does not come easily can cause employees to lose their jovs |
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free trade
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govt does not try to influence through quotas or duties
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benefits of trade
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smith, ricardo, heckscher-olin show why it is good to trade products a country could probably produce on its own
- allows country to specialize in products it can produce more efficiently - countries can import goods that can be made more efficiently elsewhere limits on imports often help producers, not consumers |
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patterns of international trade
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some patterns are easy to explain and some are not
explained by comparitive advantage life-cycle theory new trade theory: countries sometimes specialize in production and export of products b/c certain industries can only support a limited amt. of firms -- first mover advantage |
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merchantalism
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it is in a country's best interest to export more than it imports
- advocates govt. intervention to achieve a surplus in the balance of trade - zero-sum game: gain of one country results in loss by another |
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absolute advantage
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when one country is more efficient than others in producing a good
countries should specialize in these goods and trade for others |
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comparative advantage
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countries should produce the goods that they specialize in and import what they do not, even if they could produce it more efficiently than another country
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extensions of ricardian model
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resources do not always more freely from one economy to another an job losses may occur
unrestricted free trade is beneficial but bc of diminishing returns gains may not be as great as the simple model suggests opening a country to trade can: - increase stock of resources as supplies become available from abroad - might increase efficiency of resource untilization and free up resources for other things - can increase economic growth |
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hecksher-ohlin theory
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comparative advantage arises from differences in factor endowments - ext. to which a country is endowed resources such as land, labor, capital, etc.
resources should export goods created from abundant factors and import goods made from factors that are scarce |
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samuelson critique
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gains in trade may not alway be beneficial; ability to offshore service jobs may cause a mass migration into the Us, causing wages to fall
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leontief paradox
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by wassily leontief
theorized that US would export capital intense goods since it had so many resources and import labor intensive products however he discovered that it was actually the opposite -- leading it to be called a paradox |
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product life-cycle theory
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raymond vernon
as products mature both the sales and place of production will shift due to flow and direction of trade wealth of US gives firms incentives to develop new products and as demand increased the Us would begin to export to other countries eventually developed countries would begin producing these goods at home to meet demands of their markets; US may also start to produce in these countries eliminating the amt of exports product would eventually become more standard and price would be the competitive weapon producers in countries where labor was cheaper may eventually be able to export to the US; these countries may eventually get production advantage US eventually becomes the importer - may be too ethnocentric |
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economies of scale
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unit cost reductions associated with large scale output; being able to spread out fixed costs
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new trade theory
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ability of firms to gain economies of scale can have large impact on international trade
- through economies of scale variety of trade can be increased and prices can be decreased - global trade may only be able to support a small amt. of these enterprises increasing variety and reducing costs: with trade, markets are large enough to support economies of sclae; allows for specialization of products, economies of scale, and greater variety at lower prices pattern of trade caused by first mover advantages and economies of scale; first movers can gain economies of scale on products where economies of scale are significant and it represents a large amt of world demand |
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national competitve advantage: porter's diamond
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porter tried to explain why a nation achieves success in a certain industry and indentified 4 attributes that promote competitive advantage:
- factor endowments - demand conditions - relating and supporting industries - firm strategy, structure, and rivalry |
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factor endowments
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nations position in factors of production necessary to compete in give industry
can lead to competitive advantage can be basic or advanced |
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demand conditions
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nature of home demand for industry's product or service
nature of demand influences capabilities sophisticated and demanding customers pressure firm to be competitve |
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relating and supporting industries
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presence or absence of supplier industries and and related industries that are internationally competitive
presence can spill over into other industries successful industries tend to be grouped into clusters in countries |
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firm, strategy and structure rivalry
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conditions governing how counties are companies are created, organized, and managed and the nature of domestic rivalry on firm's competiteness
this all impacts firms's competitiveness diff. mgt. ideologies impact development of competitve advantage rivalry can improve products |
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evaluation of porter's theory
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govt. polict can:
- affect demand through product standards - influence rivalry through regulation of antitrust laws - impact of skilled workers and advanced education and infrastructure the 4 attributes, govt. policy, and chance work at reinforcing system, complementing eachother and creating the conditions appropriate for competitive advantage |
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tarrifs
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taxes on imports to raise costs relative to domestic products
increase govt. revenues, provide protection to domestic markets agaisnt foreign producers, and force consumers to pay more for imports pro-producer, anti-consumer reduce effectiveness of world economy |
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specific tariffs
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levied per unit of good imported
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ad valorem tariffs
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levied in proportion to the price of the good
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subsidies
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govt. payments to domestic producers; consumers usually absorb costs
help producers in 2 ways: - help gain export mkts. - help compete with lower import prices |
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import quotas
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quoata on amt. of goods that can be imported
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tariff rate quotas
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hybrid of quota and tariff; lower tariff is applied to goods within quota but gets higher once quota is exceeded
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voluntary export restraints
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quoatas on trade imposed by exporting country, typically at request of importing company's govt.
