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Globalization

Nations interacting with each other for mutual benefit

Proactive drivers (incentives to globalize)

• profit and revenue growth

• return on investment

• economies of scale (tax breaks, fixed costs)

• tax incentives

• location advantages

Age of disruption

when new ideas or technologies come along that completely change how previous industries work. (ex. new iphone)

Cost per unit

how much money a company spends on producing one unit of the product they sell

Reactive drivers

reacting to outside pressure (situational)

• competitive pressures in the local market

• small or saturated home market

• overcapacity

• seasonal products

• low psychic distance

Liability of Foreignness

additional costs that firms operating outside their home country experience above those incurred by local firms

• discrimination hazard

• higher transaction costs

• lack of familiarity with the target country

• higher risk (exchange rate fluctuations)

Strong or weak local currency: exporters

weak local currency

Strong or weak local currency: importers

strong local currency

Floating exchange rate

determined by supply and demand

• what most countries use

Fixed exchange rate

set by government regardless of supply and demand

• used by communist countries

PEST analysis

a strategic tool used by businesses to analyze and evaluate the external macro-environmental factors that can impact their operations and decision-making

• political factors

• economic factors

• social factors

• technological factors

International Center for Settlement of Investment Disputes

an organization that helps resolve disagreements between investors, like companies, and governments of countries where they invest. It provides a fair and neutral place for arbitration, where both sides can present their arguments and reach a decision.

International trade theory

a set of economic principles and concepts that seek to explain the patterns and determinants of international trade between countries. These theories help economists and policymakers understand why countries engage in trade, what goods and services they trade, and the effects of trade on economies.

• different nations should specialize in different goods for max efficiency

mercantilism

an old economic idea where countries tried to become rich by selling more goods to other countries than they bought.

• restricting imports

• increasing exports

free trade policy

countries allow goods and services to be traded between them without putting taxes or other restrictions on them. It's like having an open market where everyone can buy and sell freely across borders.

• no limits on civilian purchases

• Government does not attempt to restrict what its citizens

  can buy from another country or what they can sell to

  another country

absolute advantage

when one person, company, or country can produce a good or service more efficiently or with fewer resources than another. It means being really good at making something compared to others

comparative advantage

when a country or person is better at producing one thing compared to another. It's like saying, "I'm really good at making cakes, but not so good at fixing cars." So, if someone else is better at fixing cars, it makes sense for me to focus on making cakes and let them fix the car. This way, both of us can do what we're best at, and we'll both end up better off.

General Agreement on Tariffs and Trade (GATT)

an agreement between countries to reduce taxes on imports and promote fairer trade. It aimed to make it easier for goods to move between countries and to prevent discrimination in trade practices.

• minimize trade barriers

Opportunity cost

what you have to give up to buy what you want in terms of other goods or services

Benefits of trade

• Specialize in manufacturing and exporting of products that can be produced most efficiently in that country

• Import products that can be produced more efficiently in other countries.

• Gains arise because international trade allows a country to specialize in the manufacturing and exporting of products

Tariff barriers

tax levied on imports that effectively raises the cost of imported products relative to domestic products.

Non-tariff barriers

• Subsidy: A government payment to a domestic producer. Subsidies help domestic producers:

  • Compete against low-cost foreign imports

  • Gain export markets

• Import Quota: A direct restriction on the quantity of some good that may be imported into a country.

• Requirements for complying with local standards

• Bureaucracy

• Labeling

Dumping

A situation of international price discrimination where the price of a product, when sold in the importing country, is less than the price of that product in the market of the exporting country.

• The domestic industry producing the like product in the importing country is suffering material injury.

• There is a causal link between the two

World Trade Organization (WTO)

the international organization whose primary purpose is to open and facilitate international trade.

• 164 members

• Dispute settlement body

International Monetary Fund

• Furthering international monetary cooperation

• Encouraging the expansion of trade and economic growth

• Discouraging policies that would harm prosperity

World Bank

its role is to reduce poverty by lending money to the governments of its poorer members in order to improve their economies and to improve the standard of living of their people

Washington Consensus

• economic ideas about the free market

• referenced when making new policies/decisions

  • fiscal adjustment: adjustment made by government

Trade bloc

a group of nations that have negotiated special agreements regarding their economic relations. Generally, the agreements aim to relax or eliminate trade barriers between them

Free Trade Area (FTA)

All barriers to the trade of goods and services among member countries are removed, but members determine their own trade policies with nonmembers

• nations that are within the FTA can freely trade with no regulation

• not very controlled because there is a lot of mutual trust

• trade barriers are removed

Common Market

• no barriers to trade between member countries

• requires significant harmony within members

• ex. USMCA: FTA between USA, Canada, and Mexico

Rules of Origin

determine whether a tariff is placed on a product or not

• tariff shift method: check if product category changes throughout production

• regional value content method: depending on amount sourced from region, must meet the rule of origin

