C211 WGU Study Guide With Complete Solutions.

Globalization Is the close integration of countries and peoples of the world which has been brought about by the enormous reduction of the cost of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders. New view of Globalization A new force sweeping through the world in recent times that it is a new phenomenon beginning in the late 20th century, driven by recent technological innovations and a Western ideology focused on exploiting and dominating the world through a Multinational enterprises. Evolutionary view of globalization A long run historical evolution since the down of human history. Historians are debating whether globalization started 2,000 or 8,000 years ago. Earliest traces of globalization goes back to the Assyrian, Phoenician, and Roman times. Pendulum view of globalization A pendulum that swings from one extreme to another from time to time. Globalization is neither recent or one-directional. Risk management and scenario planning is needed. What is Foreign Direct Investment (FDI)? Investment in, controlling and managing value-added activities in other countries. In other words, investment made by a firm or individual in one country into business interest located in another country. Most discussed foreign entrance is MNE. MNE: Multinational Enterprise Is a firm that engages in FDI when doing business abroad. FDI sets apart MNEs and non-MNEs. What different political views exists on FDI? -in developed economies, backlash against inbound FDI from certain countries is not unusual. Example, in the 1980s, Americans were alarmed by the significant Japanese inroads into the United States. -in some parts of the developing world, tension over foreign ownership can heat up. There were numerous incidents of nationalization and expropriation against MNE assets throughout the developing world. What 4 benefits exist to a country receiving FDI? 1. Capital inflow improve the host country balance of payment. More technology, management, and more jobs in their countries. 2. Technology, especially more advanced technology from abroad, can create technology spillovers that benefits domestic firms and industries. Local rivals can learn and imitate such technology resulting in what's called demonstration effect (contagion effect). 3. Advanced management know how may be highly valued. It's often difficult for indigenous development of management to know how to reach a world-class level in absence of FDI. 4. FDI creates jobs, both directly and indirectly. Direct benefits arise when MNEs employ individuals locally. What costs exist to a country receiving FDI? 1. Loss of sovereignty 2. Adverse effects on competition 3. capital outlfow How do resources and capabilities influence the competitive dynamics of a business? Firm resources must create value when engaging rivals. The ability to respond rapidly to challenges also adds value. Competitive Dynamics Actions and responses undertaken by competing firms. What is resource similarity? Extent to which a given competitor possesses strategic endowment comparable in terms of both type and amount to those of the local firm. In order words, extent to which firm's tangible/intangible resources are comparable to competitors in type and amount. How does resource similarity impact competitive dynamics? Firms with a high degree of resources similarity are likely to have similar competitive actions. For example, Apple and IBM used to have a lot of resource similarity in the 1990s that they fought a lot. Classical theory of international trade. 1. Mercantilism 2. Absolute advantage 3. Comparative advantage Mercantilism Theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer. On the other hand, a nation experiencing a trade deficit would see its gold and silver flowing out and, consequently, would become poorer. International trade is a zero-sum game. Absolute advantage Theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage with free trade market forces are determined with little to no government intervention. The economic advantage one nation enjoys that is absolutely superior to other nations. International trade is a win-win game. There are net gains from trade. Comparative advantage Theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations. It suggests that the U.S. has an absolute advantage over China in both wheat and aircraft, but as longs as China is not equally less efficient in production of both goods, China can still choose to specialize in the production of one good. There are net gains from trade. -opportunity cost is a crucial concept here. Opportunity cost The cost of pursuing one activity at the expense of another activity. Factor endowments The extent to which different countries possess various factors of production such as labor, land, and technology. Modern Theory 1. Product life cycle. 2. Strategic trade. 3. National competitive advantage Product life cycle A theory that accounts for changes in the patterns of trade over time by focusing on product life cycle. 1. New: production of a new product that commands a price premium will concentrate in the United States which exports to other developed nations. 2. Maturing stage: demand and ability to produce grow in other developed nations so it is now worthwhile to produce there. 3. Standardized (commoditized): production moves to low-cost developing nations, which export to developed nations. Comparative advantage may change over time. Strategic trade theory Suggests that strategic intervention by governments in certain industries can enhance their odds for international success. These industries tend to be high capital-intensive, high-entry-barrier industries in which firms may have little chance without government assistance. These industries feature first-mover advantages. Strategic trade policy Government policy that provides companies a strategic advantage in international trade through subsidies and other supports. First mover advantages Advantages that first entrants enjoy and do not share with late entrants. National competitive advantage Theory that suggest that the competitive advantage of certain industries in different nations depends on four aspects that form a "diamond." Theory focuses on why certain industries within a nation are competitive internationally. National competitive advantage: Diamond (multilevel theory) 1. Firm strategy, structure and rivalry: starts with factor endowments which are not enough. 2. Tough domestic demands propels firms to scale new heights. Abilities to satisfy a tough domestic crowd may make it possible to successfully deal with less demanding overseas customers. 3. Domestic firm strategy, structure, and rivalry in one industry play a huge role behind its international success or failure. 4. Related and supporting industries provide the foundation upon which key industries can excel. Why is mercantilism an important term? Mercantilism is the direct intellectual ancestor of modern-day protectionism. Protectionism The idea that governments should actively protect domestic industries from imports and vigorously promote exports. What are the critical features of the product life cycle? 