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Chapter 6-10

ADMS 1000 - Chapter 6-10


Department
Administrative Studies
Course Code
ADMS 1000
Professor
Eytan Lasry
Chapter
6-10

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CHPATER 6
What is Integration of markets and economies?
Also known as Globalization. Integration of world economies is the presence of
trade blocs reflects the accelerating pace with which nations are integrating their
economies. For example, NAFTA is a free-trade bloc consisting of Canada, the
United States and Mexico. The EU groups 25 countries, while APEC (Asian Pacific
Economic Cooperation) consists of 21 nations forming a free-trade zone around
the pacific.
Integration of world markets is the notion that consumer preferences are
converging around the world. Organizations are increasingly marketing their
goods and services worldwide. Though local modifications may be made to tailor
the product to the local consumer, there is a push toward global products. On the
other side, production is increasingly becoming a global affair. Businesses will
set up operations wherever it is least costly to do so.
Globalization can be considered a process that is expanding the degree
and forms of cross-border transactions among people, assets, goods and
services.
Globalization refers to the growth in direct foreign investment in regions
across the world.
Globalization reflects the shift toward increasing economic
interdependence: the process of generating one, single, world economic
system or a global economy.
What is free flow of goods/services, capital and labour?
Free flow of goods/services, capital and labour refers to the removal of trade
barriers. Trade barriers are government-induced restrictions on international
trade. For example, tariffs, taxes, import/export licenses, subsidies, embargo, etc.
When these are remove, which they have been in some parts of the world (i.e.
NAFTA), this is refers to as free flow of goods/services, capital and labour. This is
done to increase foreign countries to do business easier with the country
without trade barriers. Free trade is based on the objective of open markets,
where a level playing field is created for businesses in one country to compete
fairly against businesses in other countries for the sale of their products or
services.
What is a Multinational Corporations?
A multinational corporation is a type of global business, which engages directly
in some form of international business activity, including such activities as
exporting, importing or international production. A business that has direct
investments (whether in the form of marketing or manufacturing facilities) in a
least two different countries is specifically referred to as a multinational
corporation. In other words, MNCs are business enterprises that control assets,
factories, etc., operated either as branch offices or affiliates in two or more

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foreign countries. An MNC generates products or services through its affiliates in
several countries, and it maintains control over the operations of those affiliates,
and manages from a global perspective.
What are some benefits and threats?
Benefits:
Encourages economic development
Offers management expertise
Introduces new technologies
Provides financial support to underdeveloped regions of the world
Creates employment
Encourages international trade through a company’s access to different
markets: it is relatively easy to produce goods in one country and
distribute them in another country through a subsidiary or foreign
affiliate
Brings different countries closer together
Facilitates global co-operation and worldwide economic development
Threats:
MNCs do not have any particular allegiance or commitment to their host
country
Profits made by an MNC do not necessarily remain within the host
country but may be transferred out to other locations depending on
where the MNC feels the funds are most needed
Decision making and other key functions of MNCs may be highly
centralized in the home country, so that even though other operations are
performed in the host country, they do not necessarily include things like
research and development and strategic planning
Difficulty in the ability to control and hold MNCs accountable can create
serious ethical concerns for the host country.
What is International Trade?
International trade essentially involves the purchase, sale or exchange of goods
or services across countries. This can be distinguished from domestic trade,
which involves trade between provinces, cities or regions within a country.
What is Mercantilism?
(The trade theory underlying economic thinking from the period ranging from
about 1500 to 1800 is referred to as mercantilism). Mercantilism, essentially, is
the economic policy of accumulating this financial wealth through trade
surpluses. Trade surpluses come when a country’s exports exceed its imports,
which lead to more money entering the country than leaving.

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What is Protectionism?
Trade protectionism is about protecting a country’s domestic economy and
businesses through restriction on imports. Why might imports be a threat to a
country’s business and economy?
1. Low-priced foreign goods that enter the country could compete with
goods already produced here and, in effect, take business away from
domestic producers. The ultimate consequence may be loss of sales and
loss of jobs for domestic industries that are unable to compete with these
lower-priced imports
2. A country that imports more than it exports will have a negative balance
of trade, or a trade deficit, which often results in more money flowing out
of the country than flowing in.
What are Tariffs?
A tariff is essentially a tax placed on goods entering a country. Specifically,
protective tariffs are intended to raise the price of imported products in order to
ensure that they are not less expensive than domestically produced goods.
Three situations in which governments often impose tariffs:
To protect fledgling domestic industries from foreign competition.
To protect aging and inefficient domestic industries from foreign
competition.
To protect domestic producers from dumping by foreign companies or
governments. Dumping occurs when a foreign company charges a price in
the domestic market, which is "too low". In most instances "too low" is
generally understood to be a price, which is lower in a foreign market
than the price in the domestic market. In other instances "too low" means
a price, which is below cost, so the producer is losing money.
What is an import quota?
Import quota is a trade barrier, which limits the amount of a product that can be
imported. The reasons for this restriction are the same: to help ensure that
domestic producers retain an adequate share of consumer demand for this
product.
What are subsidies?
A subsidy is an assistance paid to a business or economic sector. Most subsidies
are made by the government to producers or distributed as subventions in an
industry to prevent the decline of that industry (e.g., as a result of continuous
unprofitable operations) or an increase in the prices of its products or simply to
encourage it to hire more labor (as in the case of a wage subsidy).
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