Chapter 1 Flashcards
Globalization
networks of international linkages comprising economic, financial, political and
social markets that bind countries, institutions, and people in an interdependent economy
Protectionism
quotas are an example of protectionism
Nationalism
forced sale of an MNC’s assets to local buyers.
Expropriation
when a local government seizes and provides inadequate compensation for the
foreign-owned assets of a multinational enterprise. Most likely to occur in a country with constant political upheaval and change
Economic integration
results from the lessening of trade barriers and the increased flow of
goods and service, cap9ital, labor, and technology around the world. Disadvantage-loss of
sovereignty.
(1) Free trade area
the simplest and most basic form a regional integration. E.g USMCA
(formerly NAFTA); European Free Trade Association
2) Customs union
Allows free trade between members and agree to adopt common tariffs and non-tariff barriers that are applied to imports from nonmember countries. a group of countries committed to (1) removing all barriers to the free flow of goods and services between each other and (2) the pursuit of a common external trade policy. E.g. Andean Community
(3) Common market
a group of countries committed to (1) removing all barriers to the free flow
of goods, services, and factors of production between each other and (2) the pursuit of a
common external trade policy. E.g. Mercosur
(4) Economic union
-describes a deeper level of economic integration between member
countries compared with a common market, customs union, and free trade areas. May adapt a
common currency, may establish uniform tax rates, and may establish common trade policy
with non-member countries. E.g. European Union
(5) Political Union
consists of central political system that directs and oversees economic, social
and foreign policies of the members states. E.g. United States
MERCOSUR
South American trading block. 4th largest trading bloc after the EU, USMCA and
ASEAN
USMCA
US, Mexico and Canada free-trade agreement. Replaced NAFTA
Top 3 trade blocs
USMCA, EU, and ASEAN
The European Union (EU)
Regional economic group with 27 countries. Reasons for forming includes increasing the scale of the marketplace for firms inside the economic bloc, help firms increase the scale of operations and enhance productivity, attract direct investment from
outside the bloc
European Commission
Responsible for implementing the decisions of the European Parliament and the European Council
Free trade agreement
a formal arrangement between two or more countries to reduce or eliminate tariffs.
Regional economic group
an agreement among countries in a geographic region to reduce or
ultimately remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other
World’s leader for outsources back-office services and increasingly high-tech services.
India
Political risk (country risk)-
the chance that political forces may change a country’s business
environment in ways that lead investors to lose some or all of the value of their investment or
be forced to accept a lower-than-projected rate of return. (e.g. expropriation). Country risk is always present but its nature and intensity vary over time and from country to country. Iraq and
Afghanistan have high levels of political risk. Low levels of political risk occur in Canada.
Ways to deal with political risk-
Hedging (e.g. local debt financing); create dependency (e.g. provide control distribution); emphasize adaptation (e.g. development assistance).
Adaptation
best suited for firms that decide a high-risk environment is worth the potential
returns
Participative management
means of adaption to political risk that requires that a firm actively
involve nationals in the management of its subsidiary
Macropolitical risk
terrorist attack
Micropolitical risk-
factors that affect one industry or company or a few companies. E.g. oil
industry problems
