MIDTERM Flashcards
Refers to all those external forces having a direct impact on the organization no matter if it has or not commercial activities.
Is the external atmosphere in which a company exists.
Macroenvironment
Most important factors on the macro environment STEEP:
Socio-cultural and demographic, technological, ecological and physical, economic, and political and legal environments.
The social values and culture of an environment. When it changes it can have a direct or indirect effect on the company. Example: Retirement age, cultural influences.
Social-Cultural Environment
In the times we live in, technology is constantly changing it is important that the business can keep up with the changes.
Technological Environment
The economic conditions of the world and the performance of a business have a very close relationship. A business depends on the economy for all its inputs and factors of production.
Economic Environment
Ecology and physical environment play a huge part in the performance of any business.
Weather conditions, topographical elements, geographical location, climate changes and other ecological factors are a very important element in the macro environment of a business.
Ecological-Physical Environment
- Political beliefs and ideologies of the party in power at the state and central levels.
- Rules, laws, regulations, and judgments etc. that affect the functioning of a business including taxation laws.
Political and Legal Environment
Act of designing a product in a way that it may be readily consumed across multiple countries.
Internationalization
Is a long-standing program advocated to free up international trade across the globe through treaties.
Globalization
Describes the process of designing products to meet the needs of users in many countries or designing them so they can be easily modified, to achieve this goal.
Internationalization
Describes the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.
Globalization
____________ began to develop during the Age of Discovery. It was instrumental in stimulating __________ and __________.
Global enterprise, colonialism and exploitation.
The two earliest global companies were:
The British East India Company (1600) and the Dutch East India Company (1602).
Was propelled by steamships, railroads, the telegraph, and other breakthroughs, and also by increasing economic cooperation among countries.
First Wave of Globalization
Emerged in the 19th century with oil:
Commodity-based international corporations.
After World War II in the mid-1940s, the United States led efforts to revive international trade and investment under negotiated ground rules:
Start of the Second Wave of Globalization
Is the act of a city or local authority declaring itself a “world citizen” and being aware of global issues with a sense of shared rights and responsibility.
Mundialization
Various beliefs, behaviors, languages, practices, and expressions considered unique to members of a specific ethnicity, race, or national origin.
Cultural Differences
Cultural dimensions Theory:
PIUMLI
a. Power distance Index (PDI)
b. Individualism vs Collectivism
c. Uncertainty Avoidance Index (UAI)
d. Masculinity vs Femininity
e. Long term vs Short term Orientation
f. Indulgence vs Restraint
Is a set of beliefs that influences our perspective on the things around us.
Can become a dominant thought, so the media, religion, army, institutions or certain groups can use it to control and influence people’s minds.
Ideology
A depiction of where you want the company to be in 5 to 10 years and the impact you intend to leave on customers and the greater public.
Vision Statement
A declaration of your business strategy that supports the vision statement Shared set of principles and joint sense of purpose that propel the organization forward.
Mission Statement
The collective personality your whole team displays to each other, to customers and to the community.
Culture Statement
Is central to a strong corporate culture, creating a feeling of community and giving people clear guidelines as to what is expected of them
A real company’s mission
The international legal framework is related to accomplishing these principles:
- Respecting the Ten Principles of the UN Global Compact, including on human rights and anti-corruption.
- Complying with laws and regulations
- Complying with tax laws and policies
- Honoring contractual obligations and commercial agreements
- Honoring dispute resolution procedures and decisions at all levels
The rules, rights and obligations of companies, governments, and citizens are set forth in a system of legal documents.
Legal Framework
Documents in the legal framework include:
- International trade agreements
- Country’s constitution
- Legislation, policy, regulations and contracts.
There are two variances in law:
International public and international private laws.
Political instability is generally the result of a situation in which the distribution of wealth fails to correspond with the distribution of political power.
Aristotle
Three dominant political and economical ideologies:
Liberalism, conservatism, and socialism.
Liberalism:
It is the belief in the importance of liberty and the rejection of arbitrary authority.
Individualism. Free market economics. Capitalism.
John Stuart Mill, Thomas Hobbes, John Locke, and Jean-Jacques Rousseau
Conservatism:
It believes that the present political system or that which has been passed on to us by past generations must be conserved.
Edmund Burke
Socialism:
It’s a belief which states that the means of production of a society must be publicly owned and managed.
Class struggle. Exploitation.
