Review for Midterm 1 : Global Dimensions of Business

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

2. 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

3. 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)

4. Essays graded on whether you practicecritical 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.

5. Bring • Scantron(Form 882-E – the small style) • Blue book(small is OK)

6. 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

7. 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

8. 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 • Slides mention each key issue • You will need the text and your notes to gain enough understanding to answer the questions

9. Use today’s presentation as a guideto studying • the text • your notes • the original slides available on the class web page

10. 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

11. I assume you have highlighted 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

13. 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

14. Key Issues in Ch. 1: Globalization • Globalization is ‘The shift toward a more integratedand 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

15. 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

16. 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

17. 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”

18. 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

19. 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.

20. 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

21. 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

22. 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)

23. 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

24. 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

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

26. Arguments for gains from trade • Absolute advantagetheory – 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

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

28. 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?

29. 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

30. 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

31. 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

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

34. 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