Exam 2 Flashcards
Political System
The complete set of institutions, political organizations, and interest groups,
The relationships among institutions, and the political norms and rules that govern their functions
Individualism
primacy of the rights and role of the individual
Collectivism
primacy of the rights and role of the community
Political Ideology
ideas that expresses the goals, theories, and aims of a sociopolitical program
Most modern societies are pluralistic
pluralistic
different groups champion competing political ideologies
Democracy
participation by citizens in the decision-making process
Five types: Parliamentary, Liberal, Multiparty, Representative, Social
Fundamental Features of Democratic Political Systems
Freedom of opinion Citizen power and civic responsibility equality in opportunity & treatment free, fair, regular elections majority rule court system to uphold rights government abides by laws
Totalitarianism
Restricts decision making to a few individuals
Types: Authoritarianism, Fascism, Secular totalitarianism,
Theocratic totalitarianism
Engines of democracy
deliver economic progress
Improved communication technology
improved standards of living
Political Risk
The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment
Types:
Procedural
Distributive
Catastrophic
Legal System
The mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction Types: Common law Civil law Theocratic law Customary law Mixed systems
Operational concerns for management
Starting a business
Entering and enforcing contracts
Hiring and firing local workers
Closing down the business
Strategic concerns for management
Product safety and liability Marketplace behavior Product origin Legal jurisdiction Arbitration
Intellectual property
Intangible property rights that are a result of intellectual effort
Intellectual property rights refer to the right to control and derive the benefits from writing, inventions, processes and identifiers
Local attitudes play a large role in piracy
Why Managers must understand the economic environments of a country
To estimate the attractiveness of a country
To make investment and operational decisions
To predict how trends and government policy will affect firm performance
OPEC
Organization of the Petroleum Exporting Countries (OPEC) is a group of thirteen countries made up of Algeria, Angola, Ecuador Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
Gross National Income (GNI)
the market value of all final goods and services produced by a country’s domestically-owned firms in a given year
Measures the income generated by:
Total domestic production (e.g. Coca-Cola in U.S.) +
International production activities of national companies (e.g. Coca-Cola in another country)
Gross National Product (GNP)
the market value of all final goods and services produced by a country’s domestically-owned firms in a given year, plus the income earned by its citizens abroad, minus the income earned by foreigners from domestic production.
Gross Domestic Product - GDP
Is the value of all goods and services produced within a nation’s borders over one year
no matter whether domestic or foreign-owned companies make the product. (e.g. Toyota production in U.S. counts for U.S. GDP)
Purchasing Power Parity
Local Cost of Living
the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country.
What is the importance of the GNI per capita for managers?
It allows them to remove the effects of demography in assessing a country’s relative growth. It adjust for population to determine purchasing power.
What is the importance of the GNI growth rate for managers?
identifies countries that will allow a business to expand
it measures the value of all production in the domestic economy together with the money they receive from other countries
What is the importance of the GNI Purchasing Power Parity for managers?
Compare countries in the same standards
It allows them to compare countries with using an implicit foreign exchange rate that reflects the same purchasing power per unit of currency in different countries
Human Development Index
Provides a measure that incorporates both:
economic
social variables
Is designed to capture long-term progress rather than short-term changes
life expectancy at birth
Human Development Index that measures Longevity
adult literacy rate
Human Development Index that measures Knowledge
GNI per capita
Human Development Index that measures Standard of Living (PPP USD)
Features of an Economy
Inflation, Unemployment, Debt, Inc. Distribution, Poverty, & Balance of Payments (BOP)
Inflation
a measure of the increase in the cost of living
Unemployment rate
Is a measure of the number of workers that want to work but do not have jobs
Consequences of Unemployment rate
Low economic growth
Social pressures
Political uncertainty
Debt
sum total of a government’s financial obligations
Internal Debt
when the government spends more than it collects in revenues
Effect Investors and Companies
External Debt
when government borrows money from foreign lenders.
Effect economic growth
Income distribution
a description of the fractions of a population that are at various levels of income
Poverty rate
state of having little or no money, few or no material possessions, and little or no resources to enjoy a reasonable standard of life
Balance of Payments
Records a country’s international transactions among, companies, governments, and/or Individuals
Inflows less outflows
trade surplus
the value of exports exceeds the value of imports
trade deficit
the value of imports exceeds the value of exports
Economic System
It is the set of structures and processes that guides the allocation of scarce resources and shapes the conduct of business activities in a nation
strong predictor of a nation’s present economic performance and its future economic prospects.
Spectrum of Economic Systems
Centrally-planned Free-market
N. Korea China Brazil Japan USA
Cuba Russia India Germany Canada
Vietnam S. Korea France UK
Free-market (capitalistic)
Economy built upon the private ownership and control of the factors of production
US, Canada, UK
Command Economy
Economy built upon government ownership and control of the factors of production
N. Korea, Cuba, China, Russia, Vietnam
Mixed Economy
Economic decisions are largely market-driven and ownership is largely private, but significant government intervention is still evident
Brazil, India, S. Korea, Japan, Germany, France
Economic Freedom Index
Estimates the degree to which a government intervenes in the areas of free choice, free enterprise, and market-driven prices
Classifies countries as:
- free
- mostly free
- moderately free
- mostly unfree
- repressed
Economic Transition
government’s ability:
to liberalize economic activity
to reform business practices
to establish legal and institutional frameworks.
