C211 Study Guide questions

What is Foreign Direct Investment? - answer-is direct investment in, control, and management of value-added activities in other countries. What different political views exist on FDI? - answer-Radical, Free Market, and Pragramatic Nationalism What benefits exist to a country receiving FDI? - answer-Capital inflow, Technology, management, job creation What costs exist to a country receiving FDI? - answer-Loss of sovereignty, adverse effects on competition, and capital outflow How do resources and capabilities influence the competitive dynamics of a business? - answer-Value, rarity, imitibility, and organization (VRIO) Globalization new view - answer-A new force sweeping through the world in recent times Evolutionary globalization view - answer-long-run historical evolution since the dawn of human history "Pendulum" view on globalization - answer-One that swings from one extreme to another from time to time What is resource similarity and how does this impact competitive dynamics? - answer-The degree to which two firms with similar resources are likely to have competitive actions. ie: market commonality Give a description of the classical theory of international trade. - answer-The major theories typically studied consist of mercantilism, absolute advantage, and comparative advantage How would the modern theory compare to the classical theory? - answer-the major theories typically studied consist of product life cycle, strategic trade, and national competitive advantage. Absolute advantage - answer-involves being more efficient than anyone else in the production of any good or service comparative advantage - answer-is the relative (not absolute) advantage in one absolute activity that one nation enjoys in comparison with other nations Mercantilism - answer-Classical trade theory that viewed international trade as a zero-sum game What are the critical features of the product life cycle? - answer-An economic theory that accounts for changes in the patterns of trade over time How would you describe strategic trade? - answer-A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success How are supply and demand related to the exchange rate of a country? - answer-Exchange rates rise and fall based on the underlying economic conditions that prompt traders, investors and others to want more of a particular currency. Which theory came first, mercantilism or modern-day protectionism? - answer-Mercantilism: As protectionism is the idea that governments should protect domestic industries from imports & vigorously promote exports If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? - answer-This can be accomplished by hedging Explain the concept of "hedging" as it relates to reducing various types of risk. - answer-Strategies or Tools used =Hedging Risk associated with =Transaction risks They use hedging to minimize transaction risks What is transaction risk? - answer-The Risk that a company will incur losses due to an adverse change in the relevant foreign exchange rate Strategic hedging - answer-spreading out actives in a number of different currency zones to offset any currency losses in one region through gains in another region. currency hedging - answer-A transaction that protects traders and investors from exposure to the fluctuations of the spot rate. What advantages exist with first mover? - answer-1-They gain advantage through proprietary technology 2-They make pre-emptive investments 3-They erect significant entry barriers for late entrants, such as high switching cost due to locality 4- They may build relationships with key stake holders (customers & governments) What advantages exist with late mover? - answer-1-Late movers can free-ride on first movers pioneering investments 2-First movers face technological & market uncertainties 3-First movers may be locked into a given set of fixed assets Consider the model of foreign market entries. How is scale-of-entry related/relevant? - answer-- First mover advantages and large scale are linked - Small scale entry means learning at low risk - Entry in small or large potential market may require the same level of initial resources How do institutions reduce uncertainty? - answer-by constraining the range of acceptable actions Regulatory pillar - answer-The coercive power of governments. Normative pillar - answer-The mechanism through which norms influence individual and firm behavior. Cognitive pillar - answer-The internalized (or taken-forgranted) values and beliefs that guide individual and firm behavior. formal institutions - answer-Institutions represented by laws, regulations, and rules. informal institutions - answer-Institutions with unwritten and unofficial rules On what is the institution based view of global business grounded? - answer-Success/failure of global firms caused by differing "rules of the game" How is global business affected by democracy? - answer-Anyone can start a business, they usually have more businesses come into the country How is global business affected by totalitarianism? - answer-Not as good for business, these countries often experience higher political risks. Democracy - answer-A political system in which citizens elect representatives to govern the country on their behalf. Totalitarianism - answer-A political system in which the government has total control over the lives of individual citizens. Civil Law - answer-A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments. Common Law - answer-A legal tradition that is shaped by precedents and traditions from previous judicial decisions. Theocratic Law - answer-legal system based on religious teachings What is a property right? - answer-The legal rights to use an economic property (resource) and to derive income and benefits from it. What is an intellectual property right? - answer-Rights associated with the ownership of intellectual property. command economy - answer-An economy that is characterized by government ownership and control of factors of production. mixed economy - answer-An economy that has elements of both a market economy and a command economy. What is an indifference curve? - answer-a curve that shows consumption bundles that give the consumer the same level of satisfaction What are the four properties of an indifference curve? - answer-Downward sloping Preferred to lower ones It cannot intersect the Convex is bowed inward Explain marginal rate of substitution. - answer-the rate at which a consumer is willing to trade one good for another