Study Guide Globalization PDF

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Unit 2 Globalization Module 1: Political, Economic, and Legal Systems (Lessons 1-6) 1. What is globalization?  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?  Removes barriers among countries- economic, investment, cultural, political  Promotes collaboration and interdependence between countries. 3. What are the economic, political, and cultural effects of globalization? Elaborate on each of the aspect.  Economic 1. Positive impact on countries. More trade, investment, information technology, faster economic development and increased social wellbeings. 2. Negative impact- benefits the rich at the expense of the poor. Manufacturing job loss in developed countries. Environmental damage. Unethical practices of labor.  Political 1. Positive impact: more cooperation among countries, formation of international or regional organizations, NGOs (WTO, world bank, EU) 2. Negative impact: reduce the importance of nation-states_ loss of sovereignty and power of local government.  Cultural 1. Positive: awareness of international community 2. Negative: loss of uniqueness of a country’s culture 4. What are the arguments for and against globalization from country’s perspective?  Opportunities: 1. New and large international markets offer possible revenue. 2. Lower Costs 3. Access to advanced technologies  Challenges: 1. Ethical business practice concerns 2. Organizational structure 3. Public relations 4. Leadership 5. Legal and regulatory structure 5. What are the 5 stages of entering a global market? Explain each stage.  Market Entry: companies enter new countries using business models similar to the ones deployed in their home markets.  Product specialization: companies transfer the full production process of a particular product to a single, low-cost location and export the goods to various consumer markets.  Value Chain disaggregation: companies disaggregate the production process and focus on completing each activity in the most advantageous location. (IE part being made in different countries where it is cheaper)  Value Chain Reengineering: companies seek to further increase their cost savings by reengineering their processes to suit local market conditions by substituting lower cost labor for capital. (change of method of production to lower costs)  Creation of new markets: create new demand due to the reduction of ticket price. 6. What are the benefits and costs of global expansion from MNCs’ perspective?  Benefits: 1. Unsaturated demand for new products 2. Lower labor costs

3. Less expensive natural resources 4. Other inputs to products 5. Technological developments have made doing business internationally much more convenient.  Costs: 1. Ethical business practices in areas such as labor, product safety, environmental stewardship, corruption, and regulatory compliance. 2. Organizational structure, efficiently and effectively incorporate new regions into the value chain and corporate structure. 3. Public relations 4. Leadership 5. Legal and regulatory structure 6. Infrastructure 7. technology 7. What are the 4 drivers of globalization? Explain.  Market: opportunity for scale; convergence of needs  Costs: economies of scale and scope. Exploiting cost of factors of production  Competition: new markets. Increased levels of trade  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.  World is flat view:globalization has leveled the economic playing field. The use of technology and internet has made it easier for businesses to conduct global operations. Companies are no longer restricted by local labor force.  CAGE: 1. Culture: cultural differences could reduce country’s trade volume. 2. Administration: administrative similar countries trade more. Countries hold membership of the same trade bloc trade more (NAFTA, EU) 3. Geography: the geographical distance between countries impact trade volume 4. Economics: difference in demographic and socioeconomic conditions such as standard of living, factors of production cost. Etc. 9. List different political systems and differentiate them. How does each political system impact business operation?  Anarchism: Individuals (citizens) control the country, No government needed  Monarchy: Single person rules until he or she dies or abdicates the throne. Saudi Arabia, Qatar. Absolute: king or queen has absolute power. Constitutional: king or queen is a figure head and prime minister has power.  Oligarchy: groups of business owners captured control of the nations natural resources and have used the opportunity to expand their wealth and political influence. (Russia, Venezuela, China)  Dictatorship: single person. (Cuba, north Korea)  Democracy: equal voice or vote in determining state policy. US  Impact on global business? Political system can have a significant effect on both local and international business. The government can use subsidies and tariffs as well as regulate the monetary system to bring about the desired effect. 10. List different economic systems and differentiate. How does each economic system impact business operation and economic production?  Traditional: centered around family. Everyone consumes the same goods. Relies on bartering. No surplus.  Command: Controlled by the ruling class. All resources are owned by the government.  Market: the market controls the distribution of resources. Minimum government control.