Economic Transition Process
Privatization, Deregulation, Property Rights, Fiscal and monetary reform, & Antitrust legislation
Privatization
the sale and/or legal transfer of government-owned resources to private individuals and/or entities
Deregulation
the relaxation or removal of restrictions on the free operation of markets and business practices
Property rights
the protection of real (tangible) and intellectual (intangible) property
Fiscal and monetary reform
the reliance upon market-oriented instruments to achieve macroeconomic stabilization, the setting of strict budgetary limits, and the use of market-based policies to manage the money supply
Antitrust legislation
laws designed to maintain and promote market competition, i.e., to prohibit the anticompetitive behavior of monopolies
benefits of doing business influenced by
the size of the market, the wealth of consumers, and the openness, the stability, and the growth potential of the economy
power of economic analysis
identifying the best possible indicators and then understanding how they work both in isolation and interactively.
What are the main important points on the paper “Dreaming with BRICs”?
The list of the world’s ten largest economies may look quite different in 2050.
There is a chance that in less than 40 years (from 2003) the BRICs economies together could be larger than the G6 in US dollar terms.
Of the current G6, only the Us and Japan may be among the six largest economies in US dollar terms in 2050.
The largest economies in the world will not be the richest when measured by GNI per capita.
Group Debate - Toni King - Ethics Dilemma for Labor Conditions
Different cultures have different ideas of what is acceptable for labor conditions. May cause conflict.
Labor Issues: Wage, hrs, child labor, conditions
Child labor - 215m children worldwide age 5-17 work fulltime
Developed countries have laws & regulations, yet developing countries have little to none.
Some of worst factory conditions in Cambodia
MNEs
Multinational Enterprises
An organization must satisfy in order to survive
shareholders employees customers suppliers society
The Economic Impact of the MNE
Balance-of-Payments effects:
Net import effect
Net capital flow
Growth and Employment effects:
Home-country losses
Host-country gains
Host-country losses
Evaluating the impact of FDI Home Country
FDI outflows may create jobs abroad at the expense of jobs in the home country.
Why Companies Care About Ethical Behavior
Instrumental in achieving two objectives:
To develop competitive advantage
To avoid being perceived as irresponsible
Cultural relativism
ethical truths depend upon the groups subscribing to them; thus, intervention in local issues and traditions by outsiders is clearly unethical.
Cultural normativism
universal standards of behavior that everyone should follow; thus, non-intervention in local violations of global standards is clearly unethical
Non-governmental organizations (NGOs)
actively monitor and publicize corporate practices in order to: educate managers about the environmental and economic consequences of corporate operations and practices and increase shareholder value
The Legal Foundations of Ethical Behavior
Legal justification for ethical behavior may not be sufficient because not everything that is unethical is illegal
The law is a good basis because it embodies local cultural values
Laws will become similar in different countries
Civil law countries
tend to have a large body of law dealing with business operations
common law countries
rely more on precedent than statutory regulations.
The Insufficiency of the Legal Argument
Everything that is legal is not necessarily ethical.
The law is slow to develop in emerging areas of concern.
The law is often based on moral concepts that cannot be separated from legal concepts.
The law may need to be tested by the courts.
The law is inefficient in terms of achieving ethical behavior at a minimum cost.
Extraterritoriality
the extension by a government of the application of its laws to the foreign operations of its domestic firms
Externalities
the by-products of activities that affect the well-being of people and/or the environment
Bribery
consists of payments, or promises to pay cash or something else of value, to public officials and/or other people of influence
U.S. Foreign Corrupt Practices Act of 1997
outlaws the payment of bribes by U.S. firms to foreign officials, political parties, party officials, or party candidates
applies to firms registered in the U.S. and to any foreign
firms that are quoted on any U.S. stock exchange
was extended in 1998 to include bribery by foreign firms operating in U.S. territory
Multilateral Efforts to Confront Bribery
- Transparency International’s Business Principles for -Confronting Bribery (2003)
- The OECD’s Convention on Combating Bribery of -Foreign Public Officials in International Business Transactions (1997)
- The revised OECD Guidelines for Multinationals
- The ICC’s Rules of Combat to Combat Extortion and Bribery (1999)
- The UN Convention Against Corruption (2003)
Sustainability
meeting the needs of the present without compromising the ability of future generations to meet their own needs, while taking into account what is best for people and for the environment
Kyoto Protocol
signed in 1997, the Protocol is an extension of the UN Framework Convention on Climate Change that obligates signatory countries to reduce their greenhouse gas emissions to 5.2 percent below 1990 levels between 2008 and 2012
Ethical Dilemmas and Pharmaceutical Sales
High priced during patent period, legal generic products not produced until after patent period is up, poor countries an however, produce or import generic drugs, the International Finance Facility for Immunization produces bonds for vaccines
Tiered pricing for pharmaceutical sales
consumers in industrial countries pay market prices for products, while consumers in developing countries pay lower (subsidized) prices.
Child Labor Issues
Those who argue in favor of child labor claim that in many instances, children are better suited to perform certain tasks than adults, and that if the children were not employed, they would in fact be worse off.
While some firms simply avoid operating in countries where child labor is used, other firms work to establish responsible operating policies in those locales.
Ethical Trading Initiative
a British-based organization that focuses on the ethical employment practices of MNEs. Members include representativesfrom companies and trade union organizations
Corporate Codes of Ethics
set global policies that must be complied with wherever the firm operates
communicate the code to all employees within the organization, and to all suppliers, subcontractors, and customers
ensure that its policies are carried out in all instances
report results to its stakeholders
