Managing Global Business Study Guide PDF

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Managing in a Global Business Environment Study Guide for FVC1 V4 and D080 V3

Unit 2 Globalization Module 1: Political, Economic, and Legal Systems 1. What is globalization? Globalization is defined as international integration arising from the exchange of world views, products, ideas, and other aspects of culture 2. What opportunities to businesses are brought by globalization? Unsaturated demand for new products, lower labor costs and less expensive materials 3. What are the economic, political, and cultural effects of globalization? Elaborate on each of the aspect.  Economic: Trade, investment, and IT  Political: Reduce the importance of nation-states, some companies not liked might create isolation policies, NGO’s (Non-governmental organizations)  Cultural: Transmission of ideas, meanings, and values around the world 4. What are the arguments for and against globalization from country’s perspective?  Pro: Economic growth, increased well-being of human society, increased trade or investment  Con: Benefits rich at the expense of the poor, job loss in developed countries, environmental damage and unethical labor practices, loss of power of local government 5. What are the different forms of international business? Explain each form.  Businesses: person or organization engaged in commerce to achieve a profit  Governmental bodies: international treaties; NAFTA; maintain embassies and consulates in foreign countries.  NGOs: nonprofit, voluntary citizens' groups that are organized on a local, national, or international level 6. What are the 5 stages of entering a global market? Explain each stage. 1. Market Entry: Business needs to enter a falling market 2. Product Specialization: Company is able to find a single location where they can move the entire production of a single product to that location and reduce production costs. 3. Value Chain Disaggregation: Break down the entire production process to reduce production costs 4. Value Chain Reengineering: Break down components and change the method of production, take advantage of unskilled labor to reduce production costs 5. Creation of New Markets: Not entering existing market; reducing costs to attract customers that would not have previously purchased your product 7. What are the 4 drivers of globalization? Explain. 1. Market: Opportunity for scale and scope; convergence of needs 2. Cost: Economies of scale (produce same product to get lower per unit cost) and scope (produce multiple products with one production facility); exploiting cost of factors of production 3. Competition: New markets and increased levels of trade 4. Government: Favorable policies; support for industry 8. What is the difference between the world is flat view and the CAGE analysis? Elaborate on each of them.  Flat View: 1.0 is least desirable; dominated by countries. 2.0 is dominated by large multinational enterprises trying to seek new opportunities abroad. 3.0 most desirable; featured use of internet, technology is key  CAGE: Culture means that if two country’s cultures are very different, they are less likely to trade. Administration is for countries that are alike, so they are

more likely to trade. Geography refers to physical distance; less likely to trade if they are far away. Economics refers to how products may not be in high demand between countries that are not economically similar i.e. USA and Somalia do not have the same demand for the same products 9. What are the benefits and costs of global expansion from MNCs’ perspective?  Benefits: Larger market, lower cost, advanced technology  Costs: Ethical business practice concerns, organizational structure, public relations, leadership, legal and regulatory structure 10. List different political systems and differentiate them. How does each political system impact business operation?  Anarchy: Individuals control country, no government  Absolute Monarchy: Has absolute power  Constitutional Monarchy: UK; elected prime ministers whose leadership role is more involved and significant than the monarch  Oligarchy: Achieve power due to military and economic powers, Russia  Dictatorship: Single person (example: Libya, Nazi Germany  Democracy: Equal voice, voting, (example: US) 11. List different economic systems and differentiate. How does each economic system impact business operation and economic production?  Traditional: family-centered, everyone consumes same goods, bartering, no surplus  Command: controlled by ruling class, all resources owned by govt  Market: market controls resources, no govt control  Mixed: market major determining power, includes some government regulations 12. List different legal systems and differentiate.  Civil Law: judge rules; focuses on how the law is applied to the facts  Common Law: Judge interprets, and judicial rulings set precedent  Religious Law: Based on religious guidelines; Islamic law Module 2: Shaping the Economic Environment 1. What are the IMF’s major functions, goals, and conditionalities? IMF (Internal Monetary Fund):  Functions: Restore international pmt system, stabilize exchange rates, foster trade, correct BOP issue, oversee international monetary and financial system, guide countries to develop economic policies, oversee fiscal affairs and exchange rate stability.  Criticisms: hurt environmental quality, imbalance of voting power, poorer countries underrepresented, conditionality causes citizens to pay more short term World Bank:  Functions: Assist poor nations to improve life quality, reconstruct Europe post WWII, large infrastructure projects, restructuring economies, promote investment, reduce poverty, long term loans for development projects, resolve disputes related to foreign direct investment.  Criticisms: imbalance in leadership, privatization of healthcare, environmental damage, conditionality causes damage to developing countries WTO (World Trade Organization):  Functions: Lowering of trade barriers, oversees trade agreements and facilities disputes between member countries, reduce tariff and non-tariff barriers to trade.  Criticisms: transparency requirement hurts national sovereignty, ignore environmental concerns, refuse to address impacts of free trade on labor

