IBT Prelim Reviewer Purpose of United Nations

Globalization- shift toward a more integrated and
interdependent world economy
Facets of Globalization
1. Globalization of Markets- merging of
historically distinct and separate national
markets into one huge global marketplace
2. Globalization of Production- sourcing of
goods and services from locations around
the globe to take advantage of national
differences in the cost and quality of factors
of production
1. To maintain international peace and
security
2. To develop friendly relations among nations
3. To cooperate in solving international
problems and in promoting respect for
human rights
4. To be a center for harmonizing the actions
of nations
UN Charter- international treaty that establishes
basic principles of international relations
IMF- International Monetary Fund

Factors of Production - Created in 1944 by 44 countries in Bretton

Woods, New Hampshire
1. Labor - Was established to maintain order in the
2. Energy international monetary system
3. Land - Often seen as the lender of last resort to
4. Capital nation-states whose economies are in
Needs in Production turmoil and whose currencies are losing
value
1. Material
2. Manpower G20tx- established in 1999
3. Money - Originally established to formulate a
4. Machinery coordinated policy response to financial
GATT- General Agreement on Tariffs and Trade crises in developing nations
- Comprises the finance ministers and central
World Trade Organization (WTO) bank governors of the 19 largest economies
- As of 2011, there are 154 countries Drivers of Globalization
- Primarily responsible for policing the world
trading system and making sure nation- 1. Decline in barriers to the free flow of goods,
states adhere to the rules laid down in trade services and capital
treaties 2. Technological change
- Responsible for facilitating the International Trade- occurs when a firm exports
establishment of additional multinational goods or services to consumers in another country
agreements between WTO member states
- Successor of GATT Tariffs- made to protect domestic industries from
foreign competition
World Bank (WB)
FDI- Foreign Direct Investment
- Created in 1944 by 44 countries in Bretton
Woods, New Hampshire - Occurs when a firm invests resources in
- Was set up to promote economic business activities outside its home country
development
Uruguay Round- most recent trade negotiation
- Focused on making low-interest loans to
where trade barriers are reduced
cash-strapped governments in poor nations
that wish to undertake significant Microprocessor- single most important innovation
infrastructure investments which enabled the explosive growth of high-power,
low-cost computing, vastly increasing the amount
United Nations (UN)
of information that can be processed by individuals
- Established on October 24, 1945 by 51 and firms
countries
Moore’s Law- the cost of microprocessors continues
- 191 countries as of 2011
to fall while their power increases
- Best known for its peacekeeping role
1994- first web browser was introduced
Containerization- revolutionized the transportation
business, significantly lowering the costs of
shipping goods over long distances
Stock of foreign direct investment- refers to the
total cumulative value of foreign investments
Multinational Enterprise (MNE)
- Any business that has productive activities
in two or more countries
International business- any firm that engages in
international trade or investment
Role of Technological Change
1. Microprocessors and telecommunications
2. The internet and world wide web
3. Transportation technology
4. Implications for the globalization of
production
 Just-in-time System- only purchase material
as they are needed to be used
 Outsourcing of Labor- transporting of work
to another country
 Demand for highly-skilled workers
 Rise of machineries
5. Implications for the globalization of
markets
Political Economy- term used to stress that the
political, economic, and legal systems of a country
are interdependent
I. Political System- the system of government in a
nation
- dictated by the people and for the people
2 Dimension in Assessing Political System
1. Emphasizing collectivism as opposed to
individualism
Collectivism- political system that stresses the
primacy of collective goals over individual goals
Government- move individualism to collectivism
- With a goal to abolish private ownership
Karl Marx (1818-1883)- a socialist, argues that few
benefit at the expense of many in a capitalism
society where individual’s freedoms are not
restricted
Two Socialist Ideology
 Communist- believed that socialism could
be achieved only through violent revolution
and totalitarian dictatorship
 Social Democrats- socialism could be
achieved by democratic means, turning
their back on violent revolution and
dictatorship
