Business 6: Globalization and Local Economies

Question 1

Define globalization.

Answer 1

Distribution of industrial and service activities across an increasing # of nations

Question 2

What is the result of globalization?

Answer 2

Makes world more interdependent

Question 3

How do you measure globalization?

Answer 3

Measured by world trade as a % of GDP

Question 4

What factors drives globalization?

Answer 4

• improvements in transportation
• tech advancements
• deregulation of int’l fin. markets
• operational options for int’l business (more choices)

Question 5

What is a natural outcome of globalization?

Answer 5

• Promotes specialization (specialization that leverages comparative advantage)

Question 6

Globalization imparts responsibilities of world citizenship. Corporations have what two implied duties?

Answer 6

1) Act responsibility reg. environmental issues

2) Promote political stability and cooperation among nations

Question 7

What are three key motivations for int’l business operations?

Answer 7

1) Comparative advantage
2) Imperfect markets
3) Product cycle

Question 8

What is Bermuda’s comparative advantage?

Answer 8

Tourism

Question 9

What is the ability to trade freely between markets often limited by?

Answer 9

• physical immobility of the resource
• regulator barriers
  (so co. trade outside their borders to retrieve more resources)

Question 10

Product cycle is driven by what?

Answer 10

Demand

Question 11

One way of conducting int’l business operations is by exporting/importing products or services. What is this called?

Answer 11

International trade

Question 12

Entities that provide the right to use processes or tech in exchange for a fee are engaged in what type of activity?

Answer 12

Licensing

Question 13

Entities whose marketing service or delivery strategy provides training and related service delivery resources in exchange for a fee are engaged in what type of activity?

Answer 13

Franchising

Question 14

Give an example of a franchise.

Answer 14

McDonald’s

Question 15

What is a joint venture?

Answer 15

Takes advantage of comparative advantage of one or both of the participants in marketing or delivering a product

Question 16

When an entity establishes int’l operations by purchasing a foreign company as a subsidiary or by starting a subsidiary operation w/i the borders of a foreign country, what type of activity are they engaged in?

Answer 16

Direct Foreign Investment (DFI)

Question 17

What do you call the sync of all levels of product manufacturing on an int’l basis?

Answer 17

Global sourcing

Question 18

How can a company mitigate the risk that governments may attempt to control economic activity through taxes and tariffs?

Answer 18

Transfer pricing

Question 19

Should a company assess the risk of political intervention in business planning and financial reporting?

Answer 19

YES

Question 20

What is NAFTA?

Answer 20

North American Free Trade Agreement

Question 21

What is a foreign trade zone?

Answer 21

Trade zones in which tariffs are waived until goods leave the zone

Question 22

The creation of foreign trade zones affects the government’s control of what?

Answer 22

Control of imports and the location of import facilities

Question 23

China is an example of what type of economic system?

Answer 23

Centrally planned economy

Question 24

In centrally planned economies, factors of production are owned by whom?

Answer 24

Government (subject to restriction)

Question 25

The US is an example of what type of economic system?

Answer 25

Market economy

Question 26

In market economies, factors of production are owned by whom?

Answer 26

Individuals

Question 27

The Japanese keiretsu or the Korean chaebol is an example of what?

Answer 27

Conglomerates

Question 28

Define conglomerate.

Answer 28

- Corporation that is made up of a number of different, seemingly unrelated businesses. - In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately.

Question 29

Define culture.

Answer 29

Shared values and attitude of a group

Question 30

What type of cultures may be highly averse to dealing w/ uncertainty?

Answer 30

- Asian culture | - South American culture

Question 31

Exchange rate fluctuation is generally divided into what three categories?

Answer 31

1) Transaction risk 2) Economic risk 3) Translation risk

Question 32

Does an operation w/i a foreign economy carry the risk of functioning w/i the general health or weakness of a particular economy?

Answer 32

Yes

Question 33

Foreign demand is a function of what two things?

Answer 33

1) Income of customer | 2) Purchasing power of currency

Question 34

Higher interest rates in the foreign country are indicators of what?

Answer 34

- Slower economic growth | - Reduced demand

Question 35

Lower interest rates in the foreign country are indicators of what?

Answer 35

- Increased growth | - Increased demand

Question 36

What is the effect of higher local economy inflation?

Answer 36

- Reduces purchasing power | - Making imports more expensive and reducing local demand

Question 37

What is the effect of lower local economy inflation?

Answer 37

- Increases purchasing power for imports, resulting in higher local demand

Question 38

What is the impact of a weak local currency on the demand for imported goods?

Answer 38

Reduces demand for imported goods

Question 39

What is the impact of a strong local currency on the demand for imported goods?

Answer 39

Increases demand for imported goods

Question 40

What are two complications of global sourcing?

Answer 40

- multiple sources for materials | - multiple exchange rates

Question 41

The dominance of the US as the world's lone superpower is referred to as what?

Answer 41

Unipolar distribution of power

Question 42

What are the BRIC countries?

Answer 42

Brazil Russia India China

Question 43

The new era of multipolarity, wherein power is distributed among many nations, includes what nations?

Answer 43

US EU BRIC

Question 44

Nationals rich in natural resources have the potential to be more ______.

Answer 44

Powerful

Question 45

One dimension of national power is ______, which translates to workforce.

Answer 45

Population

Question 46

What is defined as the participation of nations in worldwide institutions (e.g. U.N, WTO, IMF)?

Answer 46

Functional interdependence

Question 47

What is defined as the acknowledgement that all members of the global community share the planet Earth?

Answer 47

Systematic interdependence

Question 48

The increase in _______ will require an acknowledgement of the interdependence of nations and cooperation among nations consistent w/ shifts in the balance of power.

Answer 48

Multipolarity

Question 49

What nations are generally regarded as the world's largest industrial economies?

Answer 49

Developed nations

Question 50

What nations are generally regarded as the countries not included on the list of developed nations and are lead by BRIC?

Answer 50

Emerging nations

Question 51

Developed nations have generally produced trade _____ as their domestic consumption results in more imports than exports.

Answer 51

Deficits

Question 52

Emerging nations often produce trade ______ as their exports feed the consumption of developed nations.

Answer 52

Surpluses

Question 53

NAFTA offers trading partners operating w/i its boundaries reductions in tariffs on products in exchange for compliance w/ limits on imported labor and materials used in the manufacture of those products. This practice is also known as what?

Answer 53

Sourcing requirement

Question 54

True or false. The IMF regulates currency values.

Answer 54

False (IMF activities are designed to stabilize exchange rates but it is not empowered to regulate currency values)

Question 55

Global companies that deal w/ the political and financial risks of conducting business in a particular foreign location face which type of risk?

Answer 55

``` Country risk (encompasses the political risk, economic risk, transfer risk, sovereign risk, and exchange rate risk associated w/ engaging in business w/ foreign countries) ```

Question 56

The concept of a global economic balance of power anticipates what?

Answer 56

A distribution of power and influence that ensures that no one nation or group of nations will dominate or interfere w/ the activities of others