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Mixed: the market is the major determining power. Partial government regulation is needed. different legal systems and differentiate. Civil Law: the judge applies law code, rarely uses the jury. Applied in continental Europe and Latin and Central American countries Common Law: judge interprets the law, uses the jury to dtermin facts. Applied in the S, UK Wales, Australia, Canada. Religious Law- based on religious guidelines. Islamic law is widely applied in middle-eastern countries and Southeast Asian countries.

Module 2: Shaping the Economic Environment (Lessons 7-9) 1. What are the IMF’s major functions, goals, and conditionalities? (debt, currency, exchange rate, financial stability; key words)  Focuses more on the short term global financial stability and making international transactions smoother and safer.  Current Goal: monitor exchange rate system and stabilize exchange rates. Guide member countries to develop economic policies, correct debt issues. Like a credit union that lends to participating countries.  Conditions put on the loan require the borrowing country to make policy changes to fix their problem.  Special Drawing right. 5 currencies  Only member countries 2. What are the criticisms on the IMF? Elaborate on each of them.  Imbalance of voting power.  Conditionality causes the citizens to pay the heavy price in the short-run.  May hurt environment. 3. What are the World Bank’s major functions, goals and criticisms?  Current Goal: Support development of poor nations; fight poverty; improve life quality in developing areas. (Africa, latin America)  Original goal: to help Europe build infrastructure after the war.  Long term loans.  Any countries  Criticisims: Imbalance in leadership; enforced conditionality causes harm to developing counties; Environment damage caused by funded projects. 4. What are the WTO’s major functions, rules, rounds of negotiations, and criticisms?  Encourages international trade through lowering trade barriers  Expanded through successive negotiations called rounds.  Uruguay round- reduced tarrif significantly. It also covers IP rights protection  Doha round: inconclusive; focuses on agriculture tarrif.  Oversees trade agreements and facilitates disputes between member countries  MNF status rule- don’t discriminate trade partners  Criticisms: 1. Transparency requirements hurt national sovereignty 2. Trade rules protect developed countries more that developing countries 3. The MNF rule gives multinational companies an unfair advantage 4. Agriculture product subsidy hurt developing countries-related to the doha round 5. Impact of free trade on labor rights 6. WTO has been ignoring environmental concerns. Module 3: International Agreements (Lessons 10-12) 1. List and explain each international trade theory. Focus on the features of each theory.