1. It assumes that the U.S. will always be the lead innovation for new products. 2. Theory assumes a stage-by-stage migration of production, taking at least several years or more. But an increasing number of firms are simultaneously launching new products around the globe. How would you describe strategic trade? Strategic intervention by governments in certain industries can enhance their odds for international success. These industries are usually highly capital-intensive, high entry-barrier industries that is difficult for domestic firms to enter without government assistance. How are supply and demand related to the exchange rate of a country? The price of a commodity is most fundamentally determined by its supply and demand. Strong demand will lead to price hikes, and oversupply will result in price drops. What determines the supply and demand of foreign exchange? 1. Relative price differences. 2. Interest rates and monetary supply 3. Productivity and balance of payments. 4. Exchange rate policies 5. Investor psychology Which theory came first, mercantilism or modern-day protectionism? Mercantilism is the direct intellectual ancestor of modern-day protectionism. If a company seeks to limit foreign exchange rate exposure in the forward direction what is the most effective way to do this? Forward transaction: a foreign exchange transaction in which participants buy and sell currencies now for future delivery. What is transaction risk? Currency risk: the potential for loss associated with fluctuations in the foreign exchange market. Explain the concept of "hedging" as it relates to reducing various types of risk. Forward transactions: allows participants to buy and sell currencies now for future delivery (30, 90, or 180 days). It's primary benefit is to protect traders and investors from being exposed to the fluctuations of the spot rate. Currency hedging A transaction that protects traders and investors from exposure to the fluctuations of the spot rate. Spot rate The price quoted for immediate settlement on a commodity, a security or a currency. What is the difference between currency hedging and strategic hedging? Currency hedging focuses on using hedging forward contracts and swaps to contain currency risks. (A financial management activity or currency traders) Strategic hedging refers to geographically dispersing operations through sourcing or FDI in multiple currency zones. (Involves production, marketing, and sourcing). What advantages exist with first mover? Benefits that accrue to firms that enter the market first and that late entrants do not enjoy such as proprietary, technological leadership. What advantages exist with late mover? Benefits that accrue to firms that enter the market later and that early entrants do not enjoy. Opportunity to free ride on first-mover investments. Consider the model of foreign market entries. How is scale-of-entry related/relevant? One key dimension in foreign entry decision is the scale of entry, which refers to the amount of resources committed to entering a foreign market. Large scale entries demonstrates strategic commitment to certain markets which helps assure the local customers and suppliers. Drawbacks to large scale entries are limited strategic flexibility elsewhere and huge losses if unsuccessful. How do institution reduce uncertainty? ... Discuss and compare the three pillars (regulatory, normative, and cognitive) 1. Regulatory pillar: (formal institutions) is the coercive power of governments. 2. Normative pillar: (informal institutions) refers to how values, beliefs, and actions of other relevant players (norms) influence the behavior of local individuals and firms. 3. Cognitive pillar: (informal institutions) refers to the internalization, of values and beliefs that guide behavior. Formal institution institution represented by laws, regulations, and rules. Primary support pillar is the regulatory pillar. Example; ppl pay taxes largely because of the coercive power of the government. Informal institution institution represented by cultures, ethics, and norms. Two main supportive pillars are normative and cognitive. Normative pillar refers to how values, beliefs, and actions of relevant players (norms) influence the behaviors of individuals and firms. Institution-based view A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions. on what is the institution based view of global business grounded? Two core propositions underpinning institution based-view of global business. Institution-based view: proposition 1 managers and firms rationally pursue their interest and make choices within formal and informal institutional constraints in a given institutional framework. Institution-based view: proposition 2 when formal constraints are unclear or fail, informal constraints plays a larger role. How is global business affected by democracy? in most modern democracies, the rights to organize economically has not only been extended to domestic individuals to firms, but also to foreign individuals and firms that come to do business. how is global business affected by totalitarianism (dictatorship)? Totalitarianism: a political system in which one person or party exercises absolute political control over the population. Communist totalitarianism centers on a communist party. Right-wing totalitarianism characterized by intense hatred against communism Theocratic totalitarianisim the monopolization of political power in the hands on one religious party or group. Examples, Iran & Saudi Arabia Tribal totalitarianism one tribe or ethnic group monopolizing political power and oppressing other tribes or ethnic groups. what are the differences between democracy and totalitarianism? 1. demoncracies confront political risk. Good for business. 2. totalitarianism is not good for business. they often experience wars, riots, protest, which results in higher political risk that may negatively impact domestic and foreign firms. explain the core features of civil, common, and theocratic law? How do they compare? ... Civil Law Derived from Roman law. it is the oldest, most influential, and the most widely distributed around the world. it uses comprehensive statutes and codes as a primary means to form legal judgements. Over 80 countries uses this. Less flexible because judges only have the power to apply the law. common law English in origin, is shaped by precedents and traditions from previous judicial decisions. Has more flexibility because judges have to resolve specific disputes based on their interpretation of the law and such interpretation may give new meaning to the law. Theocratic law a legal system based on religious teachings. Example includes Jewish law, and Islamic law. what is a property right? the legal rights to use an economic property (resource) and to derive income and benefits from it. In what way are property rights essential? One important economic function of the legal system is to protec property rights. Examples of property rights includes homes, offices, and factories. Protection of such rights afforded by the legal system.