WGU C211 - Global Economics for Managers Final Exam - All Reading (Answered Fall 2022)

WGU C211 - Global Economics for Managers Final Exam - All Reading (Answered Fall 2022) Base of the pyramid (BOP) Economies where people make less than $2,000 per capita per year. BRICA Brazil, Russia, India, and China. Emerging economies term that has gradually replaced the term "developing countries" since the 1990s. Emerging markets A term that is often used interchangeably with "emerging economies." Expatriate manager A manager who works abroad, or "expat" for short. Foreign direct investment (FDI) Investment in, controlling, and managing value-added activities in other countries. Global Business Business around the globe. Gross national income (GNI) GDP plus income from non-resident sources abroad. The term used by the World Bank and other international organizations to supersede the term GNP. Gross national product (GNP) GDP plus income from non-resident sources abroad International business (IB) (1) A business (or firm) that engages in international (cross-border) economic activities and/or (2) the action of doing business abroad. International premium A significant pay raise when working overseas. Liability of foreignness The inherent disadvantage that foreign firms experience in host countries because of their non-native status. Multinational enterprise (MNE) A firm that engages in foreign direct investment (FDI). Reverse innovation An innovation that is adopted first in emerging economies and is then diffused around the world. Risk management The identification and assessment of risks and the preparation to minimize the impact of high-risk, unfortunate events. Scenario planning A technique to prepare and plan for multiple scenarios (either high or low risk). Purchasing power parity (PPP) adjustment made to the GDP to reflect differences in the cost of living The bottom billion Concentrated in Africa and Central Asia - 58 small countries, stuck at the bottom in terms of growth, incomes and human development Enhance employability & advance career, better preparation to be expat, competence in interacting with foreign suppliers/partners/competitors/employees Why study global business? Formal rules requirements that treat domestic and foreign firms as equals enhance the potential odds for foreign firms' success or those that discriminate against foreign firms, would undermine the chances for foreign entrants Informal rules cultures, ethics, and norms play an important part in shaping the success and failure of firms around the globe Resource-based view A core perspective. Success and failure of firms is determined by their environment New force in recent times, a long-running historical evolution, a pendulum swinging between extremes What are the three views of globalization? "Four Tigers" Hong Kong, Singapore, South Korea and Taiwan Administrative policy Bureaucratic rules that make it harder to import foreign goods. antidumping duty Tariffs levied on imports that have been "dumped" (selling below costs to "unfairly" drive domestic firms out of business). Balance of Trade The aggregation of importing and exporting that leads to the country-level trade surplus or deficit. Classical trade theories The major theories of international trade that were advanced before the 20th century, which consist of (1) mercantilism, (2) absolute advantage, and (3) comparative advantage. Factor endowment theory A theory that suggests that nations will develop comparative advantages based on their locally abundant factors. Heckscher-Ohlin theory Another name for factor endowment theory First-mover advantage Advantage that first movers enjoy and do not share with late entrants. Free trade The idea that free market forces should determine how much to trade with little or no government intervention. Import Buying from abroad. Import tariff A tax imposed on imports. Infant industry argument The argument that if domestic firms are as young as "infants," in the absence of government intervention, they stand no chances of surviving and will be crushed by mature foreign rivals. Modern trade theories The major theories of international trade that were advanced in the 20th century, which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries. Opportunity cost Cost of pursuing one activity at the expense of another activity, given the alternatives (other opportunities). Product life cycle theory A theory that accounts for changes in the patterns of trade over time by focusing on product life cycles. Protectionism The idea that governments should actively protect domestic industries from imports and vigorously promote exports. Resource mobility Assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry. Strategic trade policy Government policy that provides companies a strategic advantage in international trade through subsidies and other supports. Strategic trade theory A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success. Subsidy Government payment to domestic firms. Tariff barrier Trade barrier that relies on tariffs to discourage imports. Theory of absolute advantage A theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage. Theory of comparative advantage A theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations. Theory of mercantilism A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer. Trade deficit An economic condition in which a nation imports more than it exports. Trade surplus An economic condition in which a nation exports more than it imports. Agglomeration Clustering of economic activities in certain locations. Bargaining power Ability to extract favorable outcome from negotiations due to one party's strengths. Demonstration (contagion or imitation) effect The reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation. Downstream vertical FDI A type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country. Foreign portfolio investment (FPI) Investment in a portfolio of foreign securities such as stocks and bonds. Free market view on FDI A political view that suggests that FDI unrestricted by government intervention is the best. 