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1. Merchantilism: gold and silver are important to a country’s wealth. Trade Surplus: focuses on more export, less import. Modern thinking: neomercantilism: countries promote a combination of protectionist policies and restrictions and domestic industry subsidies. 2. Absolute advantage: focused on the ability of a country to produce a good more efficiently than another nation. (IE coffee beans in brazil vs us) 3. Comparative advantage: that if countries specialize in producing goods where they have a lower opportunity cost then there will be an increase in economic welfare. Most efficient=lowest cost producers=lowest opportunity cost-uses lead amount of resources. (1 acre used to produce coffee, giving up acre to produce corn. One or the other. Comparing cost and picking which one is best) 4. Heckscher-Ohlin- Factors of production theory. Land, labor, raw materials, capital, knowledge and technology. (IE: china has lower cost in labor so a lot of countries export labor there. Saudie Arabia, oil. US, technology) 5. Country Similarity Theory: firm based theory, countries with similar qualities are most likely to trade with each other. 6. Global Strategic Rivalry theory: focuses on firm’s competitive advantage: R&D, IP Rights, Economies of scale, control of resources 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) 1. Is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. The more they focus on one task, the more efficient they will be. IE: brazil can do coffee and corn, but choose coffee to specialize in and increase in economies of scale and become more efficient. What are the concerns on free trade’s impact on manufacturing jobs in developed nations and labor rights in developing nations?  Concerns are that developed nations will lose jobs to other countries because of lower labor costs  Usually don’t have affective labor standards or working conditions. List and explain the types of tariffs.  Export: taxes on good that are exported  Import: taxes on goods that are imported  Protective: tariffs levied to reduce imports of a product and portect domestic industries  Revenue: tariffs levied to raise revenue for the government  Specific: tariffs that levy a flat rate on each item imports  Ad valorem: tariffs that levy a percentage of the value of each item  Compound: tariffs that are a combination of specific tariffs and ad valorem. How does tariff impact import prices, quantity of imported product, consumers, domestic businesses, and the government? Prices go up, quantity goes down, gives consumers less choice, government makes money, competition drives prices down and quality up. What is quota? List and explain the types of quota. 1. A government imposed trade restrictions that limits the number or monetary value of goods that a country can import or export during a period. 1. Absolute: limit on the number of specific goods that may enter a country during a certain period 2. Tariff rate quote is two tier quota system that combines tariffs and quotas. Once a quota is met then a higher tariff is imposed. 7. How does quota impact import prices, quantity of imported product, consumers, and domestic businesses? Competition drives prices down and quality up. Cost consumers more also gives them less choice. Government gets taxes from goods.

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. Governments use the following to look after local economies.  Sanctions  Anti-dumping  Protectionism  Infant industry  Health and safety  Limiting outsources  Global monopoly  Nation security

Module 4: Relationships, Foreign Investment, and Trade (Lessons 13-19) 1. Define and compare portfolio investment and foreign direct investment.  Portfolio investment is when someone invests money but do not control company (stocks, bonds.  FDI is when there is an acquisition of foreign assets with the intent to control and managa them.  Comparison is that they are both investment tools 2. Identify the reasons and strategies that governments promote FDI. (Hint: Link reasons to the benefits of FDI)  To expand domestic economy and attract new technologies, business knowledge, and capital to their country. Grow jobs, human capital, increase tax revenue.  Strategies: financial incentives; loans, breaks, insurance. Infrastructure: host governments improve infrastructure; energy, transportation, and communications.  Benefits: help both developing and developed countries. Inflow of capital can help economies. Investors can decrease their risk by diversifying. 3. Identify the reasons and strategies that governments restrict FDI. (Hint: Link reasons to the costs of FDI)  Reasons: Protect local industries and critical resources. Preserve national and local culture. Maintain political and economic independence. Manage Economic growth  Strategies: Limit foreign ownership. Nationalize Critical sectors. Foreign investors require to purchase inputs from local businesses, require to partner with local businesses. 4. Define horizontal FDI and vertical FDI. Give an example for each.  Horizontal: when a company is trying to open a new market or build a new production facility in a new country. (market entry, product specialization)  Vertical: value chain disaggregation. When a company invest internationally to help with its core operations 5. Define and differentiate backward vertical FDI and forward vertical FDI?  Backward: when components are made overseas and brought back to home country.  Forward: if product was to be sold in country, they were being produced in. 6. Define greenfield and brownfield FDIs. Give an example for each.  Greenfield= occur when multination corporation enter developing countries to build new factories or stores