rights, agriculture product subsidy hurt developing countries, trade rules protect developed countries more than developing countries, give multinational companies unfair advantage 2. What are the criticisms on the IMF? Elaborate on each of them. 3. What are the World Bank’s major functions, goals and criticisms? 4. What are the WTO’s major functions, rules, rounds of negotiations, and criticisms?  Most-favored-nation (MFN) status Module 3: International Agreements 1. List and explain each international trade theory. Focus on the features of each theory.  Mercantilism: A country's wealth is determined by the amount of its gold and silver holdings. Belief that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. Gain through trade surplus.  Neo-mercantilism: countries promote a combination of protectionist policies and restrictions and domestic industry subsidies  Absolute Advantage: Produce goods more efficiently  Comparative Advantage: Ability to carry out an economic activity more efficiently than another activity; ability to produce with a lower opportunity cost  HO Theory: Why you can produce things better than other countries.  Country Similarity Theory: similar countries have similar preferences o – connect with cage analysis, intra-industry trades. Trade more with one another. Brand names are important.  Global Strategic Rivalry Theory: focus on firm’s competitive advantage; barriers to entry: R&D, IP Rights, economies of scale, control of resources. Amazon! Years of looking at what consumers want – anticipating what people want. Control of resources = vendors and supply chain locked in 2. What is specialization? Use a scenario to show the relationship between specialization, economies of scale and production efficiency in international trade. (Hint: you can use a 2 country, 2 products scenario) – DIDN’T UNDERSTAND THE HINT  Specialization is being able to divide and specialize in certain areas, which leads to increased productivity and minimizes downtime in production. Brazil and US both produce coffee. Brazil at 10 cents, US at 25 cents = difference is 15 cents. Sugar at 20 cents, US at 22 cents. LAND to raise both of these commodities. Using an acre of land to produce coffee production. US go make sugar.  Specialization leads to more expertise, refine and mass produce. Mass produce allows you to benefit from 3. What are the concerns on free trade’s impact on manufacturing jobs in developed nations and labor rights in developing nations?  Free trade is a policy by which governments do not discriminate against exports and imports. There are few or no restrictions on trade, and markets are open to both foreign and domestic supply and demand. o Manufacturer of TV’s – US we have min wage and child labor laws. Adds to cost of production. o Other countries use child labor, may have laws but don’t enforce. Which allows lower costs  Concerns on free trade for manufacturing jobs and labor rights are domestic producers will sell less which directly impacts domestic manufacturing jobs and decreased revenue. However, the foreign producers and domestic consumers are the ones that are positively impacted to reap the benefits. 4. List and explain the types of tariffs.