Mercosur

eliminates trade barriers and is comprised of Brazil, Argentina, Uruguay, Paraguay

European Union

free flow of products between members, pursuit of common external trade policy (27 members)

Eurozone: 19 countries

Agreement on Government Procurement (GPA)

regulates the conduct of international trade in government procurement markets

• controls fair trade

• aims to ensure fair, transparent and non-discriminatory conditions of competition for purchases of goods, services and construction services by the public entities covered by the agreement

Trans-Pacific Partnership

Free trade agreement between 12 Pacific Rim economies

African Continental Free Trade Area

the largest free trade area in the world, measured by the number of countries participating

Gross Domestic Product

the standard measure of the added value created through the production of goods and services in a country during a certain period

Big Mac Index

provides a measure of citizens' purchasing power across different countries

• calculated by dividing the price of a Big Mac by the net hourly wage in different cities around the world.

Gini Coefficient

a measure used to show how unequal the distribution of wealth or income is within a country. It's a number between 0 and 1, where 0 represents perfect equality (everyone has the same amount of wealth or income), and 1 represents perfect inequality (one person has all the wealth or income, while everyone else has none). So, the higher the Gini coefficient, the more unequal the distribution of wealth or income in a country.

United Nations (UN)

countries committed to the free flow of products and factors of production between members, adoption of new currency, harmonization of tax rates, and pursuit of a common external trade policy. works to keep peace, improve relations between countries, and protect human rights.

G20 (Group of 20)

LARGEST SHARE OF WORLD GDP. a gathering of major economies from around the world. It includes 19 individual countries plus the European Union. They meet regularly to discuss and coordinate on international economic and financial issues.

Collectivism

refers to collective goals over individual goals

Individualism

refers to a philosophy that an individual should have freedom in his or her economic and political pursuits and that the interest of the individual should take precedence over the interests of the state (not like collectivism)

Democracy

Refers to a political system in which government is run by the people, exercised directly or through elected representatives

Totalitarianism

A form of government in which one person or political party experiences absolute control over all spheres of human life and opposing political parties are prohibited. Individual rights to freedom of expression and organization, a free media, and regular elections are denied to the citizen

Market Economy

An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced, prices are free of controls, and private ownership is predominant

Command Economy

An economic system where the allocation of resources, including determination of what goods and services should be produced, and in what quantity, is planned by the government, prices are set by central planners, productive assets are owned by the state, and private ownership is forbidden

Mixed Economy

• Elements of both a market economy and a command economy

• Certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning

• Governments also tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests

Gross National Income (GNI)

measures the total annual income received by residents of a nation

Enabling Trade Index (ETI)

a tool developed by the World Economic Forum to measure and assess the factors that facilitate trade between countries. It provides a comprehensive assessment of the policies, institutions, and infrastructure that affect a country's ability to engage in international trade efficiently.

Diffusion of Innovation Theory

explores how new ideas, products, or practices spread among groups of people. 

Power Distance Dimension

explores how values in the workplace are influenced by culture, specifically referring to the extent to which less powerful members of a society or organization accept and expect that power is distributed equally

Hofstede’s Study

measured cultural differences across countries and their impact on organizational behavior, management practices, and societal norms

BERI (Business Environment Risk Intelligence)

a global risk assessment and consulting firm that specializes in providing analysis and insights on political, economic, and business risk in various countries and regions around the world. Offers a range of services to help businesses and investors evaluate and mange risks associated with international operations.

World Values Survey

a large-scale, cross national survey conducted to investigate people’s values, beliefs, attitudes, and behaviors around the world. It aims to provide insights into cultural and social change over time and across different societies.

Ease of Doing Business Index

an annual report published by the World Bank Group, it measures the ease of conducting business activities in various countries around the world. The index provides valuable insights into the regulatory environment and business climate of different economies, helping policymakers, investors, and businesses assess the competitiveness and attractiveness of specific countries for investment and business operations.

ESG Framework (Environmental, Social, Governnance)

a set of criteria used by investors, businesses, and organizations to evaluate and measure the sustainability and ethical impact of investment decisions and business practices.

CSR Practices (Corporate Social Responsibility)

a company’s efforts to integrate social, environmental, and ethical concerns into its business operations and interactions with stakeholders. These practices go beyond regulatory compliance and aim to create long-term sustainable value for society while also enhancing the company’s reputation, brand equity, and financial performance

OECD (Organization for Economic Co-Operation and Development)

an international organization of 38 members, primarily from North America, Europe and the Asia-Pacific region. It was established with the aim of promoting economic growth, prosperity, and sustainable development through international cooperation and policy dialogue

Entry mode: wholly owned subsidary

involves a company establishing a new legal entity in a foreign market, where the parent company owns 100% of the subsidary’s shares. This entry mode provides the parent company with full control and ownership over its operations in the foreign market

4P’s

Product, Price, Place, Promotion: four key elements of marketing that are essential for successfully promoting and selling a product or service, it is a fundamental framework used by businesses to develop and implement marketing strategies.

