WGU C211 - Competency 1 FINAL EXAM QUESTIONS AND ANSWERS

Views on Globalization New, Evolutionary, and Pendulum "New" view on globalization A force sweeping through the world in recent times. "Evolutionary" view on globalization A long-run historical evolution since the dawn of human history "Pendulum" view on globalization One that swings from one extreme to another from time to time Foreign Direct Investment Direct investment in, control, and management of value-added activities in other countries Political views on FDI Radical View, Free Market View, Pragmatic Nationalism Benefits to a country receiving FDI Capital Inflow, Technology Spillover, Advanced Management Know-How, Job creation Costs to a country receiving FDI Loss of Sovereignty, Adverse effects on competition, Capital outflow. How do resources and capabilities influence the competitive dynamics of a business? Resource similarity and market commonality can yield a powerful framework for competitor analysis. Resource similarity The extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm. How does resource similarity impact competitive dynamics? Firms with a high degree are likely to have similar competitive actions. (Starbuck's instant coffee & McDonald's iced coffee) Classical theories of international trade Mercantilism, Absolute advantage, and Comparative advantage Modern theory view Dynamic Classical theory view Static Absolute advantage The economic advantage one nation enjoys that is superior to other nations Comparative advantage The advantage one economic activity nation enjoys in comparison with other nations (relative, not absolute) 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. Features of the product life cycle? New, Maturing, and Standardized Strategic trade 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? The price of a commodity, a country's currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops. Which theory came first? Mercantilism (although both are of the idea that governments should actively protect domestic industries from imports and 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? Forward transactions, an act know as currency hedging. Transaction risk The exchange rate risk associated with the time delay between entering into a contract and settling it. Hedging A transaction, such as forward transactions, that protects traders and investors from exposure to the fluctuations of the spot rate. Currency hedging A way to protect traders and investors from being exposed to the fluctuations of the spot rate Strategic hedging A means of spreading out activities in different currency zones in order to offset the currency losses in certain regions through gains in other regions (currency diversification) First mover advantages Proprietary, technological leadership, pre-emption of scarce resources, establishment of entry barriers to late entrants, avoidance of clash with dominant firms at home, relationships with key stakeholders, (such as governments.) Late mover advantages Opportunity to free ride on first-mover investments, Resolution of technological and market uncertainty, First mover's difficulty to adapt to market changes.) Foreign market entries types Non-equity and equity Non-equity Reflects relatively smaller commitments to overseas markets. Determines firms MNE status. Equity indicative of relatively larger, harder-to-reverse commitments. Determines firms MNE status.