Thomas Moore, Karl Marx, Friedrich Engels
Each of us will be materially far better off if we specialize in what we are relatively more productive at doing and then trade away our particular good or service for what others are offering to sell us.
Adama Smith
Specialization also tends to create a bias against the open, competitive market, in which people need to apply themselves in the most productive and cost-efficient ways
Philip Wicksteed
Is the system of rules, practices and processes by which a company is directed and controlled.
CORPORATE GOVERNANCE
- It refers to the way in which companies are governed and to what purpose.
- Ensures that businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders are balanced.
Corporate Governance
International Commerce
- Is trade between companies in different countries, or trade between different countries.
- Interchange of goods or commodities between different countries or between areas of the same country; trade.
Main characteristics of international commerce:
a) Developing competitive advantages
b) National and local government agencies have been set up to regulate commercial transactions such the WTO or the ICC.
They are goods and services sold to one country from another.
Exports
They are goods or services bought by one country from another country.
Imports
Countries tend to produce and sell what they do best. They focus on what it produces more efficiently and exchange this for what it is not so great at producing.
Specialization
It is an intergovernmental organization that regulates international trade.
World Trade Organization (WTO)
This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings and by promoting exports and discouraging imports.
Mercantilism
Focused on the ability of a country to produce a good more efficiently than another nation. Trade between countries shouldn’t be regulated or restricted by government policy or intervention. (Adam Smith, Liberalism)
Competitive Advantage
Is a theory based on relativity. If a country or company is relatively better at making a product, it should make that product and not something else. (David Ricardo)
Comparative Advantage
Eli Heckscher and Bertil Ohlin, focused on how a country could gain comparative advantage by producing and using factors that were in abundance in the country: land, labor, and capital.
Heckscher-Ohlin Theory (Factor Proportions Theory)
Steffan Linder developed it and proposed that consumers in countries that are in the same or similar stage of development would have similar preferences.
Country Similarity Theory
Raymond Vernon developed it and stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product.
Product Life Cycle Theory
It emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. The theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry.
Global Strategic Rivalry Theory
Michael Porter developed this theory which stated that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
Porter’s National Competitive Advantage Theory
International economic policy, concerning such issues as tariffs, trade treaties, and common markets, is examined in two approaches:
Competitive industries support free trade, uncompetitive ones oppose it.
Is the policy of restraining and discouraging trade between states for protecting their economy and the local producers. This policy often takes the form of tariffs and restrictive quotas.
Protectionism
Tax on imports or exports, which is popularly referred to as a customs duty.
Tarif
Type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in each period of time.
Import quota
Is a course of action that is intended to influence or control the behavior of the economy.
Are typically implemented and administered by the government.
Economic Policies
Is an investment made by a firm or individual in one country into business interest located in another country.
Takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company.
Foreign Direct Investment
Advantages of FDI
- Infrastructure improvement
- Capital deepening
- Better training for local workers
- FDI can help grows a country’s export capacity and develop new areas of comparative advantage.
- Technology and know-how transfer
- Increase markets competition
- Creates new jobs
- Lift in level of factor productivity
Disadvantages of FDI
- Inequality
- Land grabs/ extractive FDI
- Ethical standards from TNC’s may be poor (especially in mining and textiles)
- Volatile/footloose FDI flows
- Limited job creation: TNC’s may be bring in their own personnel favoring them over employing local people .
- Monopsony power of TNC’s (highly favorable terms of trade with domestic suppliers and bid for tax relief)
Horizontal FDI
Is the investor establishing the same type if business operation in a foreign country as it operates its home country.
Vertical FDI
Is one in which different but related business activities from the investor’s main business are established or acquired in a foreign country.
Conglomarate
Is one where a company or individual makes a foreign investment in a business that is unrelated to its existing business in its home country. It takes the form of a joint venture.
An analysis implemented by a firm to identify and evaluate all the factors that may determine a country’s risk rating.
Risks assessment
Refers to steps taken by firms to assess the probability of unexpected political events and to protect businesses against loss from these events.
Political risk management
Is defined as the threat of a strategic, financial or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies, or events related to political instability.
Political risk
Is a statement of all transactions made between entities in one country and the rest of the world offer a defined period of time, such as quarter or a year.
Is the record of all international trade and financial transactions made by a country’s residents.
Balance of payments
The balance of payment of a country consists of:
- Imports
- Exports
- Services and capital
- Transfer payments
A deficit on the balance of payment:
- The country imports more goods, services & capital than it exports.
