Review for Midterm 1: Global Dimensions of Business

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Review for Midterm 1 Global Dimensions of
Business

• Business 187 Prof. Wood

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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

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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)

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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 whats in
  the text or not) is based on and follows
  logically from facts and plausible existing
  theories.

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

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Multiple Choice will cover Chapters 1-6 and 9

• Only the pages specified in the syllabus
• But study each chapter carefully remember that
  its a long time since we discussed Chapter 1

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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

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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

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• Use todays presentation as a guide to studying
• the text
• your notes
• the original slides available on the class web
  page

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Advice on how to study

• If you havent 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

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• 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

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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

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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

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• 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

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Key issues in Ch. 2 Differences in Political
Economy

• Political economythe 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

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• 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

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• 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

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Economic risk

• The likelihood that macroeconomic events,
  including economic mismanagement, will cause
  drastic changesin a countrys 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.

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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

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• 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 Hofstedes dimensions of culture
• Power distance, uncertainty avoidance,
  individualism vs. collectivism
• How cultures change

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Key issues in Ch. 4 Ethics

• Ethicsprinciples of right or wrong governing the
  conduct of business
• No essay on ethics this time
• But well 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)

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• 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

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• 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

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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

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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

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

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• 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?

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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

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• 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

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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

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Cases

• You are not required to memorize any facts from
  the cases

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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

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