Privatization- sold state-owned enterprises to
private investors
Individualism- a philosophy that an individual
should have freedom in his economic and political
pursuits
Steps toward market-based economic system
 Deregulation
 Privatization
 Creation of a legal system
2. Degree to which they are democratic or
totalitarian
Democracy- political system in which government
is by the people, exercised either directly or
through elected representatives
Representative democracy- citizens periodically
elect individuals to represent them
Totalitarianism- a form of government in which one
person or political party exercise absolute control
over all spheres of human life and prohibition its
opposing political parties
Four Major Forms of Totalitarianism
1. Communist Totalitarianism- China,
Vietnam, Laos, North Korea and Cuba
- China, Vietnam, and Laos are communist
in name only since those nations now
adhere to market-based economic
reforms
2. Theocratic Totalitarianism- found in states
where political power is monopolized by a
party, group, or individual that governs
according to religious principles
3. Tribal Totalitarianism- occurs when a
political party that represents the interests
of a particular tribe monopolized power
4. Right-wing Totalitarianism- permits some
individual economic freedom but restricts
individual political freedom, frequently on
the grounds that it would led to the rise of
communism
II. Economic System- determined by the number of
individuals—rich and poor
Three Broad Types of Economic Systems
1. Market Economy- all productive activities
are privately owned
2. Command Economy- the government plans
the goods and services that a country
produces, the quantity in which they are
produced, and the prices at which they are
sold
3. Mixed Economy- certain sectors of the
economy are left to private ownership and
free market mechanisms, while other
sectors have significant state ownership
and government planning
III. Legal System- refers to the rules or laws, that
regulate behavior along with the processes by
which the laws are enforced and through
which redress for grievances is obtained
Three Main Types of Legal Systems
1. Common Law- based on tradition
Tradition- refers to a country’s legal history,
precedent to cases that have come before the courts
in the past, and customs to the ways in which laws
are applied in specific situation
2. Civil Law- based on detailed set of laws
organized into codes
3. Theocratic Law- one in which the law is
based on religious teachings
Contract- a document that specifies the conditions
under which an exchange is to occur and details the
rights and obligations of the parties involved
Contract Law- the body of law that governs contract
enforcement
Contracts for the International Sale of Goods (CIGS)
- established a uniform set of rules governing
certain aspects of the making and performance of
everyday commercial contracts between sellers and
buyers who have their places of business in
different nations
Property- refers to a resource over which an
individual or business holds a legal title, that is, a
resource that it owns
Property rights- legal rights over the use to which a
resource is put and over the use made of any
income that may be derived from that resource
Private action- refers to the theft, piracy, blackmail,
and the like by private individuals or groups
Public action- to violate property rights occurs
when public officials extort income, resources, or
the property itself from property holders
Foreign Corrupt Practices Act- makes it illegal to
bribe to a foreign government official to obtain or
maintain business over which that foreign official
has authority
Intellectual property- property that is the product
of intellectual activity
Patent- grants the inventor of a new product or
process exclusive rights for a defined period to the
manufacture, use, or sale of that invention
Copyrights- exclusive legal rights of authors,
composers, playwrights, artists, and publishers to
publish and disperse their work as they see fit
Trademarks- designs and names often officially
registered
World Intellectual Property Organization- an
organization in which all its members have signed
international treaties designed to protect
intellectual property
Paris Convention for the Protection of Industrial
Property- oldest treaty
Product safety laws- set certain safety standards to
which a product must adhere
Product liability- involves holding a firm and its
officers responsible when a product causes injury,
death or damage
Gross National Income (GNI)- yardstick for the
economic activity of a country
- Measures the total annual income received
by residents of a nation
Purchasing Power Parity (PPP)- to account for
differences in cost of living
- Allows for a more direct comparison of
living standards in different countries