Real Value

the genuine worth or utility that a product, service, investment, or other entity provides to its users, customers, or stakeholders. It goes beyond monetary price and encompasses the tangible and intangible benefits that an individuals or organizations derive from their interactions with the entity. It is subjective and can vary depending on the context, preferences, and needs of the individuals or organizations involved.

Nominal Price

refers to the price of a good or service as expressed in terms of the current currency unit, without adjusting for inflation or changes in purchasing power over time. It represents the face value or the actual amount of money paid for the item at the time of purchase. Nominal prices are what consumers typically see listed on price tags, invoices, receipts, and advertisements.

Milton Friedman (criticisms of CSR)

he argued that CSR initiatives often lead to economic inefficiency, lack of accountability, and may put companies at a competitive advantage

Greenwashing

the deceptive or misleading practice of presenting a company’s products, policies, or practices as environmentally friendly sustainable when they are not. It involves marketing, branding, or communication strategies to create a false perception of environmental responsibility, often to appeal to environmentally conscious consumers to improve the company’s reputation

Late Majority

used in the diffusion of innovation theory to describe a segment of adopters who typically follow the early adopters and early majority in adopting a new product, technology, or innovation. These individuals are characterized by their skeptical approach to change, preferring to adopt new ideas only after they have been thoroughly tested and proven by others.

Laggards

those in a community who are slowest to adopt a new product

IPLC (International Product Life Cycle)

theoretical framework used to explain the stages of a product’s life cycle as it moves through global markets. Four stages: introduction, growth, maturity, decline

Transnational Strategy

an approach to international business that seeks to combine the benefits of global integration with local responsiveness. It involves integrating operations, resources, and strategies across multiple countries while also adapting to local market conditions and preferences. The goal is to achieve synergies and competitive advantages by leveraging global scale and efficiency while remaining flexible and responsive to diverse market demands

Consumer behavior framework

a structured approach used by marketers and researchers to understand and analyze how consumers make decisions and behave in the marketplace. It provides a systematic way to study the various factors that influence consumer choices and actions. 

BRIC

refers to four majoring economies: Brazil, Russia, India, China. They are characterized by their significant size, rapid economic growth, and increasing influence on the global stage

USMCA

a trade agreement between the United States, Mexico, and Canada that governs trade and investment between the three countries

G20 (Group of 20)

an international forum for the governments and central bank governors of 19 major economies, plus the EU. it was established in response to the financial crises of the late 1990s and has since been the premier platform for global economic cooperation and coordination.

FTA rules

outlines the terms and conditions governing trade between countries that have entered into such agreements. These rules aim to reduce or eliminate barriers to trade, promote economic cooperation, and facilitate the movement of goods, services, and investments across borders.

Tariff shift method

criterion used in determining the origin of a product within the context of the FTA. It is specifically used to establish whether a product qualifies for a preferential tariff treatment under the rules of origin outlined in the FTA

RVC (Regional Value Content)

a measure used in the context of the FTA and trade agreements to determine the percentage of a product’s value that originates from within the region covered by the agreement. It is key in establishing the origin of a product and determining its eligibility for preferential tariff treatment under rules of origin outlined in the agreement.

Harmonized system

an internationally standardized system for classifying goods traded in international commerce. It facilitates the uniform classifications of goods and the collection of customs duties and trade statistics

Mercosur

a regional trade bloc in South America; a group of countries that have agreed to reduce or eliminate trade barriers among themselves while maintaining barriers against trade with countries outside the bloc. Trade blocs are formed to promote regional economic integration, enhance trade and investment flows among member countries, and achieve common economic objectives.

Big Mac Index

economic indicator that measures the purchasing power parity between different currencies. It compares the price of a Big Mac hamburger sold by McDonald’s across various countries to assess whether currencies are overvalued or undervalued relative to each other.

low entry mode

refers to a market strategy that involves minimal investment, risk, and commitment by a company when entering a new market. Suitable for companies seeking to test the waters in a new market or expand their international presence gradually without making significant upfront investments.

high entry mode

refers to a market strategy that involves substantial investment, risk, and commitment by a company when entering

Polycentric staffing policy

an approach to international staffing where a company hires local employees to fill key positions in its foreign subsidiaries or operations. Local nationals are recruited and promoted to managerial and leadership roles, rather than relying heavily on expatriates from the home country.

geocentric staffing policy

an approach to international staffing where a company seeks to hire the best individuals for key positions in its global operations regardless of their nationality. The company focuses on merit and qualifications rather than nationality when filling managerial and leadership roles, whether in the home country or abroad.

Reciprocal tax treaty

an agreement between two countries to resolve issues related to double taxation of income and to promote cross-border trade and investment. 

Laissez faire

an economic and political philosophy that advocates for minimal government intervention in economic affairs and individual freedoms. Proposes that markets operate most efficiently without interference from government regulations, controls or interventions.