Chapter 6 Flashcards
Trade Agreement
is an enforceable treaty between two or more countries that addresses the movement of goods and services, eliminates trade barriers, establishes terms of trade, and encourages foreign investment.
NAFTA
set rules surrounding the movement of goods and services, labour, and investments across North America. It eliminated tariffs and other trade barriers, and continues to promote fair competition among the three countries.
Advantages of NAFTA
Increase of trade
Lower Prices
Economic Growth
Job Creation
Disadvantages of NAFTA
Lost jobs and lower wages
Human rights issue
Deterioration of the Enviroment
Keystone XL pipeline
a 1,897-km pipeline running from Alberta’s tar sands to Nebraska that could carry 830,000 barrels of oil each day) has been a fiercely contested project. Many U.S. farmers and environmentalists have opposed the construction of the pipeline,
LuxLeaks
. In 2013, the OECD and G20 agreed on a 15-point Base Erosion and Profit Shifting (BEPS) Action Plan to deal with cross-border tax avoidance. The European Commission also launched a legal proceeding against Portugal, Bulgaria, and Cyprus for not following tax laws when it was revealed that a secret tax agreement approved by Luxembourg authorities had provided tax avoidance for more than 350 companies around the world.
Trade Organizations
are groups established to help with the free flow of goods and services.
World Trade Organization (WTO)
promotes trade liberalization (easing trade restrictions) throughout the world.
Asia-Pacific Economic Cooperation (APEC),
created in 1989, is a trade organization that unites many of the countries surrounding the Pacific Ocean.
World Bank
It is an organization of 189 member countries (including Canada) that provides monetary and technical support for developing countries.
International Monetary Fund (IMF)
is an organization that tracks economic trends, analyzes countries’ financial performance, warns governments of potential financial problems, provides expertise to governments, and provides a forum for discussion.
Cartel
(a group of independent producers who control supply and fix prices in an attempt to reduce market competition)
Organization of the Petroleum Exporting Countries (OPEC)
It is an intergovernmental organization whose objective is to co-ordinate oil policies among its members
Globalization
Primarily an economic process by which business organizations from different nations engage in international trade
Positive effects of Globalization
Brings billions of dollars in investments into a country
These investment dollars brings jobs
More money in the economy helps increase standard of living
Greater competition, which forces businesses to become more innovative to survive
Competition lowers price for consumers
Brings greater variety of goods and services
Negative effects of Globalization
Outsourcing
Takes jobs away from countries with higher labour cost and transfer them to countries with lower labour
Exploitation of labour as businesses seek to lower cost to become more competitive
Loss of cultural identity as more and more people interact with one another from outside of their country
MNC
Global companies are often referred to as multinational companies (MNC)
They operate worldwide on a borderless basis while still observing national regulations and policies in the countries they operate in
General Electric
General Electric ranks as one of the most global companies in the world with over $127B in revenue in 2016. Originally a light bulb company, they now have interests in virtually everything we see and use: Healthcare Media Weapons Aircraft engines Energy Finance Oil
Ethnocentric MNC
An MNC that has tight control over its foreign operations
Eg. Coca Cola
To help maintain their image, it is important that Coca’s head office in Atlanta, Georgia approves almost everything that their foreign operations do
Polycentric MNC
Gives foreign operations greater autonomy
Eg. Avon
Avon understands that their foreign operations understands their markets better, and as a result gives greater autonomy to these markets to make their own decisions regarding the products they sell
Geocentric MNC
Seeks total integration of its global operations
its rare to find an organization that truly transcends borders and operates on a truly global level
These organizations that have offices all over the world tend to operate as separate and independent entities from their head office.
Global Strategies
One big market, decisions made at headquarters, advantages of economies of scale develop products faster, and coordinate activities
Multidomestic Strategy
Customized goods and services for local culture
Transnational Strategy
Respect needs of local markets while maintaining global strategies
Economic interdependence
Measure the value of economic transactions between countries
Brexit
Britain Exit
European Union
Removed shipping obstacles Promote peace Economic growth Strong bonds Political integration Advantage Decrease exchange rate fluctuations Price stability Increased markets Enhanced labor movement Disadvantage loss of tradition Initial costs centralization
The diamond model
Factor conditions, demand conditions, film strategy, structure and rivalry, and related and supporting industries.
Factor conditions
Factor conditions in a certain country refer to the natural, capital and human resources available. With human resources, we mean created factor conditions such as a skilled labor force, good infrastructure and a scientific knowlegde base. Porter argues that especially these ‘created’ factor conditions are important opposed to ‘natural’ factor conditions that are already present. It is important that these created factor conditions are continiously upgraded through the development of skills and the creation of new knowledge. Competitive advantage results from the presence of world-class institutions that first create specialized factors and then continually work to upgrade them.
Demand conditions
The home demand largely affects how favorable industries within a certain nation are. A larger market means more challenges, but also creates opportunities to grow and become better as a company. The presence of sophisticated demand conditions from local customers also pushes companies to grow, innovate and improve quality. Striving to satisfy a demanding domestic market propels companies to scale new heights and possibly gain early insights into the future needs of customers across borders.
Firm Strategy
The national context in which companies operate largely determines how companies are created, organized and managed: it affects their strategy and how they structure themselves. Moreover, domestic rivalry is instrumental to international competitiveness, since it forces companies to develop unique and sustainable strenghts and capabilities. The more intense domestic rivalry is, the more companies are being pushed to innovate and improve in order to maintain their competitive advantage.
Related Industries
The presence of related and supporting industries provides the foundation on which the focal industry can excel. As we have seen with the Value Net, companies are often dependent on alliances and partnerships with other companies in order to create additional value for customers and become more competitive. Especially suppliers are crucial to enhancing innovation through more efficient and higher-quality inputs, timely feedback and short lines of communication. A nation’s companies benefit most when these suppliers themselves are, in fact, global competitors.
