accepted principles of right and wrong governing conduct of business people
strategy or course of action that does not violate these accepted principles
Foreign Corrupt Practices Act
What did the FCPA do?
prohibits US corporations from making illegal payments to foreign officials; you are not allowed to bribe
situations in which no available alternatives seem ethically acceptable
refers to the values and norms that are shared among employees of an organization
6 Determinants of Ethical Behavior:
Societal Culture, Personal Ethics, Decision-Making Process, Organizational Culture, leadership, Unrealistic Performance Goals
the only social responsibility of business is to increase profits, so long as the company stays within the rules of law; only responsibility is to return a profit to the shareholders
the practice of judging a culture by its own standards
One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries
asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either
Most common ethical issues in business involve:
1. Employment practices2. Human rights3. Environmental regulations4. Corruption5. Moral obligations
Utilitarian Approaches to Ethics
hold that the moral worth of actions is determined by their consequences
recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures; establish a minimum of morally acceptable behavior
Code of Ethics
formal statement of the ethical priorities a business adheres to
All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address
Corporate Social Responsibility: a business's concern for society's welfare
strategies that not only help make good profits without harming the environment and ensuring the company operates in a socially responsible manner; try to reduce carbon footprint
Triple Bottom Line
people, planet, profit
Measure performance in 4 areas: finances, customers, internal operations, and innovation/learning
situation where a government does not attempt to restrict what its citizens can buy/sell from another country
Who promoted unrestricted free trade?
New Trade Theory
Countries may specialize in the production and export of particular products because in certain industries, the world market can only support limited number of firms
Government is involved in trade because:
1. Sovereignty2. Security3. Sustainability/Survivability
16th and 17th centuries; encouraged exports and discouraged imports
Who built on Adam Smith's ideas?
Who refined Ricardo's work in the 20th century?
Heckscher and Ohlin
the ability to produce a good using fewer inputs than another producer; more efficient
What principle or theory argues that it is in a country's best interests to maintain a trade surplus?
Principle of Mercantilism
the ability to produce a good at a lower opportunity cost than another producer
A country's endowment with resources such as land, labor, and capital
Economies of Scale
factors that cause a producer's average cost per unit to fall as output rises
First Mover Advantages
advantages accruing to the first to enter a market
The theory that a country will export goods that make intensive use of the factors of production in which it is well endowed
The empirical finding in contrast to the predictions of the Heckscher-Ohlin theory that says US exports are less capital intensive than US imports
a summary of the country's transactions with other countries of a certain time period
3 Sections of Balance-of-Payments:
Current account, Capital account, and financial account
An excess of imports over exports
when a country exports more than it imports
General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions
free market economist, Free to Choose
1. Shareholders2. Employees3. Suppliers4. Customers5. Community6. Government
A tax on imported goods
levied as a fixed charge for each unit of a good imported
There are seven main instruments used in trade policy with ________ being the oldest and the simplest
7 instruments of trade policy:
1. Tariffs- taxes2. Subsidies3. Import quotas4. Voluntary export restraints5. Local content requirements6. Administrative policies7. Anti-dumping duties
A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade?
One objective of tariffs is to
reduce exports from a sector to ensure sufficient supply
Following the global financial downturn in 2008-2009, some developed nations subsidized automobile makers to help them survive the economic climate. One negative consequence of this action was that
Companies had an unfair advantage in the global industry
Ad Valorem Tariff
a tariff levied as a proportion of the value of an imported good
In some years, the U.S. government has paid wheat farmers an additional 50 cents on every bushel of wheat they sell. This money is an example of a(n)
a limit on the number of products in certain categories that a nation can import
A(n) ________ is in place when a lower tariff rate is applied to imports within the government quota than those over the quota.
Tariff Rate Quota
If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a
Voluntary Export Restraint
Local Content Requirements
demands that some specific fraction of a good be produced domestically; benefit domestic producers and jobs but consumers face high prices
One objective of export tariffs is to...
reduce exports from a sector to ensure sufficient supply
Selling goods in another country below market prices
1930 Act that erected a wall of tariff barriers against imports into the US
Multilateral trade agreements
GATT, WTO, EU, NAFTA
What is a bilateral trade agreement?
a trade agreement between 2+ partners
anti-dumping duties; government tariffs to offset suspected subsidies provided by foreign governments to their producers
Administrative Trade Policies
bureaucratic rules designed to make it difficult for imports to enter a country
The ________ theory argues that such advanced nations as the United States have an incentive to develop consumer products and hence such nations tend to produce newer products.
