Chapter 6

Question 1

Trade Agreement

Answer 1

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.

Question 2

NAFTA

Answer 2

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.

Question 3

Advantages of NAFTA

Answer 3

Increase of trade
Lower Prices
Economic Growth
Job Creation

Question 4

Disadvantages of NAFTA

Answer 4

Lost jobs and lower wages
Human rights issue
Deterioration of the Enviroment

Question 5

Keystone XL pipeline

Answer 5

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,

Question 6

LuxLeaks

Answer 6

. 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.

Question 7

Trade Organizations

Answer 7

are groups established to help with the free flow of goods and services.

Question 8

World Trade Organization (WTO)

Answer 8

promotes trade liberalization (easing trade restrictions) throughout the world.

Question 9

Asia-Pacific Economic Cooperation (APEC),

Answer 9

created in 1989, is a trade organization that unites many of the countries surrounding the Pacific Ocean.

Question 10

World Bank

Answer 10

It is an organization of 189 member countries (including Canada) that provides monetary and technical support for developing countries.

Question 11

International Monetary Fund (IMF)

Answer 11

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.

Question 12

Cartel

Answer 12

(a group of independent producers who control supply and fix prices in an attempt to reduce market competition)

Question 13

Organization of the Petroleum Exporting Countries (OPEC)

Answer 13

It is an intergovernmental organization whose objective is to co-ordinate oil policies among its members

Question 14

Globalization

Answer 14

Primarily an economic process by which business organizations from different nations engage in international trade

Question 15

Positive effects of Globalization

Answer 15

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

Question 16

Negative effects of Globalization

Answer 16

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

Question 17

MNC

Answer 17

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

Question 18

General Electric

Answer 18

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

Question 19

Ethnocentric MNC

Answer 19

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

Question 20

Polycentric MNC

Answer 20

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

Question 21

Geocentric MNC

Answer 21

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.

Question 22

Global Strategies

Answer 22

One big market, decisions made at headquarters, advantages of economies of scale develop products faster, and coordinate activities

Question 23

Multidomestic Strategy

Answer 23

Customized goods and services for local culture

Question 24

Transnational Strategy

Answer 24

Respect needs of local markets while maintaining global strategies

Question 25

Economic interdependence

Answer 25

Measure the value of economic transactions between countries

Question 26

Brexit

Answer 26

Britain Exit

Question 27

European Union

Answer 27

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

Question 28

The diamond model

Answer 28

Factor conditions, demand conditions, film strategy, structure and rivalry, and related and supporting industries.

Question 29

Factor conditions

Answer 29

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.

Question 30

Demand conditions

Answer 30

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.

Question 31

Firm Strategy

Answer 31

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.

Question 32

Related Industries

Answer 32

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.