Brownfield= when a company or government entity purchases or leases existing production facilities to launch a new production activity. 7. Define multinational companies. Identify benefits of being a multinational company. Identify impacts of multinational companies.  For profit companies that move natural resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located. Primary means of FDI. 8. Define regional economic integration.  Involves agreements among nations in the same geographical area to reduce or eliminate trade barriers such as tariffs and quotas. 9. Identify the features of the 5 stages of regional economic integration and relate an example to each stage.  Free trade: elimination of trade barriers (NAFTA)  Customs unions: All features of free trade are except that member nations have common trad policies with nonmember countries (mercosur)  Common Market: all features of customs union, in addition restriction on the movement of labor, technology, capital among member countries have been removed. (Asean, Comesa) Do not need a visa or work permit to work in a member country.  Economic Union: all characteristics of a common market, but also include a common economic policy. Unified tax, monetary and fiscal policy. (EU)  Political Union: all characteristics of an economic union, including a unification of all political policies by a common organization. 10. List and Elaborate on the benefits and costs of regional economic integration.  Benefits: Economic opportunity, lower prices for consumers, high growth rates, political cooperation.  Costs: Trade diversion, loss of employment, loss of political and economic sovereignty, loss of nation/cultural identity 11. Identify features of each major real-world regional integration bloc and differentiate them.  NAFTA: free trade area. Mexico, Canada, and US. Product IP rights. Product labor rights and environmental quality. 75% of auto parts must be made in these three countries to eliminate tariffs  MERCOSUR: customs union. Members share common external tariffs with non-members. Brazil, Paraguay Uruguay, Argentina  ASEAN: Accelerate economic growth, social progress, and cultural development. Promote regional peace and stability through the rule of law in relationship among countries in the region. Signed free trade agreements with Australia-newzealand and india.  EU: anti trust laws, standardized product and labeling, general data protection regulations, unified policies for energy. 12. Define supply and demand of a currency. 13. Identify the reasoning behind strengthening and weakening currency. How does it impact international trade? Demand Up; Supply unchanged; currency strength up Demand down; supply unchanged; currency strength down Demand unchanged; supply up; currency strength down Demand unchanged, supply down, currency strength up. 14. 15. Define 3 exchange rate policies and give an example of each.  Floating: rates fluctuate based on supply and demand  Fixed:pegs or fixed against gold, or frequently small counties will peg their currency against a large country with which it does a majority of its trade  Pegged floating: hybrid or the fixed and floating. Floats within a range and can be intervened to mitigate risk. 

Unit 3: Legal and Ethical Considerations Module 5: The global Regulatory Environment (Lessons 20-24) 1. Define monopoly and explain how monopoly hurt consumers. How are Antitrust Laws implemented in the U.S.?  1 firm or product and are the price makers  Consumers are going to price takers. They have to pay based on monopoly  Smaller quantity of goods=higher prices  FTC will approve mergers to avoid monopolies 2. Differentiate the Kyoto Protocol and the Paris Agreement.  Kyoto- reduce greenhouse emissions to 5.2% below 1990 levels. Industrialized countries  Paris0- stop global temperature from rising more than 2c through reduced green house gas. All countries. All human made greenhouse gasses 3. Define National Environmental Protection Act. What is the major function of NEPA?  Act from the 1970s that require federal agencies to prepare environmental impact statements for every recommendation or report. 4. List three international labor conventions that help protect workers. Explain the applicable feature of each labor convention.  Worst forms of child labour convention-aims to eliminate child labor and child slavery  Maritaim Labour Convention- Sets our seafarers’ rights to decent work conditions  Domestic workers convention- details specific rights and protections for domestic workers working both int heir home country and as migrant workers. 5. Define contract. Legally enforceable promise 6. Define and differentiate the vertical and horizontal legal structure.  Vertical= higher authority imposes and enforces the law (US federal Gov’t)  Horizontal= neither party is in a legally dominate position over the other. (Treaties) 7. Define and elaborate on 3 ways to protect intellectual properties.  Creative product of an individuals intellectual activity. Hard to make easy to copy.  Patents- grant exclusive rights to the inventor. Excludes other from making, selling or using the invention. 5-20 years.  Copyrights- exclusive legal rights for authors, playwrights, publishers, artists, composwer. Rights for a lifetime +70 years.  Trademarks- unique identifiers of a business. Name word, picture, symbol, design  Trade Secret- Keep in an IP secret. (cocalcola formula, bushes baked beans) 8. What are WIPO’s major functions?  Established by the UN to develop  Global IP infrastructure  Bui...