Review for Midterm 1: Global Dimensions of Business

Business 187 – Prof. Wood

Extra credit opportunity

Presentations on a country or a region (even a town/city in U.S.) some other subject in global

business An especially good chance to

discuss your home or your ancestors’ home

The midterm Approx. 30 multiple choice questions 1 essay question

Question has already been passed out Open book

You can refer to any material supplied by the professor (text, cases, slides from web site)

But you cannot refer to any notes You will write the essay in the classroom

(You can write a “practice essay” at home if you want, but you cannot bring it to class)

Essays graded on whether you practice

critical thinking

Show you understand the concepts In this case –

Gains from trade Comparative advantage Possibly ideas like infant industries, etc.

Your argument (whether you agree with what’s in the text or not) is based on and follows logically from facts and plausible existing theories.

Bring Scantron (Form 882-E – the small style)

Blue book (small is OK)

Multiple Choice will cover Chapters 1-6 and 9

Only the pages specified in the syllabus

But study each chapter carefully – remember that it’s a long time since we discussed Chapter 1

The multiple choice is closed-book

It requires very little math, but you can use a calculator You may not use any device capable of

communication Non-native speakers may bring a

standard foreign language-English dictionary No electronic dictionaries No specialized dictionaries

Study hard!

This discussion today is designed to remind you of key issues

You will need a deeper knowledge of the material than these slides provide Slides mention each key issue You will need the text and your notes to

gain enough understanding to answer the questions

Use today’s presentation as a guide to studying the text your notes the original slides available on the class

web page

Advice on how to study

If you haven’t downloaded slides for each chapter, do that soon PowerPoint Reader is available free

Have slides, your notes, and text open all at once All midterm topics are mentioned on

slides, but the slides themselves cannot provide full detail

I assume you have highlightedhighlighted key points in the chapters

Let the slides and your notes drive your studying

Keep asking whether you really understand the concepts summarized on the slides

Continually go back to the text and your notes to develop a deeper understanding

The Chapters so far… The basic nature and structure of

international business Ch. 1 – Introduction - Globalization

The environment in which we conduct international business Ch. 2 – Country Differences in Political Economy Ch. 3 – Differences in Culture Ch. 4 – Ethics Ch. 5 – International Trade Theory Ch. 6 – Political Economy of Trade Ch. 9 – Regional Economic Integration

Key Issues in Ch. 1: Globalization Globalization is ‘The shift toward

a more integrated and interdependent world economy’ Globalization of markets Globalization of production

Global economic institutions Founded after WW II – UN, GATT, IMF, World

Bank Founded in 1990s – World Trade Organization

Know what each does, know basic history See both Ch. 1 and Ch. 6

Drivers of globalization – why is globalization happening Decline in barriers Technological change (know some examples)

Be able to list some ways that managing in a global market us more complex

Key issues in Ch. 2: Differences in Political Economy

Political economy=the study of the political, economic, and legal systems of countries Differences are huge, create huge effects

Systems provide “rules of the game” that allow people to govern selves, work together

2 dimensions of difference Collectivism vs. individualism Democracy vs. totalitarianism

Be able to think about What the rules are in a country Whether they can be relied on

Corruption Unpredictable undemocratic changes

Economic systems – Market, Command, Mixed Economic freedom Individualism associates with free market

Legal systems – property rights, contract law Foreign Corrupt Practices Act

“facilitating payments”

Political and economic risks Differences in economic development

among countries GNI, per capita GNI, and GNI at PPP as

measures Spread of democracy – why?

Failures of totalitarian regimes Technology breaks down censorship Middle class demands democracy

Economic risk The likelihood that macroeconomic

events, including economic mismanagement, will cause drastic changesin a country’s economic environment such as a decline in per capita GNI or an increase in inflation

that adversely affect all businesses’ ability to achieve profits and other goals.

Key issues in Ch. 3: Differences in Culture

Definition – “A system of values and norms that are

shared among a group of people and that when taken together constitute a design for living.” – Hofstede et al

Values – assumptions about how things ought to be

Norms – social rules Folkways vs. mores

Social structure Group vs. individually oriented (parallels political

collectivism vs. individualism) Stratification – castes and classes

Religious and ethical systems Know largest religions, but details (pp. 100-107) are not

required

3 of Hofstede’s dimensions of culture Power distance, uncertainty avoidance,

individualism vs. collectivism How cultures change

Key issues in Ch. 4: Ethics Ethics=principles of right or wrong

governing the conduct of business No essay on ethics this time But we’ll use these principles in May

Different religious & ethical systems lead to different ideas but some analysis and principles help

Some key ethical issues Employment practices Human rights Environmental regulations Corruption Moral obligation of multinational corporations

(social responsibility)

Ethical dilemmas Approaches to ethics

“straw men” – Friedman doctrine, cultural relativism, righteous moralist, naïve immoralist

Credible components of appropriate approaches Utilitarian approach – worth of action

determined by consequences Kant – people are ends not means

Rights – minimum level of moral behavior United Nations Universal Declaration of Human

Rights – ”right to work, to free choice of employment, to just and favorable conditions of work”

Justice – pursuit of just distribution Theorists (e.g., Rawls) argue principles are

those all could agree if they could freely and impartially consider ‘veil of ignorance’

Ways to ensure ethical decision-making

Key issues in Ch. 5: International Trade Theory

Mercantilism Free trade – definition

No barriers limiting trade Economists think you should have the

same incentives when you consider a product from abroad as from your home country.

See special slides on the web site explaining what free trade is and why most economists support it

Arguments for gains from trade

Absolute advantage theory – Adam Smith Comparative advantage theory - Ricardo

Gains from trade when one country is better at everything

Assumptions and extensions of comparative advantage theory Immobile resources will mean not all resources

shift Diminishing returns to specialization Free trade further increases efficiency over time

Your company has comparative advantage in the product or service where the ratio Cost in your country . Cost in the other country

is lowest

Infant industry argument Product life-cycle theory (and limitations)

New trade theory – specialization leads to just a few winners Should government try to pick and

promote the winners of the future?

Key issues in Ch. 6: Political Economy of Trade

Ways of restricting trade and how they work Tariffs, subsidies, quotas, tariff rate

quotas “Voluntary” export restraints (quotas)

Administrative policies Local content rules Antidumping rules

Political reasons for restrictions

Plausible economic arguments for trade restriction (and dangers involved) Infant industry Strategic trade policy

Emerging industries Overcoming barriers to entry by existing foreign

firms History of emergence of institutions

discussed in Chapter 1 Depression Focus on free trade at end of WW II WTO launched in 1995

Key issues in Ch. 9: Regional integration

Some regions focus on barriers within themselves Levels of integration

Free trade area Common market Economic union Political union

European union – an economic union

NAFTA – just a free trade area

Cases

You are not required to memorize any facts from the cases

On tests, a question about a case will give you the facts you need

A multiple choice question will provide the basic data

You may use information from cases in your arguments in essay questions