The country of Globolatvia follows the precept that a country should specialize in producing those goods for which it has an absolute advantage. This is the foundation of ________ theory.
Which of the following is an example of an advanced factor, as proposed by Porter, that a nation will possess?
Ford was the first company to mass-produce cars in the United States. This gave Ford a first-mover advantage, which is:
an economic and strategic advantage that accrues to early entrants into an industry
Infant Industry Argument
An industry should be protected until it can develop and be viable and competitive internationally
a gain by one country results in a loss in another
created product life-cycle theory; trade patterns reflect a product's life cycle
Paul Krugman's Trade Theory
world market can only support a limited number of firms in some industries; trade will skew toward countries that have firms that are able to capture first mover advantage
FDI occurs when:
invests directly in facilities to produce a product in a foreign country
Which of the following is an example of a greenfield investment?
A Chinese sugar maker sets up a sugar crushing facility in Cuba
The majority of cross-border investment in the developed world is in the form of:
mergers and acquisitions
An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of:
`When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?
Mergers and Acquisitions are easier to execute than Greenfield Investments
Investment made by a foreign company in the economy of another country
Outflows of FDI
Flow of foreign direct investment out of a country
Advantages of Regional Integration
Increased FDIEconomies of scale are created Increased competition Trade effects Improved market efficiency Increased security
the establishment of a wholly new operation in a foreign country
Investments in infrastructure assets that are already constructed
the legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge
A market structure in which a few large firms dominate a market
FDI undertaken to serve the home market
From least integrated to most integrated, the levels of economic integration are a:
free trade area, a customs union, a common market, an economic union, and a political union
Which level of economic integration eliminates trade barriers between member countries and adopts a common external trade policy?
Which feature of a common market differentiates it from a customs union?
allow factors of production to move freely among members
________ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.
Which is the most enduring free trade area in the world?
European Free Trade Association (EFTA)
Which feature of an economic union differentiates it from a common market?
a common monetary and fiscal policy
Which of the following is a reason the European Union is considered an imperfect economic union?
Not all members of the union have adopted the euro
________ has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
________ entails even closer economic integration and cooperation than a common market.
Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. Which level of economic integration is this an example of?
Free Trade Area
arises when two or more enterprises encounter each other in different regional markets/industries
theory stating that when an imperfection in the market makes a transaction less efficient than it could be, a company will undertake FDI to internalize the transaction/remove the imperfection
Disadvantages of Integration
Regionalism, Loss of Sovereignty, Concessions, Interdependence
Current round of the WTO
How many members/observers are in the WTO?
164 members, 23 observers
Regional Economic Integration
enabled countries to focus on issues that are relevant to their stage of development as well as encourage trade between neighbors
5 Main Types:
Free trade area, Customs union, Common market, Economic union, Political Union
Pros of Creating Regional Agreements
Trade creation, Employment opportunities, Market efficiency, Consensus and cooperation
Cons of Creating Regional Agreements:
Trade diversion, Employment shifts and reductions, Interdependence, Loss of national sovereignty
Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area
North American Free Trade Agreement; allows open trade with US, Mexico, and Canad
An association of English-speaking Caribbean states that are attempting to establish a customs union
Most integrated form of economic cooperation with 23 members
Has its own governing and decision-making institutions
Sectors of EU Governance
European Council, European Commission, European Parliament, Council of the European Union, Court of Justice
Association of Southeast Asian Nations
United Nations. New organization set up after WWII to foster international security and cooperation
Free Trade Area
A group of countries committed to removing all barriers to the free flow of goods and services between each other
eliminates trade barriers between member countries and adopts a common external trade policy
a market in which members do away with duties/trade barriers
set a common trade policy against nonmembers and coordinate their economic policies
relationship between FDI and rivalry in oligopolistic industries
3 major reasons for BREXIT
Economics, Loss of Sovereignty, and Political Elitism
What is NAFTA new name