1. Import Tariffs: Taxes on goods that are imported into a country 2. Export Tariffs: taxes on goods that are leaving a country 3. Protective Tariffs: Reduce imports of a product and protect domestic industries 4. Preferential Tariff: Lower for some nations than others 5. Revenue Tariffs: Raise revenue for the government 6. Specific Tariffs: Flat rate on each imported item 7. Ad Valorem Tariff: Based on a percentage of the value of each item 8. Compound Tariffs: Combination of specific tariffs and ad valorem tariffs 9. Protective Tariffs: levied to reduce imports of a product and protect domestic industries 10. Revenue Tariffs: Levied to raise revenue for the government 5. How does tariff impact import prices, quantity of imported product, consumers, domestic businesses, and the government?  Tariffs will increase the price of a good for the consumer purchasing the product because the business will pass the cost of the tariff onto the consumer. Which in turn will drive consumers to look elsewhere for products. Importers will also incur that cost to import the products. This has a positive impact on the government because it will increase revenue for them. 6. What is quota? List and explain the types of quota.  Quotas are restrictions on the number of goods that may enter a country. The effect on producers and consumers of using quotas is the same as that of using tariffs. o Absolute Quota: Limit on a specific # in a given period o Tariff-rate Quota: Product is allowed to enter country at a lower rate and then tariff is imposed 7. How does quota impact import prices, quantity of imported product, consumers, and domestic businesses?  When supply is cut or shortages occur, prices go up. Which cause more losses than benefits for a country. Prices go up which drive consumers to look for merchandise elsewhere for a lower price. 8. What is the rationale for governments to utilize trade barriers to manage trade? Your answer should include examples such as sanctions, dumping, health and safety, etc. Make sure to include a full list.  Trade barriers are government-induced restrictions on international trade, which generally decrease overall economic efficiency. o Trade barriers include: Infant industry, protected tariffs against imports and subsidize against prices. o Anti-dumping: set of goods way below market price o Sanctions: o Health and safety: Governments can ban trade of products for reasons of health and safety. One of the functions of government in most countries is to oversee the safety of products, both generally and more specifically in terms of health risks. In the United States, the Food and Drug Administration certifies factories and food processing and oversees the approval of pharmaceuticals. Meanwhile, the Bureau of Consumer Protection is charged with ensuring that goods meet certain legislated safety standards. Goods that do not meet these standards cannot be legally traded. A good example of this is the ban Japan put in place in 2003 when a case of BSE or Mad Cow Disease in cattle was reported in the United States; the ban was lifted in 2019.5

Module 4: Relationships, Foreign Investment, and Trade (Lesson 14-20) 1. Define and compare portfolio investment and foreign direct investment.  Foreign Direct Investment: is a long-term strategy that involves the investment in foreign assets with the intent to control and manage. Benefit from cheaper labor costs, tax exemptions, and other privileges in that foreign country  Portfolio Investment: involves purchasing stocks in a foreign business and is a short-term strategy 2. Identify the reasons and strategies that governments promote FDI. (Hint: Link reasons to the benefits of FDI)  Reason: To protect local industries and critical resources, preserve culture, control economic growth.  Strategies: specify ownership restrictions, modernize infrastructure, education, and job training 3. Identify the reasons and strategies that governments restrict FDI. (Hint: Link reasons to the costs of FDI)  FDI restrictions include high tariff costs, interest, form of dividends or royalties o Controlled pace of development, mining companies and strip mining can be destructive to environments. Need to sustain the forest and streams for living. Control influence multinationals for the local population – sustainable development and restrict ownership. 4. Define horizontal FDI and vertical FDI. Give an example for each.  Horizontal and vertical o Horizontal FDI: occurs when a company is trying to open a new market – a retailer, for example, that builds a store in a new country to sell to the local market. o Vertical FDI: When a company invests internationally to provide input into its core operations – usually in its home country 5. Define and differentiate backward vertical FDI and forward vertical FDI?  Backward Vertical FDI: When a firm brings the goods or components back to its home country; acting as the supplier  Forward Vertical FDI: When a firm sells the goods into the local or regional market; acting as a distributor 6. Define greenfield and brownfield FDIs. Give an example for each.  Greenfield: build new facilities where no previous facilities existed; McDonalds building a new facility in Brazil  Brownfield: purchase existing facilities; Coca Cola purchasing a soft drink company in Brazil and using their existing facilities 7. Define multinational companies. Identify benefits of being a multinational company. Identify impacts of multinational companies.  Companies that move natural resources, services, and goods across national boundaries; flexibility and cheaper labor costs are benefits. MNCs are the primary means of FDI 8. Define regional economic integration  Agreements to reduce or eliminate trade barriers. The goal of regional economic integration is higher living standards through increased cross-border trade and investments 9. Identify the features of the 5 stages of regional economic integration and relate an example to each stage.  Free Trade Area: Member nations remove all barriers of trade among themselves; no internal tariffs/quotas. Least integrated.  Customs Unions: Barriers to trade are removed between member nations; external tariffs. Everything the free trade area has, but everyone has to decide

