Globalization Flashcards
What is globalization
A close integration of countries and people of the world
What is international business
The action of doing business abroad
What is global business
Business around the globe
What is multinational enterprise
A firm that engages in foreign direct investment (FDI)
What is foreign direct investment (FDI)
Investing in, controlling and managing value added activities in other countries
What determines the success and failure firms around the globe?
Resource base view - all controls and blames on the firm. It indicates or states that the success and failure of the firm depends on themselves.
Institution base view - the success and failure of the firm lies in formal (government regulations, laws, rules) and informal (custom, tradition, and culture) institutions
What are the 3 views on globalization
A new force- the globalization is something new. Started with western countries and was enabled with technological advance. It is a way to exploit other developing countries.
A long run historical evolution- globalization has been with humans since human history started and has been growing with the population
A pendulum- globalization is not new or one way, but swings from one extreme to the other.
Why do nations trade
Because of the benefit from the trade.
What are the theories of international trade
Classical trade - developed before 20th century. They are static, meaning they don’t take into account changes over time.
Modern trade- developed in the 20th century. They are dynamic, taking into account changes over time.
Classical trade theories
developed before 20th century. They are static, meaning they don’t take into account changes over time.
Mercantilism, absolute advantage, comparative advantage
Mercantilism
International trade has winners and losers. they thought this because they believed there was limited amount of gold and silver the world.
Every other economy rejected this notion because both sides benefit from the trade.
Absolute advantage
The country that’s is more productive and efficient should specialize in that.
Comparative advantage
If a country can produce an item at the lower opportunity cost (cheaper) than the others, it has to specialize in that.
Modern trade theories
developed in the 20th century. They are dynamic, taking into account changes over time.
Product life cycles, strategic trade, national competitive advantage
Product life cycles
Patterns of trade change over time as production shifts from new to maturity and standardized stages.
(New - new product to the world. Maturity- other countries start developing the same new product. Standardized- developing countries start producing that same product)
Strategic trade
Suggests that strategic intervention by government in certain industries can enhance their odds of success.
National competitive advantage of industries
Competitive advantage of certain industries depends on 4 aspects
Trade barriers
Tariff - tax on imported goods
Non- tariff - import quota, local content requirement, subsidies, etc.
Deadweight loss
A net loss that occurs in an economy as a result of tariff or a loss of total surplus.
Foreign portfolio investment
Investment in stocks and bonds in foreign countries, but without a controlling interest.
*FDI controls, but foreign portfolio investment does not.
Multinational enterprise vs non multinational enterprise
Multinational enterprise engages in FDI. Non multinational enterprise does NOT engage in FDI
Why FDI?
Ownership (control)
Location
Internalization
What are the political views on FDI
Radical view, free market view, pragmatic nationalism
Radical view
Very hostile to FDI, they don’t like FDI, they think that it’s a way of exploitation