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. Intrafirm trade International transactions between two subsidiaries in two countries controlled by the same MNE. Management control rights The rights to appoint key managers and establish control mechanisms. Obsolescing bargain The deal struck by MNEs and host governments, which change their requirements after the initial FDI entry. Pragmatic nationalism on FDI A political view that only approves FDI when its benefits outweigh its costs. Radical view on FDI A political view that is hostile to FDI. Sunk cost Cost that a firm has to endure even when its investment turns out to be unsatisfactory Upstream vertical FDI A type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country. Vertical FDI A type of FDI in which a firm moves upstream or downstream at different value chain stages in a host country. Antitrust law Law that outlaws cartels (trusts). Antitrust policy Government policy designed to combat monopolies and cartels. Attack An initial set of actions to gain competitive advantage. Blue ocean strategy Strategy that focuses on developing new markets ("blue ocean") and avoids attacking core markets defended by rivals, which is likely to result in a bloody price war or a "red ocean." Capacity to punish Sufficient resources possessed by a price leader to deter and combat defection. Competition policy Government policy governing the rules of the game in competition. Competitive dynamics Actions and responses undertaken by competing firms. Competitor analysis The process of anticipating rivals' actions in order to both revise a firm's plan and prepare to deal with rivals' response. Concentration ratio The percentage of total industry sales accounted for by the top four, eight, or twenty firms. Counterattack A set of actions in response to attack. Cross-market retaliation Retaliatory attacks on a competitor's other markets if this competitor attacks a firm's original market. Game theory A theory that studies the interactions between two parties that compete and/or cooperate with each other. Market commonality The overlap between two rivals' markets. Mutual forbearance Multimarket firms respect their rivals' spheres of influence in certain markets, and their rivals reciprocate, leading to tacit collusion. Predatory pricing An attempt to monopolize a market by setting prices below cost and intending to raise prices to cover losses in the long run after eliminating rivals. Price leader A firm that has a dominant market share and sets "acceptable" prices and margins in the industry. Prisoners' dilemma In game theory, a type of game in which the outcome depends on two parties deciding whether to cooperate or to defect. Tacit collusion Firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels. Balance of payments A country's international transaction statement, which includes merchandise trade, service trade and capital movement. Bandwagon effect The effect of investors moving in the same direction at the same time, like a herd. Bid rate The price to buy a currency. Capital flight A phenomenon in which a large number of individuals and companies exchange domestic currency for a foreign currency. Common denominator A currency or commodity to which the value of all currencies are pegged. Currency board A monetary authority that issues notes and coins convertible into a key foreign currency at a fixed exchange rate. Currency hedging A transaction that protects traders and investors from exposure to the fluctuations of the spot rate. Currency risk The potential for loss associated with fluctuations in the foreign exchange market. Currency swap A foreign exchange transaction between two firms in which one currency is converted into another at Time 1, with an agreement to revert it back to the original currency at a specified Time 2 in the future. Foreign exchange market The market where individuals, firms, governments, and banks buy and sell foreign currencies. Foreign exchange rate The price of one currency in terms of another. Forward discount A condition under which the forward rate of one currency relative to another currency is higher than the spot rate. Forward premium A condition under which the forward rate of one currency relative to another currency is lower than the spot rate. Gold standard A system in which the value of most major currencies was maintained by fixing their prices in terms of gold. Offer rate The price to sell a currency. Post-Bretton Woods system A system of flexible exchange rate regimes with no official common denominator. Quota The weight a member country carries within the IMF, which determines the amount of its financial contribution (technically known as its "subscription"), its capacity to borrow from the IMF, and its voting power. Target exchange rate (crawling band) Specified upper or lower bounds within which an exchange rate is allowed to fluctuate. Build-operate-transfer (BOT) agreement A non-equity mode of entry used to build a longer-term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm. Country-of-origin effect The positive or negative perception of firms and products from a certain country. Greenfield operations Building factories and offices from scratch (on a proverbial piece of "green field" formerly used for agricultural purposes). Institutional distance The extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries. Joint venture (JV) A new corporate entity created and jointly owned by two or more parent companies. Late-mover advantages Benefits that accrue to firms that enter the market later and that early entrants do not enjoy. Location-specific advantages The benefits a firm reaps from the features specific to a place. Mode of entry Method used to enter a foreign market. Non-equity mode A mode of entry (exports and contractual agreements) that tends to reflect relatively smaller commitments to overseas markets. Scale of entry The amount of resources committed to entering a foreign market. Wholly owned subsidiary (WOS) A subsidiary located in a foreign country that is entirely owned by the parent multinational. Bounded rationality The necessity of making rational decisions in the absence of complete information. Civil Law A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments. Cognitive pillar The internalized (or taken-for-granted) values and beliefs that guide individual and firm behavior. Command economy An economy that is characterized by government ownership and control of factors of production. Economic system Rules of the game on how a country is governed economically Formal institutions Institutions represented by laws, regulations, and rules. Informal institutions Institutions represented by cultures, ethics, and norms Institution-based view A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions. Institutional framework Formal and informal institutions governing individual and firm behavior. Institutional transitions