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quota rent
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extra profit producers make when supply is artificially limited by quota
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local content requirement
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some specific fraction of good must be produced domestically
benefit domestic producers, but consumers must pay higher prices |
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administrative trade policies
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rules designed to make it hard for imports to enter a country
hurt consumers by denying them access to superior products |
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uruguay round and WTO
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began at GATT negotiations in 1986; talks focused on:
- int. prop. and services - adressing trade issues related to services, intellectual prop., and agriculture - the WTO - enforcement mechanisms to make WTO more effective at policing WTO encompassed GATT along with gen. agreement on trade and services (GATS) and agreement on trade related aspects of international property rights (TRIPS) WTO was created overall |
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WTO: experience to date
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has emerged as an advocated for future trade deals, esp. with services
policing and enforcement have a had a positive effect most countries have adopted their recomendations for trade disputes in 1997 90% of telecommunications mkt. agreed to opend mkts. to foreign competition and to abide by rules about 102 countries have agreed to open banking, insurance, etc. in varing degress to world market covers cross border trade as well as FDI 1999 WTO meeting in seattle |
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future of WTO: unresolved issues and the Doha round
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current agenda:
- rise of antidumping policies - level of protectionism in agriculture - lack of protection for property right in developing nations - high tarriffs TRIPS lowering tariff rates Doha: cutting tariffs on ind. goods and services; agri. subsidies; reducing investment barriers; limiting the use of antidumping laws |
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Doha rounds
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Doha: cutting tariffs on ind. goods and services; agri. subsidies; reducing investment barriers; limiting the use of antidumping laws
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foreign direct investment
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firm invests directly in new facilities to produce and/or market in foreign country
greenfield or acquisition |
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greenfield investment
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establishment of new operation in a foreign country
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acquistion
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merger of existing firm in a foreign country
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flow of FDI
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amt undertaken in a given time period
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stock of FDI
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total acculated value of foriegn owened assets at a given point in time
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outflows of FDI
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flow of FDI out of a country
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inflows of FDI
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flow of FDI into a country
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trends in FDI
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greater flow and stock of FDI in the last 30 yrs.
FDI has grown more rapidly than world trade bc: - threat of protectionism - shift towards democracy and free mkts. encourage it - gloablization is having a positive impact -- firms want to have a presence in the global economy |
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direction of FDI
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historically directed at developed nations of the world with the US being a target
inflows have remained high in 2000s for US and EU latin america and asia now seeing FDI inflows |
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gross fixed capital
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total amt. of capital invested in factories, stores, buildings, etc.