 Common Market: Trade barriers removed free movement of labor and capital. No visa.  Economic Union: members use common currency; Eurozone. Everything a common union has,  Political Union: single nation formed; UAE and USA. Everything the economic union has, except a country 10. List and Elaborate on the benefits and costs of regional economic integration.  Benefits include more opportunities for trade, expanded job opportunities. Costs include trade diversion, counties may give up political and economic rights, dilution of cultural identity 11. Identify features of each major real-world regional integration bloc and differentiate them. o NAFTA: Free trade agreement formed between the US, Canada, and Mexico in 1994 o USMCA: US Mexico Canada Free Trade Agreement, which superseded NAFTA in 2019 o Mercosur: Common market of the south, Mercado Comun del Sur; customs union o ASEAN: Association of southeast Asia Nations; common market o EU-European Exchange: established to prevent future wars o CAFTA-DR: free trade agreement passed in 2005; US, Costa Rica, Dominican Republic, El Salvador, Honduras, Nicaragua, Guatemala o CARICOM: formed in 1973 by countries with the intent to create a single market with free flow of goods o Andean Community: free trade agreement signed in 1969 by Bolivia, Chile, Colombia, Ecuador, Peru o GCC: formed in 1981 and focused on trade, economic, and social issues o APEC: 1989; formed by 12 countries as an internal forum that promotes free trade throughout the Asia-Pacific region 12. Define supply and demand of a currency.  In foreign exchange markets, demand and supply become closely interrelated, because a person or firm who demands one currency must at the same time supply another currency and vice versa; American tourist who is visiting China will supply U.S. dollars into the foreign exchange market and demand Chinese yuan 13. Identify the reasoning behind strengthening and weakening currency. How does it impact international trade?  Strengthening: exchange rate for a country’s currency rises relative to other countries; foreign firms exporting to the domestic economy because they will earn higher profits as they are able to buy more of their home currencies after selling their exports  Weakening: exchange rate for a country’s currency falls relative to other countries; domestic firms exporting to a foreign economy will earn higher profits as they are able to buy more domestics currency after selling their exports 14. Define 3 exchange rate policies and give an example of each.  Floating: currency fluctuates based on market forces; India has a managed float exchange regime. The rupee is allowed to fluctuate with the market within a set range before the central bank intervenes  Fixed: currency is tied to the value of another single currency; China is well-known for its fixed exchange rate. It was one of the few countries that could impose a fixed rate by making it illegal to trade its currency at any other rate

 Crawling bands: market value of currency is permitted to fluctuate within a range specified by a band of fluctuation

Unit 3: Legal and Ethical Considerations Module 5: The global Regulatory Environment (Lesson 21-26) 1. Define monopoly and explain how monopoly hurt consumers. How is the Antitrust Law implemented in the U.S.?  A monopoly exists when there is only one producer and many consumers. The producer is a price maker that can determine the price level by deciding which quantity of a good to produce. Control over natural resources is often a source of monopoly power in the global economy because corporations have the ability to raise the market price without losing customers to competition. 2. Differentiate the Kyoto Protocol and the Paris Agreement. 3. Define National Environmental Protection Act. What is the major function of NEPA? 4. List three international labor conventions that help protect workers. Explain the applicable feature of each labor convention.  Worst Forms of Child Labour Convention, 1999: This convention defines a child as a person under 18 years of age and aims to eliminate all practices of slavery or those similar to slavery, such as the sale and trafficking of children, debt bondage, forced or compulsory recruitment of children for use in armed conflict, child prostitution, and so on. The convention requires states to provide appropriate assistance to remove children from such situations and provide their rehabilitation and education.  The Maritime Labour Convention (MLC), 2006: This conventio...