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The flashcards below were created by user
Lamies10
on FreezingBlue Flashcards.
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Market Economy
- Free interplay of demand and supply
- No restrictions on supply
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Central Command
Government moderates the activities of different economic systems
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Economic Environment factors
- Economic growth; stage of economic development
- Per capita income
- Fiscal and monetary policies, interest rates, taxation, inflation
- Balance of payments; foreign debt
- “Hard” currency reserves
- Exchange rate fluctuations
- Unemployment level
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Impact of policy changes
- Creates or diminishes market opportunities
- Redefines rules of competition
- Increases or decreases the risks of doing business
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Forms of protectionism
- Import tariffs
- Quotas
- Voluntary Export Restraints (VER)
- Domestic content legislation
- Monetary barriers
- Stringent standards
- Subsidies/ “Buy national” programs
- Boycott/Embarg
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Reasons for protectionism
- Promote domestic production; save jobs
- Help “strategic” industries
- Protect infant industry
- Old industry argument
- Level playing field; combating unfair competition National security reasons
- Political reason
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Political risk
- International markets are more interconnected
- The world has become a much more volatile place and that has changed risk calculations everywhere
- Offshoring results in shifting of operations to countries with potential for unrest
- Increased dependence for energy on states troubled by considerable political risk
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Transfer risk
Change in ease of transfer of capital, goods, technology and people in and out of the countr
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Operational risk
Impact on operations caused by changes in government’s policie
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Ownership risk
Change in the proportion of equity owned by a company in a foreign subsidiar
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Causes of political risk Macro
- Competing political philosophies
- Civil wars, armed conflicts
- Social unrest and disorders
- New international alliance
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Outcome of political risk Macro
- Confiscation, expropriation or nationalization
- Damage to property, persons
- Loss of transfer freedom
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Causes of political risk Micro
- Changing social values
- Unstable economic conditions
- Vested interests Quasi-political Local business
- Latent hostility towards foreigner
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Outcome of political risk Micro
- High inflation, increased taxation, currency instability
- Breach/revision of contracts
- Discrimination
- Mandatory labor benefits, Operating restriction
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Political risk-defensive strategies
- Stay ahead -- technical and managerial capabilities Multiple sourcing of products
- Raise political costs of intervention JVs with politically connected local companies
- Maximize debt investment from local sources
- Significant exports “Good citizen” -- public services Hedging via insurance (e.g., OPIC, MIGA
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Common Market
Customs Union that also allows free movement of factors such as labor and capital
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Free Trade Area (FTA)
Member countries eliminate trade barriers on trade among member countries
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Economic Union
Common Market wherein national economic policies of member countries are also harmonized
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Economic case for integration
- Stimulates economic growth in countries
- Countries specialize in those goods and services efficiently produce.
- Additional gains from free trade beyond the international agreements such as GATT and WTO
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Political case for integration
- Economic interdependence creates incentives for political cooperation
- Reduces potential for violent confrontation.
- Together, the countries have more economic clout to enhance trade with other countries or trading bloc
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Culture
“A system of values and norms that are shared among a group of people and that when taken together constitute a design for living."
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Impact of cultural differences
- Policies and procedures
- Formalization and standardization
- Systems and controls
- Structure
- Planning systems
- Reward systems
- Information and communication
- Openness and informality
- Decision making
- Who makes decision
- Level of participation
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Ethnocentrism
Concluding that new culture is bad, “stupid” or ineffective simply because it is differen
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Cultural Change
- Culture evolves over time
- Changes can be painful for society
- Is not unidirectional
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Protecting property rights
- Enforcement
- o Likely to be short-lived if demand is high
- Education
- o Educating IPR law enforcement officials
- o General public on the perils of counterfeits
- External Pressures
- o Confronting host governments (carefully)
- o Explaining cost of non-enforcement
- Economic growtho Growth and home grown brands
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Basic factor endowments
- Natural resources
- Climate
- Geographic location
- Demographics
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Advanced factor endowments
- Communications
- Skilled labor
- Research/technology
- Education
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Porters Theory prediction
- Porter’s theory should predict the pattern of international trade that we observe in the real world
- Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorabl
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