C211 Flashcards
1
Q
Describes that firms-specific resources and capabilities that lead to the firm’s success of failure (internal- in the firm’s control).
A
Core perspective 1 -Resource-based view
2
Q
Describes that formal and informal institutions that lead to firm success and failure (external- outside of the firm’s control).
A
Core perspective 2 - Institution-based view
3
Q
The close integration of countries and people of the world
A
Globalization
4
Q
Three views on globalization
A
New Force, A long-run historical evolution, and A pendulum
5
Q
Sweeping through the world in recent time (A Western ideology focused on exploiting the world through MNEs)
A
New force
6
Q
A long run historical evolution since the dawn of human history (one directional)
A
A long-run historical evolution
7
Q
Swings from one extreme to another from time to time (not recent nor one directional)
A
A pendulum
8
Q
What is FDI
A
Foreign direct investment
9
Q
Investment in controlling and managing value-added activities in other countries. (key terms: ownership, control)
A
Foreign direct investment (FDI)
10
Q
Upstream or downstream moves in different value-chain stages in a host country (producing vs. selling)
A
Vertical FDI
11
Q
Duplicating home country activities at the same value-chain stage in a host country
A
Horizontal FDI
12
Q
What is the OLI advantage
A
Ownership advantage,
Location advantage,
Internalization advantage
13
Q
Refers to the multinational firm’s possession and leveraging of a certain valuable, rare, or hard to imitate and or organizationally embedded assets overseas (VIRO)
A
Ownership advantage
14
Q
Advantages enjoyed by firms because they do business in a certain place. Such as natural resources, labor resources, location proximity.
A
Location advantage
15
Q
The replacement of cross-border markets such as exporting and importing with one firm locating in two or more countries to avoid taxes and tariffs.
A
Internalization advantage
16
Q
What are the three political views on FDI?
A
Radical view,
Free market view,
and Pragmatic view
17
Q
Treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms (opponents of FDI).
A
Radical
18
Q
Suggests that if unrestricted by government intervention it will enable countries to tap into their absolute and competitive advantages by specializing in the production of certain goods and services (a proponent of FDI).
A
Free Market
19
Q
A view of FDI that had both pros and cons and only approves FDI when benefits outweigh the costs.
A
Pragmatic nationalism view
20
Q
The collective attempts between competing firms to reduce competition.
A
Collusion
21
Q
For collusion to exist the following market characteristics must be present
A
few firms - oligopoly market
existence of a price leader
homogeneous product
High barriers for market entry and high commonality
22
Q
What is VIRO?
A
value (firms must create value when engaging with rivals),
rarity (certain assets are rare generating significant advantage in competitive dynamics),
imitability (trying to imitate successful rival, which fails most of the time),
organization (Some firms are better organized for competitive action)
23
Q
Informed by the VRIO framework which drive decision and actions associated with competitive dynamics
A
Resource-based essentials
24
Q
The extent to which a given competitor possesses a strategic endowment comparable in terms of both type and amount to that of the rival firm. IBM and Amazon
A
Resource similarity
25
A set of actions to gain competitive advantage
The theory of attack
26
A set of actions in response to the attack
The theory of counterattack
27
Choosing to collaborate with other firms to reduce competition
Cooperation
28
The idea that one party (the agent) credibly conveys some information about itself to another party
Signaling
29
four strategies that local firms can take to fight MNEs.
Contender, defender, dodger, extender
30
Firm engages in rapid learning and the expands overseas
Contender
31
centers on local assets in areas in which the multinational firm is weak
Defender
32
cooperates with the multinational firm by going joint venture
Dodger
33
leveraging homegrown competencies abroad
Extender
34
refers to importing more than exporting to other nations
Trade deficit
35
exporting more than importing to other nations
Trade surplus
36
the aggregation of importing and exporting that leads to the country level trade surplus of deficit
Balance of trade
37
three types of classical international trade theories.
Mercantilism, Absolute advantage, and Comparative advantage
38
views the international trade as a zero-sum game meaning they believe that international trade has winner and losers
Mercantilism
39
Advanced by Adam Smith and is defined as economic advantage one nation enjoys that is superior to other nations (key terms: productivity and efficiency).