- The basis is the cost of living in United
States
- Adjusted depending upon whether the cost
of living is increasing or decreasing than in
United States
Human Development Index (HDI)- to measure the
quality of human life in different nations
Based on three measures:
1. Life expectancy at birth- a function of health
care
2. Educational attainment- measured by a
combination of the adult literacy rate and
enrollment in primary, secondary, and
tertiary education
3. Average incomes- based on PPP estimates
Innovation- new products and new processes,
organizations, management practices and strategies
Entrepreneurs- first commercialize innovative new
products and processes, and entrepreneurial
activity provides much of dynamism in economy
Deregulation- renovating legal restrictions to the
free play of markets, the establishment of private
enterprises, and in which private enterprises
operate
First-mover advantages- advantages that accrue to
early entrants into a market
Late-mover disadvantages- the handicaps that late
entrants might suffer
Factors affecting Over-all Attractiveness of a
Country
1. Benefit
2. Cost
3. Risk
Political risk- the likelihood that political forces will
cause drastic changes in a country’s business
environment that adversely affect the profit and
other goals of a business enterprise
Economic risk- the likelihood that economic
mismanagement will cause drastic changes in a
country’s business environment that hurt the profit
and other goals of a particular business enterprise
Legal risk- the likelihood that a trading partner will
opportunistically break a contract or expropriate
Cross-cultural literacy- an understanding of how
cultural differences across and within nations can
affect the way business is practiced
Culture- system of values and norms that are
shared among a group of people and that when
taken together constitute a design for living
Values- abstract ideas about what a group believes
to be good, right, and desirable
Norms- the social rules and guidelines that
prescribe appropriate behavior in particular
situations
Society- a group of people who share a common set
of values and norms
Folkways- routine conventions of everyday life and
actions of little moral significance
Mores- norms that are seen as central to the
functioning of a society and to its social life
Six Determinants of Culture
1. Social Structure- a society’s basic social
organization
Two Dimensions:
 Degree to which the basic unit of social
organization is the individual, as opposed to
the group
Group- an association of two or more individuals
who have a shared sense of identity and who
interact with each other in structured ways on the
basis of a common set of expectations about each
other’s behavior
Individual- basic building block of social
organization
 Degree to which a society is stratified into
classes or castes
Social strata- all societies are stratified on a
hierarchical basis into social categories
- defined on the basis of family background,
occupation, and income
Social mobility- extent to which individuals can
move out of the strata into which they are born
Caste system- closed system of stratification in
which social position is determined by the family
into which a person is born
Class system- less rigid form of social stratification
in which social mobility is possible
Class consciousness- a condition where people tend
to perceive themselves in terms of their class
background
2. Religion- a system of shared beliefs and
rituals are concerned with the realm of the
sacred
Ethical System- a set of moral principles, or values,
that are used to guide and shape behavior
  Christianity- most widely practiced religion
in the world
 Islam- second largest of the world’s major
religions
Islamic Fundamentalism- demands commitment to
traditional religious beliefs and morals
Two Islamic Banking Methods
Mudarabah- profit-sharing scheme
Murabaha- easiest to implement and almost
similar to conventional banking; buy at a
higher price
 Hinduism- began in Indus Valley in India
and it believes in reincarnation
- world’s oldest major religion
Dharma- acceptance of responsibility
Karma- spiritual progression of each person’s soul
and is affected by the way he lives
 Buddhism- founded in India in 16th century
by Siddhartha Gautama—a person who
renounced his wealth to pursue an ascetic
lifestyle and spiritual perfection
- Does not support the caste system
Buddha- the awakened one
 Confucianism- founded in 15th century by
K’ung-Fu-tzu known as Confucius
- Official ethical system of China
- Teaches the importance of attaining
personal salvation through right actions
3. Language- spoken and unspoken means of
communication and is one of the defining
characteristics of a culture
 Spoken Language- verbal communication
English- most widely spoken language
 Unspoken Language- nonverbal