- It must borrow from other countries to pay for its imports.
- In the short-term, this fuels economic growth
- In the long term it will have to go into debt to pay for consumption.
Surplus on the balance of payment:
- The country exports more than it import.
- Country provides enough capital to pay for all domestic production.
- A surplus boost economic growth in the short term
- In the long run, it becomes too dependent on export-driven growth.
Includes transactions in goods, services, investment, income, and current transfers. It measures international trade, net income on investments and direct payments.
Current Account
Includes transactions in financial instruments and central bank reserves.
Measures financial transactional that don’t affect a country’s income, production, or savings.
Is the smallest component of the balance payments.
Capital Account
Describes the change in international ownership of assets.
Measures changes in domestic ownership of foreign ownership of domestic assets.
Financial Account
Financial crises stem from:
Illiquid or insolvent financial institutions
Fiscal crises are caused by:
Excessive fiscal deficits and debt.
Capital flows involve:
- Foreign Direct Investment (FDI).
- Portfolio Flows.
- Bank transfers.
Capital Mobility Advantages:
- FDI attraction
- Better rate of return
- Equalizes incomes between different countries
Capital Mobility Disadvantages:
- Capital outflows (job losses, unemployment)
- Global Credit Crunch
- Irrational exuberance
- Link between capital mobility and incidence of banking crisis
A market is a:
An arrangement between buyers and sellers to exchange goods or services for money
Condition where there is a single seller and many buyers at the market place.
There’s no competition and price and conditions are fixed and controlled.
Monopoly
A market form where there are many sellers but a single buyer is called monopsony.
The buyer can exert his control over the sellers.
Monopsony
Physical Markets:
Buyers can physically meet the sellers and purchase the desired merchandise in exchange of money. Examples: Shopping malls, department stores, retail stores.
Non-Physical Markets/Virtual markets:
Buyers purchase goods and services through internet. Examples: Amazon, eBay, etc.
Auction Market:
Seller sells his goods to one who is the highest bidder.
Market for Intermediate Goods:
Sell raw materials (goods) required for the final production of other goods.
Black Market:
Illegal goods like drugs and weapons are sold.
Knowledge Market:
Exchange of information and knowledge based products.
Financial Market:
Market dealing with the exchange of liquid assets (money).
Are a type of marketplace where traders buy and sell assets. This sale and purchase of assets includes bonds, stocks, foreign exchange, and derivatives.
Financial Markets
Sellers and buyers exchange shares. Stocks are shares of ownership of a public corporation that are sold to investors through broker-dealers. Examples: Dow Jones, Nasdaq, NYSE.
Stock Market
When organizations need to obtain very large loans, they go to this market. Buyers and sellers are engaged in the exchange of debt securities, usually in the form of bonds. Example: Treasury bonds, corporate bonds, municipality bonds.
Bond Market
Traders and investors buy and sell natural resources or commodities such as corn, oil, meat, and gold. A specific market is created for such resources because their price is unpredictable.
Commodities Market
Such a market involves derivatives or contracts whose value is based on the market value of the asset being traded. Derivatives are complicated financial products that base their value on underlying assets.
Derivates Market
Emerging Market Characteristics
a) Lower-Than-Average Per Capita Income
b) Brisk Economic Growth
c) High Volatility
d) Currency Swings
e) Potential For Growth
Is an arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.
Economic Integration
a. North-South integration:
developed and developing countries.
b. Interregional agreements:
More than one specific geographical region.
c. Continental agreements:
Mix of bilateralism with continentalism.
d. Wider scopes:
Agriculture, services, investments, tariffs, etc.
- Free trade:
Tariffs (a tax imposed on imported goods) between member countries are significantly reduced, some abolished altogether. Each member country keeps its own tariffs regarding third countries.
- Custom Union:
Sets common external tariffs among member countries, implying that the same tariffs are applied to third countries; a common trade regime is achieved.
- Common Market:
Services and capital are free to move within member countries, expanding scale expanding and comparative advantages.
- Economic and monetary union (single market):
All tariffs are removed for trade between member countries, creating a uniform (single) market. There are also free movements of labor, monetary and fiscal policies between member countries are harmonized, which implies a level of political integration. A further step concerns a monetary union where a common currency is used, such as with the EU.
- Political Union:
Represent the potentially most advanced form of integration with a common government and where the sovereignty of a member country is significantly reduced.
