D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
C211 Study Guide Questions V4
Competency 1: Business Decision-Making in the Global Environment
Globalization (Peng Chapters 1, 5, 6, 11)
1. List and explain the two core perspectives for global business in detail with
examples for each.
• Institution-Based View- the success and failure of firms are enabled and
constrained by institutions (environment). By institutions, we mean the rules of
the game.
• A Resource-Based View- focuses on a firm’s internal resources and
capabilities.
2. What is globalization? Explain the three views on globalization.
• The close integration of countries and peoples of the world
a. a new force sweeping through the world in recent times
b. a long-run historical evolution since the dawn of human history
c. a pendulum that swings from one extreme to another from time to time
3. What is FDI? What are horizontal and vertical FDI?
a. Foreign Direct Investment- Investing in, controlling, and managing value-
added activities in other countries
b. Horizontal FDI- A type of FDI in which a firm duplicates its home country-
based activities at the same value chain stage in a host country
c. Vertical FDI- A type of FDI in which a firm moves upstream or downstream
at different value chain stages in a host country
4. What is the OLI advantage? Explain, providing an example of each.
• A firm’s quest for ownership (O) advantages, location (L) advantages, and
internalization (I) advantages via FDI
a. Ownership - An MNE’s possession and leveraging of certain valuable,
rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas
in the context of FDI
b. Location advantages- are those enjoyed by firms because they do
business in a certain place. Features unique to a place, such as its natural or
labor resources orits location near particular markets, provide certain
advantages to firms doing business there
c. Internalization- refers to the replacement of cross-border markets (such as
exporting and importing) with one firm (the MNE) locating in two or more
countries. For example, instead of selling its technology to a Indonesian firm
for a fee (which is a non-FDI-based market entry mode technically called
licensing), BMW assembles cars in Indonesia via FDI.
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
,D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
5. What are the three political views on FDI? (Explain)
a. Radical view is hostile to FDI. Tracing its roots to Marxism, the radical
view treatsFDI as an instrument of imperialism and as a vehicle for
exploitation of domestic resources by foreign capitalists and firms
b. Free market view suggests that FDI, unrestricted by government
intervention, will enable countries to tap into their absolute or comparative
advantages by specializing in the production of certain goods and services
c. Pragmatic nationalism- A political view that only approves FDI when its
benefits outweigh its costs
6. Carrier (HVAC company) decided to close its manufacturing plant in Ohio
and move it to Mexico.
a. Which country is the host, and which is the home?
i. Mexico is the Host country and U.S. (Ohio) is the home country
b. What are the costs and benefits of FDI to the home country?
i. Capital inflow will improve balance of payments
ii. Technology spillovers improve host country
iii. Advance in management techniques
iv. Creates Jobs
v. Loss of sovereignty-decisions about closures/layoffs
vi. Adverse effects on competition- monopolize markets
vii. Capital outflow- earnings/profit are sent to home country
c. What are the costs and benefits of FDI to the host country?
i. Repatriated earnings from profits from FDI
ii. Increased exports of components and services to host countries
iii. Learning via FDI from operations abroad
iv. capital outflow
v. job loss.
7. What is dumping, and what are anti-dumping duties?
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
, D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
8. What is collusion, and what characteristics of a market make collusion
difficult?
a. Collusion - Collective attempts between competing firms to reduce
competition. Collusion can be tacit or explicit. Firms engage in tacit
collusion when they indirectly coordinate actions by signaling their
intention to reduce output and maintain pricing above competitive levels.
Explicit collusion exists when firms directly negotiate output and pricing
and divide markets. Antitrust laws make collusion more difficult
b. concentration ratio- defined as the percentage of total industry sales
accounted for by the top four, eight, or 20 firms. In general, the higher the
concentration, the easier it is to organize collusion
c. the existence of a price leader—a firm that has a dominant market share
and sets “acceptable” prices and margins in the industry—helps maintain
order and stability needed for tacit collusion. Capacity to punish-Sufficient
resources possessed by a price leader to deter and combat defection
d. industry with homogeneous products- in which rivals are forced to
compete on price (rather than differentiation), is likely to lead to collusion
e. market commonality—the degree of overlap between two rivals’ markets—
also has a significant bearing on the intensity of rivalry. A high degree of
market commonality may restrain firms from aggressively going after each
other
9. How do resources and capabilities influence the competitive dynamics of a
business? (Give an example)
10. What is resource similarity and how does this impact competitive
dynamics? (Give an example)
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
C211 Study Guide Questions V4
Competency 1: Business Decision-Making in the Global Environment
Globalization (Peng Chapters 1, 5, 6, 11)
1. List and explain the two core perspectives for global business in detail with
examples for each.
