International business concepts and applications

¶ … MNC is a multinational corporation that is a phenomenon closely linked with globalization. The numbers and size of these corporations have increased with the progress of globalization. The impressive economic growth of such corporations have given them not only economic, but also political power, thus making them a threat or a valuable alliance for states, and also in terms of economics for international corporations.

Adam Smith was an economic philosopher, who lived from 1723-1790. The central premise of his philosophy was that rational self-interest in a free-market economy was the best means of attaining economic well-being. For Smith, self-interest was a necessary component in one's feelings of benevolence toward others, and only in this kind of synthesis was it possible to be economically well.

David Ricardo (1772-1823) was another economist who focused on the rational side of economy. He pioneered a belief in the quantity theory of money, or monetarism, in that he blamed England's inflation on the issue of excess bank notes.

3) Absolute advantage entails an advantage without any comparison to other companies. There is no cost to such an advantage. Comparative advantage is an advantage compared to others. A certain company has a comparative advantage in its production of certain goods, while other companies have different comparative advantages as a result of a variety of differential elements.

4) The factors of production of goods or services are land, labor, and capital. All production is a combination of these elements to a greater or lesser extent. Land entails resources and raw materials, labor the human effort in production, and capital includes labor costs as well as the purchase costs of equipment or tools.

5) Mercantilism is a system that seeks to further the wealth and power of the state by means of economic nationalism. Dominating economic thought in Europe roughly from the sixteenth to eighteenth centuries, this is a system by which imports were restrained and exports encouraged. Free trade on the other hand encourages both imports and exports, with the premise that international specialization of labor results in economic well-being for all involved.

6) Communism seeks to eradicate international control of production by nationalizing corporations. In this way control is moved to the national level, which also centralizes planning for production. Capitalism is more focused on economic growth than the nationalism advocated by communism. Growth is focused on a continual increase of quality in production.

7) The theory of regulated capitalism may comprise a variety of views. Economic regulation could for example be seen as emphasizing the market-making role of regulation. On the other hand there could also be a type of regulation through market correcting that entails social-democratic goals. In practice it depends upon the particular circumstances and perceived needs of the economy.

8) The government in its role as regulator imposes laws that constrain market practices such as inflated pricing as a result of lack of competition. An example of this is the antitrust law, imposed to keep consumer prices at their lowest possible level. The government as arbitrator is more self-serving than the above. When a government arbitrates, it seeks to further its own interest by taking advantage of people's ignorance of the law.

9) Through its fiscal policy, the government manipulates its budget in order to affect the economy. This is usually done through changing or adding to issues such as tax laws. The U.S. monetary policy is dictated by the Federal Reserve Bank. The focus of this policy is to promote a maximum of employment opportunities, while ensuring stable prices.

10) Command economies are directed by a government that is centralized. This kind of economy, while best serving the government, does not sustain economic growth. Market economies, on the other hand, rely on private enterprise. In this way the economy is decentralized, while providing opportunities for economic growth to a larger amount of people.

11) GNP, or gross national product, includes the value of goods and services produced locally within a year, together with what is earned by citizens working abroad, minus what is earned by foreigners working domestically. In short, GNP is everything earned by legal citizens of a country within a year, regardless of where these earnings are accumulated.

GDP is gross domestic product, which includes a variety of sub-components. It entails earnings gathered by all persons within the borders of a country, regardless of whether these persons are legal citizens or not.

12) The balance of payments records a country's trade with other countries in the world. These records are in the domestic currency of the particular country whose balance of payments is the focus. Credit items are recorded as those dealings through which money enters the country, while debit items are deals by which money leaves the country.

13) The IMF and the World Bank are mostly controlled by the most powerful countries, including the United States, the United Kingdom, Japan, Germany, France, Canada and Italy. Countries having built up external debts approach these institutions for help. An interesting fact is that such help usually entails even greater debt than the initial problem.

14) Cartels are price fixing agreements between businesses when firms begin to engage in collusive behavior. This occurs as a result of market uncertainty. Cartels then aim to maximize joint profits by an attempt to apparently monopolize the market.

15) Barriers to trade include tariffs, taxes, as well as nontariff barriers. When international tariffs and taxes are levied on goods and services, both costs and benefits are involved. Producers for example benefit from a raise in tariffs, while consumers are affected by cost. Nontariff barriers to trade come into play when tariff barriers are determined cooperatively.

16) Inflation, money supply and interest rates are closely dependent upon each other. An adequate or excess supply of money for example would result in lower interest rates and inflation. A higher inflation and lower money supply again would result in higher interest rates.

17) Competitive devaluation of a currency occurs as a result of a declining economy. When a country devaluates its currency, all countries competing with it tend to devalue their currency as well in order to remain in competition.

18) Several factors influence economic integration. These include technological advances, transport costs and development, communication, and public policies as a result of all of the above.

19) Multinational corporations (MNC's) usually have a greater and more evenly spread global presence than transnational corporations. The latter focuses its attention on national trade relations, which is of more benefit to the national economy. MNC's on the other hand may be more prosperous in terms of financial growth as a result of favorable exchange rates.

20) A product life cycle entails the stages by which products and services develop and decline. These stages include introduction, growth, maturity and decline. The introduction stage involves a new product entering the market, which then grows as the market expands. It reaches maturity when there is no longer market growth, and then finally declines when interest declines.

21) The politics of investment involves the political climate surrounding any investment. When political risk is significant, the investment climate is not favorable. A lower political risk would then entail a more favorable investment climate.

22) Political risk, as mentioned above, is the political climate in the target country. When there are unstable political conditions, the political risk is high. This is one factor that makes many third-world countries unfavorable investment prospects. Wealthy corporations are generally unwilling to risk investments in politically unstable climates.