STRT261 Midterm Study Guide.pdf - STRT 261 Midterm Study...

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STRT 261 Midterm Study Guide Class 1: Introduction & Globalization (Ch1 - Globalization) Globalization : the shift toward a more integrated and interdependent world economy The world is moving away from self-contained national economies toward an interdependent, integrated global economic system Globalization of Markets : historically distinct and separate national markets are merging Falling trade barriers make it easier to sell globally Consumers’ tastes and preferences are converging on some global norm Firms promote the trend by offering the same basic products worldwide Example For some American companies, more than half of their earnings come from outside America as of 2012 International Sales account for 70% for GM sales China has a higher future growth potential Chinese market contributes $2billion annually to GM’s bottom line Globalization of Production Firms source goods and services from locations around the world to capitalize on national differences in the cost and quality of factors of production like land, labor, energy, and capital Companies can Lower overall cost structure Improve quality or functionality of product offering Example Part of planes Why do we need Global Institutions Help manage, regulate and police the global marketplace Promote the establishment of multinational treaty to govern the global business systems Examples WTO, IMF, World Bank, UN, G20 The WTO Polices the world trading system Make sure nation-states adhere to the rules laid down in trade treaties Promote lower barriers to trade and investment 167 members in 2017 (98% of world trade) The IMF Maintains order in the international monetary system
Lender of last resort for countries in crisis Argentina, Indonesia, Mexico, Russia, South Korea, Thailand, Turkey, Ireland and Greece The World Bank Promotes economic development via low interest loans for infrastructure projects The United Nations Maintains international peace and security Develops friendly relations among nations Cooperates in solving international problems and in promoting respect for human rights Center for harmonizing the actions of nations The G20 Promotion of international financial stability Forum through which major nationals tried to launch a coordinated policy response to the 2008-2009 global financial crisis Drivers of Globalization Declining barriers to the free flow of goods, services, and capital Avg tariff: 4% More favorable environment for FDI Global stock of FDI was $20.4 trillion in 2011 Decline in these barriers facilitates global production Technological change Microprocessors and telecommunications Internet: information backbone of the global economy Transportation technology Globalization for Firms Technological Changes Lower transportation costs Disperse production to economic, geographically separate locations Low cost information processing and communication Create and manage globally dispersed production Low cost

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