Chapter 1 GLOBALIZATION

the shift toward a more integrated

world economy
Globalization of markets merging of
historically distinct and separate
market into one huge global
marketplace
Globalization of products sourcing
of goods and services from locations
around the globe to take advantage
of national differences in the cost and
quality of factors of production
EMERGENCE OF GLOBAL INSTITUTIONS
World Trade Organization policing
the world trading system. Make sure
that nation-states adhere to rules
International Monetary Fund
maintain order in the international
monetary system
-

Lender of last resort

Provide needs of a member-country if
its government is unable to do so
World Bank promote economic
development

Make low-interest loans to cashstrapped governments

For infrastructure investments of poor
member-country
United Nations preserving peace
through international cooperation and
collective security
Group of 20 came into forum to
tackle how to solve economic
problems
Asian Development Bank finance
project to countries / financial support
/ technological support

DRIVERS OF GLOBALIZATION
Reasons why globalization process
became possible
Declining trade and Investment Barriers
o Free flow of goods, services and
capital
o International Trade when a
firm exports goods and services
to consumers in another country
o Foreign Direct Investment
(FDI) when a firm invests
resources in business activities
outside the country

The role of technological change

o Made the globalization of
markets and production a
tangible reality
o Major advances in
communication, information
processing and transportation
technology
o Explosive emergence of Internet
and World Wide Web
o Telecommunication- creates
global audience
o Transportation- creates global
village
Microprocessors and
Telecommunications
o Aid in the immediate entering
into transactions business
process
o Microprocessor growth of
high-power and low-cost
computing. Increase the amount
of information that can be
processed by individuals and
firms
o Moores Law power of
microprocessor technology
doubles and its cost of
production falls in half every 18
months
THE CHANGING DEMOGRAPHICS OF
GLOBAL ECONOMY
The changing Foreign Direct
Investment Picture adds up to the
capital. Adv. Employment, provide
import Substitute. Disadv. - if company
can damage the mother earth and if it
violate rules and regulation such as
child labor
Stock of Foreign Direct Investment
total cumulative value of foreign
investment
THE CHANGING NATURE OF
MULTINATIONAL ENTERPRISE
Multinational Enterprise any
business that has productive activities
in two or more countries. More than
25% of their profit is from other
countries
MANAGING GLOBAL MARKET PLACE
International Business firm that
engages in international trade or
investment. Import and export products
from other countries.

Chapter 2 NATIONAL

LEGAL SYSTEMS

DIFFERENCES IN POLITICAL
ECONOMY

Legal system rules, or laws, that regulate

behavior. Process by which laws are
enforced.

Political Economy stress that the

political, economic and legal systems of a
country are independent
Political Systems system of
government in a nation. Assessed in two
dimensions. 1. Degree to which they
emphasize collectivism. 2. Degree to
which they are democratic or totalitarian.
Collectivism collective goals over
individual goals. Needs of the society is
more important than individual
freedom.
Individualism individual should have
freedom in his or her economic and
political pursuits.
Democracy government is by
people. Exercised directly or by elected
representatives.
Totalitarianism one person or
political party exercises absolute
control over all spheres of human life.
Representative Democracy citizens
periodically elect individuals to
represent them.
Communist Totalitarianism states
deny basic civil representatives to their
population.
Theocratic Totalitarianism states
limit freedom of political and religious
expression.
Tribal Totalitarianism political party
represent the interest of a particular
tribe monopolizes power
Rightwing Totalitarianism permits
some individual economic freedom but
restricts individual political freedom.
ECONOMIC SYSTEM
Market Economy privately owned.
Goods and services produced are not
planned by anyone. Interaction of
supply and demand and signaled to
producers through the price system.
Command Economy government
plans the goods and services to be
produced.
Mixed Economy certain sectorsprivate ownership and free market
mechanisms. Other sectors have
significant ownership and government
planning.

