Terms and Chapter Summaries

Chapter 1: Globalization

• Globalization – Trend away from distinct national economic units and toward one huge global market. o Globalization of Markets – Moving away from an economic system in which national markets distinct entities, isolated by trade barriers and barriers of distance, time, and culture and toward a system in which national markets are merging into one global market. o Globalization of Production – Trend of individual firms to disperse parts of their productive processes to different locations around the globe to take advantage of differences in cost and quality of production.
• General Agreement on Tariffs and Trade (GATT) – International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and let to the WTO.
• World Trade Organization (WTO) – The organization that succeeded GATT as a result of the successful completion of the Uruguay Round of GATT negotiations.
• International Monetary Fund (IMF) – International institution set up to maintain order in the international monetary system.
• World Bank – International institution set up to promote general economic development in the world’s poorer nations.
• International Trade – Occurs when a firm exports goods or services to consumer in another country.
• Foreign Direct Investment (FDI) – Direct investment in business operations in a foreign country.
• Stock of FDI – The total accumulation value of foreign-owned assets at a given time.
• Multinational Enterprise (MNE) – A firm that owns business operations in more than one country.

Summary:
• Two factors seem to underlie the trend toward globalization: declining trade barriers and changes in communication, information, and transportation technologies.
• After WWII barriers for trade were lowered significantly. Enabled the firms to view the world as a single market.
• World trade has grown faster than world output; FDI has surged, imports have penetrated more deeply into world’s industrial nations, and competitive pressures have increased in industry after industry.
• In the 1960’s US economy was dominant in the world, but in 1990’s it was cut in a half.
• Managing International business is different from domestic:
1. countries are different
2. problems confronted are wider and complex
3. work within limits of government’s intervention in the international trade and investment
4. currency conversion

Chapter 2: National Differences in Political Economy

• Political Economy – The political, economic, and legal systems of a country.
• Political System – System of government in a nation.
• Collectivism – A political system that emphasizes collective goals as opposed to individual goals.
• Communists – Those who believe socialism can be achieved only through revolution and totalitarian dictatorship.
• Social Democrats – Those committed to achieving social by democratic means.
• Privatization – The sale of state-owned enterprises to private investors.
• Individualism – An emphasis on the importance of guaranteed individual freedom and self-expression.
• Democracy – Political system in which governments is by the people, exercised either directly or through elected representatives.
• Totalitarianism – Form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.
• Representative Democracy – A political system in which citizens periodically elect individuals to represent them in government.
• Communist Totalitarianism – A version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship.
• Theocratic Totalitarianism – A political system in which political power is monopolized by a party, group, or individual that governs according to religious principles.
• Tribal Totalitarianism – A political system in which a party, group, or individual that