communication
4. Education- medium through which
individuals learn many of the language,
conceptual and mathematical skills that are
indispensable in a modern society
5. Political Philosophy
6. Economic Philosophy
Geert Hofstede- his most famous study of culture
Four Dimensions of Culture
1. Power distance dimension- focused on how
a society deals with the fact that people are
unequal in physical and intellectual
capabilities
2. Individualism versus collectivism
dimension- focused on the relationship
between the individual and his or her
fellows
3. Uncertainty avoidance dimension-
measured the extent to which different
cultures socialized their members into
accepting ambiguous situations and
tolerating uncertainty
4. Masculinity versus femininity dimension-
looked at the relationship between gender
and work roles
Confucian dynamism (long-term orientation)-
captures attitudes toward time, persistence,
ordering by status, protection of face, respect for
tradition, and reciprocation of gifts and favors
- Values being deprived from Confucian
teachings
Ethnocentrism- a belief in the superiority of one’s
own ethnic group or culture
Ethics- accepted principles of right or wrong that
govern:
 The conduct of a person
 The members of a profession
 The actions of an organization
Business Ethics- accepted principles of right or
wrong governing the conduct of business people
Ethical Strategy- a strategy, a course of action, that
does not violate these accepted principles
Common Ethical Issues
1. Employment practices
2. Human rights
3. Environmental pollution
4. Corruption
5. Moral obligations
Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions-
obliges member states and other signatories to
make the bribery of foreign public officials a
criminal offense
Social responsibility- an idea that business people
should consider the social consequences of
economic actions
Ethical dilemmas- situations in which none of the
available alternatives seems ethically acceptable
Roots of Unethical Behavior Kantian ethics- hold that people should be treated
as ends and never purely as means to the ends of
1. Personal ethics- the generally accepted
others
principles of right and wrong governing the
conduct of individuals 3. Rights Theories- recognize that human
2. Decision-making processes beings have fundamental rights and
3. Organization culture- can legitimize privileges that transcend national
unethical behavior or reinforce the need for boundaries and cultures
ethical behavior
Universal Declaration of Human Rights- lays down
4. Unrealistic performance expectations-
basic principles that should always be adhered to
encourage managers to cut corners or act in
irrespective of the culture in which one is doing
an unethical manners
business
5. Leadership- helps establish the culture of an
organization, and set the examples that 4. Justice Theories- focus on the attainment of
others follow a just distribution of economic goods and
6. Societal culture- firms headquartered in services
cultures where individualism and
uncertainty avoidance are strong are more Just Distribution- one that is considered fair and
likely to stress ethical behavior than firms equitable
headquartered in cultures where Code of Ethics- a formal statement of the ethical
masculinity and power distance rank high priorities a business adheres to
Organization culture- values and norms that are Things to make sure ethical issues are
shared among employees of an organization considered in business decisions
Philosophical Approaches to Ethics 1. Hiring and promotion
1. Straw Men- raised by business ethics 2. Organization culture and leadership
scholars primarily to demonstrate that they 3. Decision-making processes
offer inappropriate guidelines for ethical Stakeholders- individuals or groups that have an
decision making in a multinational interest, claim, or stake in the company, in what it
enterprise does, and in how well it performs
Approaches of Straw Men Internal stakeholders- individuals or groups who
 Friedman Doctrine- proposed by Milton work for or own the business
Friedman which states that only social External stakeholders- all other individuals and
responsibility of business is to increase groups that have some claim on the firm
profits, so long as the company stays within
the rules of law 4. Ethics officers
 Cultural Relativism- ethics are nothing more 5. Moral courage
than the reflection of a culture
 Righteous Moralist- a multination’s home-
country standard of ethics are the
appropriate ones for companies to follow in
foreign countries
 Naive Immoralist- 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
2. Utilitarian and Kantian Ethics-developed in
18th and 19th century
Utilitarian approaches- holds that the moral worth
of actions or practices is determined by their
consequences