Types of Legal system

Common Law System based on
tradition, precedent and custom/
o Tradition countrys legal history
o Precedent cases that have
come before the courts in the past
o Customs ways in which laws
are applied.
Civil Law System based on detailed
set of laws organized into codes.
Theocratic Law System based on
religious teachings
Contract document that specifies
conditions which exchange is to occur
Contract Law body of law that governs
contract enforcement
PROPERTY RIGHTS & CORRUPTION
Property resource over which an individual
or business holds a legal title.
Resources land, buildings, equipment,
capital, mineral rights, businesses and
intellectual property.
Property rights legal rights over the use of
a property.
PROTECTION OF INTELLECTUAL
PROPERTY
Intellectual property property that is a
product of intellectual activity
Patent rights for a defined period to
the manufacture, use or sale of an
invention
Copyrights exclusive legal rights of
authors, composers, playwrights,
artists and publishers.
Trademarks designs and names that
manufacturers or merchants designate
and differentiate their products.
PRODUCT SAFETY AND PRODUCT
LIABILITY
Product safety safety standard to which a
product must adhere
Product Liability holding a firm and its
officers responsible when a product causes
injury, death or damage.

DETERMINANTS OF ECONOMIC
DEVELOPMENT
Gross National Product yardstick for the
economic activity of a country. Measures the
total annual income received by residents of a
nation
Purchasing Power Parity an adjustment
that allows more direct comparison of living
standards.
Innovation not just new products but also
new processes, new organizations, new
management practices and new strategies.
Entrepreneurs first commercialize
innovative new products and processes.

NATURE OF ECONOMIC TRANSITION

Shift toward a market-based economic
system:
Deregulation removing legal
restrictions to the free play of markets
Privatization transfers the ownership
of state property into the hand of
private individuals

ETHICS IN INTERNATIONAL BUSINESS

Ethics accepted principles of right or wrong
Business Ethics right or wrong governing
the conduct of business people
Ethical Strategy strategy that does not
violet the accepted principles

ETHICAL ISSUES IN INTERNATIONAL

BUSINESS
Employment practices, human rights,
environmental regulations, corruption
and moral obligation of multinational
corporations
Social Responsibility business
people should consider the social
consequences of economic actions
when making business decisions.
Noblesse oblige French term
honorable and benevolent behavior
considered the responsibility of people
of high (noble) birth.
ETHICAL DILEMMAS none of the available
alternatives seems ethically acceptable

ROOTS OF UNETHICAL BEHAVIOR

Personal ethics - right and wrong
governing the conduct of individuals
Decision-making process business
people behave unethically because
they fail to ask if their decision or action
is ethical or not.
Organizational culture values and
norms employees of an organization
share.
o Values abstract ideas about
what a group believes to be
good, right and desirable
o Norms - social rules and
guidelines that prescribe
appropriate behavior in
particular situations
Unrealistic performance
expectations pressure from the
parent company to meet unrealistic
performance goals
Leadership leaders establish the
culture with in the organizations. If
leaders behave unethically the
employees will follow.
PHILOSOPHICAL APPROACHES TO
ETHICS
Strawmen deny the value of business
ethics or apply it in a very unsatisfactory way
The Friedman doctrine the only social
responsibility of business is to increase profit,
as long as it stays within the rules of the law.
Open and free competition without deception
or fraud
Cultural Relativism ethics are nothing
more than the reflection of culture. A firm
should adopt the ethics of the culture in which
it operates
The righteous moralist claims that
multinationals home country standards of
ethics are appropriate ones for companies to
follow to foreign countries.

Chapter 3 INTERNATIONAL TRADE

THEORY
Mercantilism
-

emerged in England in the mid-16th

century
gold and silver were the mainstays of
national wealth
gold and silver were the currency of
trade between countries
country could earn gold and silver by
exporting goods
importing goods from other countries
would result in the outflow of gold and
silver
countrys best interest to maintain trade
surplus
export must be > import
maximize exports through subsidizing it
minimize imports by tariffs and quotas

Absolute advantage
-

in production of products when it is

more efficient than any other country
producing it
countries must specialize in the
production of goods for which they
have absolute advantage\

Comparative advantage
-

country must specialize in the

production of those goods that it
produces most efficiently and to buy
the goods that it produces less
efficiently form other countries

Factors affecting trade when countries

adopt free trade
Immobile resources resources do
not move easily from one economic
activity to another
Diminishing returns when more
units of resources are required to
produce each additional unit
Dynamic effects and economic
growth increase the efficiency with
which a country uses its resources
Hecksher-Ohlin Theory
-

Comparative advantage arises from

differences in national factor
endowments
Factor endowment extent to which
a country is endowed with such
resources.

The Product life-cycle theory

-

Reymond Vernon
Based on the observation that a very
large proportion of the worlds new
products had been developed by US
firms and sold first in the US market

New trade theory

-

When a number of economists pointed

out that the ability of firms to attain
economies of scale might have
important implications for international
trade.
Economies of scale: unit cost
reductions associated with large-scale
output.

