Final Exam Prep Flashcards
What is globalization?
-Shift toward a more integrated, interdependent world economy.
- Merging of national economies into an interdependent world economic system, in which…
(a) Barriers to cross-border trade and investment are tumbling;
(b) Perceived distance is shrinking, due to telecommunications and transportation technology;
(c) Material culture is starting to look similar across the world. - Industries are transformed and foreign competition impedes national producers, resulting in job security anxiety.
- The rate of world trade is expected to surpass that of production, which means that outsourcing and a dependent global economy are bound to emerge.
Why is globalization important for businessses?
It offers both opportunities (cost advantages, revenue boosts) and challenges (foreign market expansion, business decision-making, foreign competition).
What are the facets of globalization?
The globalization of MARKETS, notably for industrial goods. While national differences remain in culture, consumer preferences, and business practices, there is a growing homogeneity and lessened barriers to the accessibility of products.
The globalization of PRODUCTION, where outsourcing becomes a key piece in the creating of goods and services. We no longer speak of national products, as sub-components are from different regions of the world. This is driven by the decline in transportation costs. While this may provide cost and quality advantages, there may be fear of political and economic risks, of ‘losing control’.
How do modern firms play a role in globalization?
They lead the change at the world level, and respond to the changing conditions of their operating environments.
What factors should businesses consider when deciding whether or not to enter the marketplace?
- Can the business meet the required changes to its business practices, products, business processes, to meet national culture?
- Will the new country grant the same level of reputation to the brand?
- Can the business effectively convert is currency?
- Can the business mitigate the more complex, larger range of problems?
- Are there governmental limits imposed in the international trade and investment systems?
What is the role of global institutions?
- Manage, regulate, and police the global marketplace;
- Promote the establishment of multinational treaties, to govern the global business system.
What are the primary global institutions?
UNITED NATIONS: Maintain international peace and security, develop friendly international relations, promote social progress, better living standards, and human rights.
WORLD TRADE ORGANIZATION: Police the world trading system, and make sure that nations adhere to rules laid down in signed WTO member trade treaties.
INTERNATIONAL MONETARY FUND: Maintain order in the international money system, and serve as a last-resort lender to nations whose economies are in turmoil, and whose currencies are losing value. However, critics say that to benefit from these loans, countries have to abide to a set of policies and obligations.
WORLD BANK: Provide economic development and low-interest loans to cash-strapped governments that are hoping to undertake infrastructure investments.
What are the drivers of globalization?
-The decline in the barriers to the free flow of goods, services, and capital, creating a global supply chain and a global marketplace.
- Technological changes in communications, transportation, and information processing.
(a) Microprocessors
(b) Telecommunications: Wireless transmission media technology
(c) Containerization & Commercial jet aircrafts/superfreighters (Transportation technology)
(d) Internet
This has led to a SHRINKING GLOBE.
What are the two sides to the current state of globalization?
- International institutions and world leaders in the most powerful economies call for even lower barriers to cross-border trade and investment.
- Vigorous and vocal groups protest against globalization.
What is the anti-globalization debate about?
- Jobs & Income: Outsourcing is the search for the lowest-cost suppliers, which means that for many developed countries, jobs will shift overseas.
(However, what about the cost advantages, specialization, and quality arguments?)
- National sovereignty: Globalization and interconnectedness mean that countries will lose control over the internal policies and economic means, with the control shifting to supranational organizations.
(Remember that these organizations should serve the collective interests).
- Labour policies: The labour regulations of less-developed countries are often less rigorous, meaning that there could be potential abuse of workers.
(As MNEs settle in these nations, there is a tendency that these countries will become richer, and improve their labour policies).
- Environmental conditions: The environmental control standards and workplace safety measures are lower in less-developed countries.
(As these economies build, their level of standards will improve, and they will want to build a healthy reputation).
- Growing divide: The rich and the poor are gapped, due to unevenly shared benefits of globalization.
How is the global economy presently shifting?
- Developing countries, notably those with communist regimes, are moving towards free-market reforms, becoming key locations for FDI, and growing economies.
- There is a shift from US economic dominance, with non-US MNEs and mini-multinationals in developing countries becoming key competitors in the global market.
What are (business) ethics?
The principles of right and wrong that govern the conduct of a person, an organization, or a profession.
Business ethics govern the conduct of business people.
What is an ethical strategy?
The strategy/course of action that does not violate accepted ethical principles.
Why do ethical issues arise in the international business context?
- Changing political environment, where country to country and culture to culture political systems, law, and economic development varies.
- Changing socio-cultural environment, where the normal practices in one culture may not be considered ethical in another.
Why are ethics considered important in international business?
- Political environment: Regulations, laws that need to be respected and followed;
- Socio-cultural environment: Immigration, movement of populations from rural to urban settings;
- Technological environment: Changing work environment, productivity, communication methods;
- Economic environment: Role of international organizations, currency fluctuations;
- Competitive environment: Importance of customer-prioritized decision-making and business practices;
- Global decision-making environment: Global consequences for a firm’s actions.
What motivates ethical behaviour in international business?
- Changing technological environment: The advances in telecommunications and the development of sophisticated applications could bring about ethical nightmares;
- Competitiveness of global news media;
- Internet: Large-scale, fast-tracked content, that can be shared with global populations.