the greater the capital investments in an econ., the better the prospects FDI can be an important source of this and a determinant of future growth rate |
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greenfield vs. acquistion
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acquisitions are more common
easier to execute cheaper less risky easy to improve/increase efficiency |
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FDI: shift to services
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driven by:
- gen. move in developed countries to services - many services need to produced where they are consumed - more liberal policies on services - rise of telecommunications |
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exporting
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producing goods at home and then shipping them
can be constrained by trasportation costs and trade barriers may be a response to threatened trade barriers or tariffs or quotas |
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licensing
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granting foreign entity right to sell firms product in return for royalties
does not give firm tight control over operations competitve advantage based more on mgmt., mkting, etc. and less on actual product |
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pattern of FDI
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firms with similar products often undertake FDI around the same time and in similar locations
strategic rivalry in the global mkt. place multipoint competition lifecycle of product ecelectic paradigm: - location specific advantages: resource endowments or assets tied to a certain location that a firm finds valuable in combning with own assets - externalities: spillovers occur when companies in same industry locate to the same pace |
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pattern of FDI
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ecelectic paradigm:
- location specific advantages: resource endowments or assets tied to a certain location that a firm finds valuable in combning with own assets - externalities: spillovers occur when companies in same industry locate to the same pace |
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pragmatic nationalism
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between radical and non-interventionalist
FDI has both benefits and costs FDI should be allowed only if benefits outweigh the costs |
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host country benefits of FDI
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1. resource transfer: bringing technology, mgmt., and capital to places where it would not be available otherwise
2. employment effects: creating new jobs 3. can help countries achieve a current account surplus 4. effects on competition and economic growth |
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host-country costs
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1. adverse competition affects
2. adverse effects on balance of payments: an FDI importing can cause this 3. percieved loss of national soveirgnty and autonomy |
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home-country benefits
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good balance of payments from the inward flow of company earnings
employment effects from outward FDI gains from learning valuable skills from foreign mkts |
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home-country costs of FDI
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initial capital outflow required to finance FDI
if purpose is to serve as low cost labor location employment can be affected if FDI is a sub. for domestic production |
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intrenational trade theory
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home country concerns about neg. effects of off-shore production (FDI undertaken to serve home mkt.) may not be valid
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regional economic integration
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agreement between countries in the same region to reduce trade barriers have free flow of goods, services, factors of production
supposed to promote trade, but can also lead to competing trade blocks |
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levels of econ intergration in order from least to most integrated
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free trade area, customs union, common market, economic union, political union
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free trade area
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eliminates trade barriers but members determine how to handle trade with nonmembers
european free trade union nafta |
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customs union
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eliminates trade barriers among member and adopts a common nonmember policy
andean pact |
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common market
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no trade barrier to members, same policy for nonmembers, and free flow of factors of production
MERCOSUR |
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economic union
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free flow of trade and factors of production among members, same policies for nonmbers, common currency, monetary and fiscal policy, harmonized tax rates'
EU |
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political union
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central political apparatus that coordinates economic, social, and foreign policy among member states
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economic case for integration
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all countries gain
is an attempt to exploit gains from free trade investment |
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case against integration
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can cause loss of national soveirgnty
only beneficial if amt. of trade that it creates is greater than the amt. of trade that it diverts |
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the political structure of the european union
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euro council: resolves major policy issues and sets policies
euro commission: implementing EU law and making sure that member states comply council of the EU: ultimate authority court of justice: supreme court of appeals for EU laws |
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establishment of the euro
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maastrict treaty
made EU 2nd largest currency zone adopted by 12 out of 15 of the countries volaitile history with the US dollar |
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benefits of euro
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savings of not have to transfer currencies
would make it easier to compare prices across europe prodcuers must find cheaper ways of doing business to increase profit margins gives boost to highly liquid capital market would increase range of investment options |
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costs of the euro
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national authorities lose control over monetary policy
not an optimal currency area: area where similarities make it economically feasable to to adopt single exchange rate and currency |
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enlargement of EU
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many countries have applied for membership
10 countries joined in may 04 expanding the union to 25 states in 2007 bulgaria and romania joined there will not free trade or adoption of the euro until at least 07 |
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North american trade agreement (NAFTA)
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became law in jan. 1994
between US, canada, and mexico abolished tariffs on 99% of goods opened cross border trade on services protects int. prop. rights removes most restrictions on FDI allows each to employ their own environmental stds. esablishes two commission to gives fines, etc. when environmental issues or public safety are ignored |
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support for NAFTA
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mexico will benefit from low cost production there and that will help their economy
US and Canada will benefit from the Mexican market and the low costs of goods produced there US and Canadian firms that produce in Mexico will have edge on competitio |
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critics against NAFTA
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jobs would be lost and wage levels would decline due to moving production to mexico
mexican workers would go north mexico would lose soveignty environment would be damaged due to mexico's lax environmental stds. |
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MERCOSUR
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originated as a trade pact between brazil and argentina in 1988 and expanded to include paruguay and urugauy in 1990
making progress reducing trade barriers may actually be diverting trade -- less competition in worldwide market |