IB Flashcards
Describe the benefits, volume, and patterns of international trade.
• International Trade: Purchase, sale, or exchange of goods and
services across national borders
• Benefits of International Trade:
• Greater choice of goods and services
• Important engine for job creation in many countries
Explain how mercantilism worked and identify its inherent flaws
Trade theory that nations should accumulate financial
wealth, usually in the form of gold, by encouraging exports and discouraging imports
Detail the theories of absolute advantage and comparative advantage
Comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another. Even if one country has an absolute advantage in producing all goods, different countries could still have different comparative advantages.
Summarise the factor proportions theory of trade.
Trade theory stating that countries produce and
export goods that require resources (factors) that are abundant and import goods that require resources in short supply
“a country will have a comparative advantage in producing products that intensively use resources (factors of
production) it has in abundance.”
Explain the international product life cycle theory
Product life cycle theory divides the marketing of a product into four stages: introduction, growth, maturity and decline. When product life cycle is based on sales volume, introduction and growth often become one stage.
Outline the new trade theory
- Emerged in the 1970’s and 1980’s.
- Gains to be made from specialisation and increasing economies of scale.
- Companies first to enter a market can create barriers to entry.
- Government may play a role in assisting its home-based companies.
Outline the First-Mover strategy
First-Mover Advantage • Economic and strategic advantage • Formidable barrier to market entry for potential rivals • Country’s export and homebased firm
Describe each main type of political system.
– Democracy
• Political system in which government leaders are elected directly by the wide participation of the people or by their representatives
– Totalitarianism
• Political system in which individuals govern without the support of the people, the government maintains control over many aspects of people’s lives, and leaders do not tolerate opposing viewpoint
List the main types of legal systems and explain how they differ
Talmudic law, Hindu law, Marxist law, Muslim law
Explain why governments sometimes intervene in trade
Political Motives • Protect Jobs • Preserve National Security • Respond To Unfair Trade • Gain Influence
Economic Motives
• Protect Infant Industries
• Pursue Strategic Trade Policy
Cultural Motives
• Achieve Cultural Objectives
• Protection of National Identity
Outline the instruments that governments use to promote trade
Trade Promotion • Subsidies • Export Financing • Foreign Trade Zones • Special Government Agencies
Describe the instruments that governments use to restrict trade
Trade Restriction • Tariffs • Quotas • Embargoes • Local Content Requirements • Administrative Delays • Currency controls
Summarize the main features of the global trading system
The basis for the development of the global trading system is the
normal trade relations (formally known as the most favoured nation)
principle:
– All member nations are treated in the same way
• ‘A requirement that members extend the same favourable
terms of trade to all members that they extend to any single
member’ – (Wild et al., 2009 p.213)
Why does FDI occur
National, provincial and even municipal governments compete worldwide to attract FDI to their territory:
• mainly for job creation
• create export industries
• to enhance the local research, technology and skills base
• to offset current account deficits
Explain why governments intervene in FDI
National, provincial and even municipal governments compete worldwide to attract FDI to their territory:
• mainly for job creation
• create export industries
• to enhance the local research, technology and skills base
• to offset current account deficits
Define regional economic integration and identify its five levels
Member countries remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations.
- FREE TRADE AREA
- CUSTOMS UNION
- COMMON MARKET
- ECONOMIC UNION
- POLITICAL UNION
Discuss the benefits and drawbacks associated with regional economic integration
Pros – Trade creation VS trade diversion or trade restriction – Reduced import costs – More competition – Economies of scale – Higher factor productivity • better use of resources
> Cons
– Reduced national sovereignty and identity
– Risk of cultural dilution: esp. small countries, regions
– Loss of local employment
Integration in Europe
Integration in Europe
> Post second world war Europe needed to rebuild itself, and needed to increase its
industrial strength to stay competitive with an increasingly powerful United States.
> Belgium, France, West Germany, Italy, Luxembourg and the Netherlands signed the
Treaty of Paris in 1951, creating the European Coal and Steel Community.
> In 1957, the Treaty of Rome was signed, creating the European Economic
Community.
Integration in Asia
Integration in Asia
> ASSOCIATION OF SOUTH-EAST ASIAN NATIONS (ASEAN)
– Formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand.
Brunei joined in 1984, Vietnam in 1995, Laos and Myanmar in 1997 and Cambodia in
1989.
– The ASEAN countries comprise a market of about 500 million consumers and a GDP
of more than US$800 billion.
• Also known as AFTA – (ASEAN Free Trade Area)
Integration in the Middle East and Africa
Gulf Cooperation Council (GCC)
– Six Arab nations (1980)
– Economic and political aims
– Free travel; property rights
Economic Community of West
African States (ECOWAS)
Common market hopes (1975)
Little progress to date
Explain the company analysis techniques that precede strategy selection
Company Mission and Goals
Mission Statement: Written statement of why a company exists
and what it plans to accomplish
Mission statements often spell out how a company’s operations
affect its stakeholders
Stakeholders: All parties, ranging from suppliers and
employees to stockholders and consumers, who are affected by a
company’s activities
Describe the various strategies that companies use to reach their goals.
Mission Statement: Written statement of why a company exists and what it plans to accomplish
Explain the theory: brief overview of the four different types of staffing approaches used by international companies
– Ethnocentric
The biggest disadvantage and criticism of ethnocentric staffing is that it can
lead to ‘cultural myopia’: The ‘head office’ way of doing things is dominate
The home country way is the best way
Therefore, the subsidiary may underestimate the cultural differences in regard to marketing and management in the country/region where it is established.
– Polycentric
Staffing policy in which individuals from the host country manage operations
Can be implemented at all managerial levels Suited to companies who want to give autonomy in decision-making
“When in Roman do as the Romans do; better yet, have a
Roman do it”
– Regiocentric
Staffing policy in which individuals from a particular region are hired to
fill the position there:
Normally used by MNCs where a subsidiary has a regional rather than a country establishment
For example North America; South-East Asia; Eastern Europe
– Geocentric
Staffing policy in which the best-qualified individuals, regardless of
nationality, manage operations abroad Can be home, host, or third country
Usually for top-level managers
Explain the various types of investment entry modes
Exporting, importing and countertrade
Exporting and importing is the most common method of buying and selling internationally
Companies use countertrade when exporting and importing when cash transactions are not an option
Contractual entry
Companies may resort to countertrade if they are unable to pay for imports due to lack of hard currency or convertibility restrictions:
Countertrade: Process of selling good or services that are paid for, in whole or part, with other goods or services.
Different types of countertrade are:
Barter Counterpurchase Offset Switch trading Buyback
Investment entry
Involves direct investment in plant and equipment in a foreign country coupled with ongoing involvement in the local operation Three forms of investment entry are: Wholly-owned subsidiaries Joint ventures Strategic alliances
What are the Four-Step Model in Developing export strategies
Identify a potential market:
Is there demand for the product?
Seek advise of experts on regulations and the process of exporting
Match needs to abilities:
Does the firm have the ability to satisfy the market?
Standardise or adapt products?
Initiate meetings:
Helps build trust with local distributors/buyers
May need a number of meetings
Negotiations conducted on terms of agreement, and agreement reached
Commit resources:
Objectives of the export program should be clearly set out
Firms may create an export department
