Review for Midterm 1 : Global Dimensions of Business

1. Review for Midterm 1: Global Dimensions of Business Business 187 – Prof. Wood

2. The midterm • Approx. 30 multiple choice questions • 1 essay question • Question has already been passed out • Open book, 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) • Bring • Scantron(Form 882-E – the small style) • Blue book(small is OK)

3. Multiple Choice will cover Chapters 1-7 • Only the pages specified in the syllabus • But study early chapters carefully – it’s a long time since we discussed Chapter 1

4. Study hard! • This discussion today is designed to remind you of key issues • You will need a deeper knowledgeof the material than these slides provide • Use these as a guideto studying • the text • your notes • the original slides available on the class web page

5. Advice on how to study • If you haven’t downloaded slides for each chapter, do that soon • 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 highlighted key points in the chapters • Let the slides and your notes drive your studying

6. 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

8. The Chapters so far… • The basic nature and structure of international business • Ch. 1 – An Overview • The environment in which we conduct international business • Ch. 2 – Cultural • Ch. 3 – Political and Legal • Ch. 4 – Economic • Ch. 5 – International Trade Theory • Ch. 6 – Government Influence on Trade • Ch. 7 – Regional Economic Integration

9. Today we’ll reverse the order… • The environment in which we conduct international business • Ch. 2 – Cultural • Ch. 3 – Political and Legal • Ch. 4 – Economic • Ch. 5 – International Trade Theory • Ch. 6 – Government Influence on Trade • Ch. 7 – Regional Economic Integration • The basic nature and structure of international business • Ch. 1 – An Overview

10. Key issues in Chap. 2: Cultural Environments Facing Business • Define culture • “the specific learned norms based on attitudes, values, and beliefs that exist in every nation” • Definition of “a culture” is • “a group of people with shared attitudes, values, and beliefs” • Cultural stabilizers: language, religion, shared business practices

11. Cultural differences affecting business • Status differences based on ascribed vs. acquired group memberships • Power distance • Individualism vs. collectivism • Low-context vs. high-context cultures • Differences in non-verbal language • Example: Colors associated with death

12. Key points in Chap. 3: Political and Legal Environments • Definition of the political system of a nation • The basic political process (Fig. 3.2) • Interest aggregation • Adjudication (sets policies which often become “rules of the game”) • Political ideologies – definition • Pluralism in most countries • Democracy – common traits (in rich nations) • Totalitarianism

13. Every nation has a political system that integrates the parts of society into a viable, functioning unit • It provides “rules of the game” that allow the people of the nation to • govern themselves • work together 3-2

14. Political risk – definition • Macro vs. micro • Different kinds of political risk in democracies vs. totalitarian states • Are democracies safer places to invest? • Individualistic vs. communitarian paradigms on role of government • Power and prestige of officials • Common law vs. civil law • Law firms in international business

15. Key points in Chap. 4 – The Economic Environment • Basic economic concepts • Factors of production • Demand conditions – market potential • Gross national income (GNI) and gross domestic product (GDP)

16. Economic systems: Market economy vs. Command economy vs. Mixed economy • Economic freedom • Largest language group (Mandarin) vs. largest share of economic activity (English-speakers) (Ch. 2) • Differences in economic growthrates by region • (See graph attached to Map 4.2)

17. Key points in Chap. 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 abroadas from your home country. See special slides on the web site explaining what free trade is and why most economists support it

18. Arguments for free trade • Absolute advantagetheory • Natural vs. acquired advantage • Comparative advantage theory • Gains from trade when one country is better at everything • Assumptions underlying free trade theory • Full employment and mobility of labor • Appropriate division of gains • Importance of economic efficiency

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

20. Country similarity theory • Problems of developing countries that depend heavily on a few primary commodities. • Strategic Trade Policy

21. Key points in Chaps. 6 & 7: Government Influence on Trade • Unemployment as a rationale for government intervention • The infant industries rationale • Successes • Risks • The overall argument for industrialization in developing nations

22. Ways of trade restriction • Import tariffs • Quotas • Their effects on the exporters and on the importing country • Examples of non-tariff barriers (e.g., safety regulations that differ from country to country) Countries that use these approaches are not practicing free trade

23. The General Agreement on Tariffs and Trade (1947) • The World Trade Organization • Basic approaches – gradual negotiation of reductions in trade barriers

24. Regional Economic Integration Agreements • Reasons for regional agreements • Free trade area • The original approach in Europe • Now used in North American Free Trade Agreement • Customs union • Common market • The European Community

25. If you learn all that … • you will have a very basic sense of the environment in which you will be conducting international business

26. Key issues in Chap. 1: International Business - An Overview • Definition of “international business” • Why has international business grown? • Government policies (freer trade) • New technology • New institutions

27. Modes of international business • Importing and exporting merchandise • Service “exports and imports” • Investment • direct investment • portfolio investment

28. What is a “multinational enterprise?” • Two basic multinational strategies • Globally integrated company • Multi-domestic (locally responsive) company • Price competition, rapid change, better communication favor global integration • Ethical dilemmas – Why considering right and wrong is difficult in global business • Normativism • Relativism

29. Cases • You are notrequired to memorize any facts from the cases

30. 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 • Sri Lanka Trade case and perhaps others can be relevant to this midterm’s essay question