What types of ethical issues arise in international business?
- Employment practices: Inferior work conditions in host nations - Which standards apply?
- Human rights: Should MNE do business with regimes that violate human rights, that lack democratic structure? Could investing in those nations help propel progress, and improve the rights of people in repressive regimes?
- Environmental pollution: Inferior environmental regulations and pollution controls in host nations - Which standards apply? What about the Tragedy of the Commons? Is there a corporate right to pollute?
- Corruption: Economic advantages may be gained, by making payments to corrupt government officials. The OECD created a Convention on Combating Bribery of Foreign Public Officials in IB Transactions, to make the bribery of foreign public officials a criminal offense. MNEs should also develop ‘zero-tolerance’ policies.
What is Corporate Social Responsibility (CSR)?
Idea that business people should consider the social consequences of their economic actions when making business decisions, given that it is in their moral obligation to give back to societies that have allowed them to prosper –> Noblesse oblige
What are sustainable strategies?
Those helping MNEs make good profits without harming the environment, and include actions that are socially-responsible towards stakeholders.
What stances can corporations adopt in regard to CSR?
- Obstructionist: Corporations create barriers that make it difficult for customers to address their concerns.
- Defensive: Corporations deny responsibility for causes of concern.
- Accommodative: Corporations exceed customers’ CSR expectations.
- Proactive: Corporations respond to causes of concern as soon as they arise, and inform customers as to how they will mitigate them.
What is an ethical dilemma?
In which none of the available alternatives seem ethically acceptable, given the complexity and unquantifiable consequences of decision-making contexts.
What motivates an individual’s ethical behaviour?
- Personal ethics: This is especially important in global contexts where ordinary social contexts and cultures are distanced.
- Organizational culture: When decisions are reduced to being purely economic, ethical behaviour may stagger.
- Competitiveness and unrealistic performance goals: Puts pressure on companies to squeeze out their advantages and cut their costs.
- Decision-making processes that fail to incorporate ethical considerations.
- Leadership: Sets the rules, culture, guidelines, structures, and cues the conducts of employees.
- Societal culture: Degree of individualism, uncertainty avoidance, masculinity, power distance.
Where do MNEs integrate ethical decision-making?
- Hiring & promotion
- Organizational culture & leadership: Articulating values using a Code of Ethics, with leaders using reward systems, incentives, sanctions to guide conduct. Promote moral courage.
- Decision-making processes, considering whether the choice falls within the accepted values, whether stakeholders and personal relationships would approve of the decision.
What are the ‘Straw Men’ philosophical approaches to ethics?
- Friedman’s Doctrine: The only social responsibility of MNEs is to maximize their profits, so long as they stay within the rules of law.
- Cultural Relativism: MNEs should not adopt universal notions of morality, given that ethics are culturally determined.
- Righteous Moralist: Use the MNEs home-country standards in their foreign operations.
- Naive Immoralist: If other MNEs fail to follow ethical norms, then we should not either.
- Utilitarianism: MNEs should make decisions according to what produces the greatest good and the least harm.
What are the Rights theories of ethics?
Theories that recognize human basic rights that transcend national borders and cultures, with these fundamental privileges being minimum levels of morally-accepted behaviour.
What are the Justice theories of ethics?
Focused on a just distribution of economic goods and services, but only validated under a veil of ignorance where individual characteristics and circumstances are set aside.
With the absence of trade barriers, how are trade patterns determined?
By the relative productivity of different factors of production. Countries specialize in products they can most efficiently produce.
What is free trade?
Situation in which a government does not attempt to resist what its citizens buy/sell from/with other countries.
How and why do governments intervene in international trade?
Governments restrict imports, promote exports. This is to prevent foreign competitors from impeding domestic production, and for domestic producers to increase their share in the foreign market.
What are the principal instruments of trade policy?
Tariffs: Taxes levied on imports/exports, either as a proportion, or a fixed charge per unit. While governments and domestic producers benefit from such measure, consumers pay higher prices for imported goods. This results in inefficient domestic production and a poor utilization of resources.
Subsidies: Payments granted to domestic producers, in the form of cash grants, low-interest loans, tax breaks, and government equity participation. While domestic producers benefit from lower costs of production, first-move advantages and entrance into foreign markets against other competitors, the subsidies are only collected by taxing individuals and corporations.
Import quotas: Limits on the quantity of goods imported into a given country, by issuing a number of import licenses to groups of individuals/firms. For domestic suppliers, this restriction is beneficial, but if the industry ends up being unable to supply adequate demand using its domestic producers, then prices may end up rising and costing consumers.
(a) Hypothetical tariff rate quotas: A higher tariff rate is applied above a certain quota.
(b) Voluntary export restraints: Exporting countries agree to limit the quantity of their specific exports, to avoid mandatory restrictions by the imposing country.
Export bans: Restricting the quantity of goods exported out of a given country, with the objective being to ensure adequate domestic supply.
Local content requirements: Demands for a certain fraction of goods to be domestically produced, in physical/value terms.
Administrative policies: Bureaucratic means that make it challenging for imports to enter into a country.
Antidumping policies: Restricting the sell of overstock at below fair value prices in foreign markets (unloading excess production).
