Business 6: Globalization and Local Economies Flashcards
Define globalization.
Distribution of industrial and service activities across an increasing # of nations
What is the result of globalization?
Makes world more interdependent
How do you measure globalization?
Measured by world trade as a % of GDP
What factors drives globalization?
- improvements in transportation
- tech advancements
- deregulation of int’l fin. markets
- operational options for int’l business (more choices)
What is a natural outcome of globalization?
- Promotes specialization (specialization that leverages comparative advantage)
Globalization imparts responsibilities of world citizenship. Corporations have what two implied duties?
1) Act responsibility reg. environmental issues
2) Promote political stability and cooperation among nations
What are three key motivations for int’l business operations?
1) Comparative advantage
2) Imperfect markets
3) Product cycle
What is Bermuda’s comparative advantage?
Tourism
What is the ability to trade freely between markets often limited by?
- physical immobility of the resource
- regulator barriers
(so co. trade outside their borders to retrieve more resources)
Product cycle is driven by what?
Demand
One way of conducting int’l business operations is by exporting/importing products or services. What is this called?
International trade
Entities that provide the right to use processes or tech in exchange for a fee are engaged in what type of activity?
Licensing
Entities whose marketing service or delivery strategy provides training and related service delivery resources in exchange for a fee are engaged in what type of activity?
Franchising
Give an example of a franchise.
McDonald’s
What is a joint venture?
Takes advantage of comparative advantage of one or both of the participants in marketing or delivering a product
When an entity establishes int’l operations by purchasing a foreign company as a subsidiary or by starting a subsidiary operation w/i the borders of a foreign country, what type of activity are they engaged in?
Direct Foreign Investment (DFI)
What do you call the sync of all levels of product manufacturing on an int’l basis?
Global sourcing
How can a company mitigate the risk that governments may attempt to control economic activity through taxes and tariffs?
Transfer pricing
Should a company assess the risk of political intervention in business planning and financial reporting?
YES
What is NAFTA?
North American Free Trade Agreement
What is a foreign trade zone?
Trade zones in which tariffs are waived until goods leave the zone
The creation of foreign trade zones affects the government’s control of what?
Control of imports and the location of import facilities
China is an example of what type of economic system?
Centrally planned economy
In centrally planned economies, factors of production are owned by whom?
Government (subject to restriction)
The US is an example of what type of economic system?
Market economy
In market economies, factors of production are owned by whom?
Individuals
The Japanese keiretsu or the Korean chaebol is an example of what?
Conglomerates
Define conglomerate.
- Corporation that is made up of a number of different, seemingly unrelated businesses.
- In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately.
Define culture.
Shared values and attitude of a group
What type of cultures may be highly averse to dealing w/ uncertainty?
- Asian culture
- South American culture
Exchange rate fluctuation is generally divided into what three categories?
1) Transaction risk
2) Economic risk
3) Translation risk
Does an operation w/i a foreign economy carry the risk of functioning w/i the general health or weakness of a particular economy?
Yes
Foreign demand is a function of what two things?
1) Income of customer
2) Purchasing power of currency
Higher interest rates in the foreign country are indicators of what?
- Slower economic growth
- Reduced demand
Lower interest rates in the foreign country are indicators of what?
- Increased growth
- Increased demand
What is the effect of higher local economy inflation?
- Reduces purchasing power
- Making imports more expensive and reducing local demand
What is the effect of lower local economy inflation?
- Increases purchasing power for imports, resulting in higher local demand
What is the impact of a weak local currency on the demand for imported goods?
Reduces demand for imported goods
What is the impact of a strong local currency on the demand for imported goods?
Increases demand for imported goods
What are two complications of global sourcing?
- multiple sources for materials
- multiple exchange rates
The dominance of the US as the world’s lone superpower is referred to as what?
Unipolar distribution of power
What are the BRIC countries?
Brazil
Russia
India
China
The new era of multipolarity, wherein power is distributed among many nations, includes what nations?
US
EU
BRIC
Nationals rich in natural resources have the potential to be more ______.
Powerful
One dimension of national power is ______, which translates to workforce.
Population
What is defined as the participation of nations in worldwide institutions (e.g. U.N, WTO, IMF)?
Functional interdependence
What is defined as the acknowledgement that all members of the global community share the planet Earth?
Systematic interdependence
The increase in _______ will require an acknowledgement of the interdependence of nations and cooperation among nations consistent w/ shifts in the balance of power.
Multipolarity
What nations are generally regarded as the world’s largest industrial economies?
Developed nations
What nations are generally regarded as the countries not included on the list of developed nations and are lead by BRIC?
Emerging nations
Developed nations have generally produced trade _____ as their domestic consumption results in more imports than exports.
Deficits
Emerging nations often produce trade ______ as their exports feed the consumption of developed nations.
Surpluses
NAFTA offers trading partners operating w/i its boundaries reductions in tariffs on products in exchange for compliance w/ limits on imported labor and materials used in the manufacture of those products. This practice is also known as what?
Sourcing requirement
True or false.
The IMF regulates currency values.
False (IMF activities are designed to stabilize exchange rates but it is not empowered to regulate currency values)
Global companies that deal w/ the political and financial risks of conducting business in a particular foreign location face which type of risk?
Country risk (encompasses the political risk, economic risk, transfer risk, sovereign risk, and exchange rate risk associated w/ engaging in business w/ foreign countries)
The concept of a global economic balance of power anticipates what?
A distribution of power and influence that ensures that no one nation or group of nations will dominate or interfere w/ the activities of others