National competitive advantage: Porters

diamond
-

why some nations succeed and others

fail in international competitions

Attributes:
Factor endowments
o Nations position in factors of
production
o Basic factors natural
resources, climate, location and
demographics
o Advanced factors
communication infrastructure,
sophisticated and skilled labor,
research facilities and
technological know-how
Demand condition
o Nature of home demand for the
industrys product or service
o Home demand plays in
upgrading competitive
advantage
Relating and supporting industries
o Benefits can spill over into an
industry, thereby helping it
achieve a strong competitive
position internationally
Firm strategy, structure and rivalry
o The conditions governing how
companies are created,
organized, managed and the
nature of domestic rivalry

International trade- involves sale of goods

and services to residents in other countries
(exports) and the purchase of goods and
services from residents in other countries
(imports)
Balance of payment accounts keep track
of the payments and receipts from other
countries for a particular time period
Current account records
transactions that pertain to three
categories
o Goods export or import of
physical goods
o Services import or export of
services
o Income receipts and
payments income from
foreign investment and
payments that have to be made
to foreigners investing in a
country
o Unilateral Current Transfers
government grants to foreigners
and private payments to
foreigners.
o Current Account Deficit
imports > exports
o Current Account Surplus
exports > imports
Capital Account records one time
changes in the stock of assets
o Capital Transfers goods and
financial assets that accompany
migrants as they enter and
leave the country.
Financial Account records
Transactions that involve the purchase
or sale of assets.

Chapter 4 THE POLITICAL

ECONOMY OF INTERNATIONAL
TRADE
INSTRUMENTS OF TRADE POLICY
Tariffs
o Simplest and oldest
o Tax levied on imports (or
exports).
o Specific Tariffs fixed
charge for each unit
o Ad valorem proportion
of the value of good
imported (percent/rate)
Subsidies
o Nontariff barrier
o Government payment to
a domestic producer
o Cash-grants, low interest
loans, tax breaks and
government equity
participation in domestic
firm
o Help domestic producers
in; 1. Competing against
foreign import and 2.
Gaining export market
Import Quota
o Direct restriction on the
quantity of some good
that may be imported by
the country.
o Issuing import license
Tariff rate Quota
o Common hybrid of a
quota and tariff
o Tariff is lower on the
imports within the quota
than those over the quota
Voluntary Export Restraint
o Variant of import quota
o Quota on trade imposed
by the exporting country,
typically at the request of
the importing countrys
government.
Local Content Requirement
o Requirement that some
specific fraction of a good
be produced domestically
o Can be expressed in
physical terms or value
terms

 Administrative Trade Policies

o Bureaucratic rules
designed to make it
difficult for imports to
enter a country
Antidumping Policies
o Designed to punish
foreign firms that engage
in dumping
o Dumping selling goods
in a foreign market at
below their cost of
production or selling
goods in foreign market
at below their fair market
value
THE CASE FOR GOVERNMENT
INTERVENTION
Political arguments for intervention
-

Protecting the interests for certain

groups within a nation (producers),
often at the expense of other groups
(consumer)
Protecting Jobs and Industries
against unfair foreign competition
National Security Defense-related
industry often get this kind of attention
Retaliation use threat to intervene in
trade policy as bargaining tool to help
open foreign markets and force trading
partners to play by the rules of the
game
Protecting Consumers indirect
effect often is to limit or ban the
importation of unsafe products
Furthering Foreign Policy objectives
government may grant trade terms to

a country with which it wants to build

strong relations
Protecting Human Rights use trade
policy to try to improve the human
rights policies of trading partners
Economic arguments for intervention
-

Typically concerned with boosting the

overall welfare of a nation (to the
benefit of all, both producers and
consumers)
The infant industry argument
o Oldest economic argument
o Many developing countries have
potential comparative advantage
manufacturing, but new
manufacturing industries cannot
initially compete with
established industries in
developed countries
o Government should temporarily
support new industries until they
have grown strong enough to
meet international competition
Strategic trade policy
o A government can help a
national income if it can
somehow ensure that the firms
that gain first-mover advantages
in an industry are domestic
rather than foreign enterprises.
o It might pay if a government
intervene in an industry by
helping domestic firms
overcome the barriers to entry
created by foreign firms that
have already reaped first-mover
advantages