Ch5 Flashcards
globalization
process where the world economy is becoming a single, interdependent system
import
product made abroad but sold domestically
export
product made domestically but shipped and sold abroad
one of the earliest examples of trade
2000 BCE, when North African tribes traded dates and clothing in Assyria and Babylonia for olive oil and spices
forces that have made globalization easier
new technologies in travel and communication, Internet, competitive pressures
cons of globalization
businesses can exploit workers in developing countries and avoid domestic environmental and tax regulations
- potentially lead to loss of cultural heritage and benefits wealthy more than the poor
five key trends based on a report from McKinsey
- economic centre of gravity will shift away from North America/Europe/Japan to Asia and Latin America
- productivity imperative (improved productivity is essential in highly competitive marketplace(
- global grid (increasing complex global networks of ppl and $)
- increased importance of environmental sustainability
- increased controls on businesses and markets as govts try to cope with financial crisis
per-capita income
average income per person of a country
four classification categories used by the World Bank
high-income country: annual per-capita US $12 476+ (ex. Japan, Canada, U.S.)
upper-middle-income: annual pc btwn US$4036 and $12 457 (China, Colombia, Turkey)
lower-middle-income: annual pc btwn $1026 and $4035 (Albania, Guatemala, Vietnam)
low-income: $1025 or less (Bangladesh, Haiti, Ethiopia)
three major geographic regions with the world’s largest economies
North America, Europe, and Asia
North America as a business region
domained by US, and Canada and Mexico participate as well
Europe as a business region
divided into Western (domained by Germany, UK, Spain, France, and Italy), and Eastern Europe
Pacific Asia as a business region
consists of Japan, China, Thailand, Malaysia, Singapore, Indonesia, South K, Taiwan, Philippines, Vietnam, and Australia
BRIC
four important countries in global trade: Brazil, Russia, India, and China
- concept created by Sachs
- four countries hold unofficial summits and discuss strategies
- later transformed to BRICS to include South Africa (for their minerals)
forms of competitive advantage
absolute advantage, comparative advantage, and national competitive advantage,
absolute advantage
- the ability to produce smthg more efficiently than any other country
- concept proposed by economist Adam Smith
- ex. Saudi oil, Brazilian coffee beans, and canadian timber
comparative advantage
- the ability to produce smthg more efficiently or better than other goods
- Canada has comp advantage in farming, South Korea in electronics manufacturing
national competitive advantage
international competitive advantage stemming from a combination of factor conditions; demand conditions; related and supporting industries; and firm strategies, structures, and rivalries
factor conditions
factors of production (natural resources, human resources, entrepreneurs, capital)
demand conditions
large domestic consumer base that promotes strong demand for innovative products
related and supporting industries
strong local or regional suppliers and/or industrial customers
strategies, structures, and rivalries
firms and industries that stress cost reduction, products quality, higher productivity, and innovative new products
international competitiveness
the ability of a country to generate more wealth than its competitors in world markets
balance of trade
difference btwn country’s exports and imports
surplus
country exports more than it imports
deficit
country imports more than it exports
balance of payments
flow of all money into or out of a country
exchange rate
rate at which the currency of one nation can be exchanged for the currency of another nation
managing
making decisions
three basic decisions managers must make when faced with the idea of a global market
- whether to go international
- level of international involvement
- organization structure that will best meet its global needs
exporter
firm that distributes and sells products to one or more foreign countries
importer
firm that buys products in foreign markets and then imports them for resale in its home country
basic level of involvement in international business
act as an exporter or importer, organize as an international firm, or operate as a multinational firm
international firm
firm that conducts a significant portion of its business abroad
multinational firm
firm that designs, produces, and markets products in many nations (planning is geared toward global markets)
independent agent
foreign individual or organization that agrees to represent an exporter’s interests
- often act as sales representatives
- usually don’t specialize in a particular product or market
licensing arrangement
arrangement in which firms choose foreign individuals or organizations to manufacture or market their products in another country
royalties
fees that an exporter receives for allowing a company in a foreign country to manufacture or market the exporter’s products
- usually calculated as a percentage of the licence holder’s sales
branch office
a location that an exporting firm establishes in a foreign country to sell its products more effectively
world product mandating
the assignment by a multinational of a product responsibility to a particular branch
strategic alliance
company finds a partner in a foreign country where it wants to do business
foreign direct investment (fdi)
buying or establishing tangible assets in another country
three major barriers to international trade
social, economic, and political issues
economic differences
amount of government involvement in business, economic development and financial infrastructure in a country (amount of credit card use, cash economy, etc)
quota
a restriction by one nation on the total number of products of a certain type that can be imported from another country
embargo
govt order forbidding exportation and/or importation of a particular product (or even all the products of a particular country)
tariff
tax charged on imported products
- tariffs raise money for govt and raise price of imports
subsidy
govt payment given to a domestic business to help it compete with foreign firms (ex. Bombardier)
protectionism
protecting the domestic business at the expense of free market competition
pros and cons of protectionism
pros – protects new industries until they are ready to compete internationally, other nations have similar measures, protect national security
cons – reduces competition and drives up prices, causes tension btwn nations
local-content laws
laws requiring that products sold in a particular country be at least partly made in that country
business-practice law
law or regulation governing business practices in given countries
Corruption Perceptions Index
- created by Transparency international, ranks countries based on amount of corruption perceived to exist, based on ratings by business ppl, academics, and risk analysts
cartel
association of producers whose purpose is to control supply of and prices for a given product (example: Organization of the Petroleum Exporting Countries)
dumping
selling a product for less abroad than in the producing nation
- often defined in legislation as selling products abroad at less than fair value, or if it harms domestic industry
general agreement on tariffs and trade (gatt)
international trade agreement to encourage the multilateral reduction or elimination of trade barriers
world trade organization (wto_
organization through which member nations negotiate trading agreements and resolve disputes about trade policies and practices
three goals of wto
- promote trade by encouraging members to adopt fair trade practices
- reduce trade barriers by promoting multilateral negotiations
- establish fair procedures for resolving disputes among members
european union (eu)
agreement among major Western European countries to eliminate or make uniform most trade barriers affecting group members
north american free trade agreement (nafta)
agreement to gradually eliminate tariffs and other trade barriers among the united states, canada, and mexico
- eliminates trade barriers, promotes fair competition, and increases investment opportunities
effects of nafta (1994)
- nafta created a much more active North American market
- direct foreign investment has increased in Canada
- u.s. imports from and exports to mexico have increased
- Canada has become an exporting powerhouse
- trade btwn u.s. and Canada rose a lot (Canada gets a large trade surplus with U.S.)
mercosur (1995)
free trade agreement btwn Argentina, brazil, uruguay, and paraguay
- venezuela joined in 2012
other regional trade associations
ASEAN free trade area, asia-pacific economic cooperation, economic community of central african states, gulf cooperation council