• Institution-Based View- the success and failure of firms are enabled and
constrained by institutions (environment). By institutions, we mean the rules of
the game.
• A Resource-Based View- focuses on a firm’s internal resources and
capabilities.
2. What is globalization? Explain the three views on globalization.
• The close integration of countries and peoples of the world
a. a new force sweeping through the world in recent times
b. a long-run historical evolution since the dawn of human history
c. a pendulum that swings from one extreme to another from time to time
3. What is FDI? What are horizontal and vertical FDI?
a. Foreign Direct Investment- Investing in, controlling, and managing value-
added activities in other countries
b. Horizontal FDI- A type of FDI in which a firm duplicates its home country-
based activities at the same value chain stage in a host country
c. Vertical FDI- A type of FDI in which a firm moves upstream or downstream
at different value chain stages in a host country
4. What is the OLI advantage? Explain, providing an example of each.
• A firm’s quest for ownership (O) advantages, location (L) advantages, and
internalization (I) advantages via FDI
a. Ownership - An MNE’s possession and leveraging of certain valuable,
rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas
in the context of FDI
b. Location advantages- are those enjoyed by firms because they do
business in a certain place. Features unique to a place, such as its natural or
labor resources orits location near particular markets, provide certain
advantages to firms doing business there
c. Internalization- refers to the replacement of cross-border markets (such as
exporting and importing) with one firm (the MNE) locating in two or more
countries. For example, instead of selling its technology to a Indonesian firm
for a fee (which is a non-FDI-based market entry mode technically called
licensing), BMW assembles cars in Indonesia via FDI.
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
,D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
5. What are the three political views on FDI? (Explain)
a. Radical view is hostile to FDI. Tracing its roots to Marxism, the radical
view treatsFDI as an instrument of imperialism and as a vehicle for
exploitation of domestic resources by foreign capitalists and firms
b. Free market view suggests that FDI, unrestricted by government
intervention, will enable countries to tap into their absolute or comparative
advantages by specializing in the production of certain goods and services
c. Pragmatic nationalism- A political view that only approves FDI when its
benefits outweigh its costs
6. Carrier (HVAC company) decided to close its manufacturing plant in Ohio
and move it to Mexico.
a. Which country is the host, and which is the home?
i. Mexico is the Host country and U.S. (Ohio) is the home country
b. What are the costs and benefits of FDI to the home country?
i. Capital inflow will improve balance of payments
ii. Technology spillovers improve host country
iii. Advance in management techniques
iv. Creates Jobs
v. Loss of sovereignty-decisions about closures/layoffs
vi. Adverse effects on competition- monopolize markets
vii. Capital outflow- earnings/profit are sent to home country
c. What are the costs and benefits of FDI to the host country?
i. Repatriated earnings from profits from FDI
ii. Increased exports of components and services to host countries
iii. Learning via FDI from operations abroad
iv. capital outflow
v. job loss.
7. What is dumping, and what are anti-dumping duties?
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
, D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
8. What is collusion, and what characteristics of a market make collusion
difficult?
a. Collusion - Collective attempts between competing firms to reduce
competition. Collusion can be tacit or explicit. Firms engage in tacit
collusion when they indirectly coordinate actions by signaling their
intention to reduce output and maintain pricing above competitive levels.
Explicit collusion exists when firms directly negotiate output and pricing
and divide markets. Antitrust laws make collusion more difficult
b. concentration ratio- defined as the percentage of total industry sales
accounted for by the top four, eight, or 20 firms. In general, the higher the
concentration, the easier it is to organize collusion
c. the existence of a price leader—a firm that has a dominant market share
and sets “acceptable” prices and margins in the industry—helps maintain
order and stability needed for tacit collusion. Capacity to punish-Sufficient
resources possessed by a price leader to deter and combat defection
d. industry with homogeneous products- in which rivals are forced to
compete on price (rather than differentiation), is likely to lead to collusion
e. market commonality—the degree of overlap between two rivals’ markets—
also has a significant bearing on the intensity of rivalry. A high degree of
market commonality may restrain firms from aggressively going after each
other
9. How do resources and capabilities influence the competitive dynamics of a
business? (Give an example)
10. What is resource similarity and how does this impact competitive
dynamics? (Give an example)
D080 Globalization: Legal, Ethical, and Business Strategies Study Guide