Absolute advantage
40
Advanced by David Ricardo and states relative advantage in one economic activity comparison with other nations (key terms: lower opportunity cost, who can produce an item cheaper)
Comparative advantage
41
Three types of modern international trade theories
Product lifecycle, Strategic trade, and National competitive advantage (diamond theory)
42
Suggests patterns of trade change over time as production shifts from new to maturity and to a standardized stage.
Product lifecycle
43
Introductory stage – In this stage the firm can command premium prices.
Maturity stage – In this stage the production increases as other developed countries product the item
Standardized stage – the production moves to low-cost countries like developing countries
Three stages of product lifecycle
44
suggests that intervention by government in certain industries can enhance their odds of success.
Strategic trade
45
suggests that the competitive advantage of certain industries depends on four aspects that form a diamond shaped diagram.
National competitive advantage (diamond theory)
46
1. firm strategy, structure and rivalry,
2. Country factor and endowments,
3. Domestic demand condition,
4. Related supported industries
The four aspects of National competitive advantage (diamond theory)
47
What is the relationship between mercantilism and protectionism?
Mercantilism is a protectionist view of trade
48
What is an exchange rate?
The price of a currency in the terms of another currency
49
How do supply and demand determine the exchange rate of a country?
Prices are determined by the forces of supply and demand on a daily basis.
50
an increase in the value of the currency
Currency appreciation
51
a decrease in the value of a currency
Currency depreciation
52
The government sets exchanges rate of the currency relative to other currencies.
Fixed exchange rate policy
53
Supply and demand conditions determine the exchange rate
Floating exchange rate policy
54
When the government links developing countries currency to a key currency like dollar
Pegged exchange rate policy
55
floating policy with a selective government intervention
Managed (dirty) float exchange rates policy
56
How can changes in the interest rate affect the exchange rate?
Interest rate and exchange rate have a positive relationship.
Higher interest rates attract foreign funds therefore, as the demand for the currency increases so does the exchange rate.
57
How can changes in the inflation rate affect the exchange rate?
The inflation rate and the exchange rate have a negative relationship.
Therefore, as inflation increases the exchange rate decreases.
58
A transaction that protects traders and investors from exposure to fluctuations of the spot rate.
Currency hedging
59
Spreading out activities in many countries in different currency zones to offset currency loss in one zone or region through gains in other regions.
Strategic hedging (currency diversification)
60
Three types of currency transactions
1. Spot rate
2. Forward transactions 3. Currency swap
61
a single shot exchange of one currency for another
Spot rate
62
buy and sell currencies now for future delivery to reduce your risk in the future
Forward transaction
63
One currency is converted into another at time 1 with the agreement to revert it to the original currency at time 2 in the future
Currency swap
64
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
65
a. Establishing entry barriers for late movers
b. Avoidance with clash of dominant firms at home
First mover
66
a. Free ride on first mover investment
b. Resolution of technological and market uncertainties
Later mover
67
Two modes of foreign market entries
1. Equity
2. Non-equity
68
Large-scale entry, requires more risk, and ownership. Examples: wholly owned subsidiary, joint venture, greenfield, acquisition
Equity
69
Small scale, less risk, no ownership. Examples: Contracts, R&D contracts, turnkey projects, licensing agreements
Non-equity
70
How do institutions reduce uncertainty?
By singling which actions are acceptable and which are not.
71
the three pillars under the institution-based view of global business.
regulatory, normative, and cognitive
72
The coercive power of government (formal), such as contracts and red lights
Regulatory pillar
73
How the values, beliefs, and actions of other players influence individual firms (informal), and they differ in different countries. Example: a thumbs up is good in the US but a bad sign in Persia
Normative pillar
74
Internalized taken for granted values and beliefs that guide behavior (informal). Example: Whistleblower
Cognitive pillar
75
laws, regulations, and rules focusing on political, legal and economic systems
Formal institutions
76
norms, culture, and ethics that define acceptable standards
Informal institutions
77
Mangers and firms rationally purse their interest within formal and informal constraints (boundless rationality)
Core proposition 1 of institution-based view of global business
78
State where formal constrains are unclear or fail, informal constrains will play a larger role in reducing uncertainty and providing constancy to individual firms
Core proposition 2 of institution-based view of global business
79
A system in which only one person or party exercise absolute political control over the population. Example: Iraq, Libya, Syria
Totalitarianism
80
Types of totalitarianism
Communism, right-wing, theocratic, tribal
81
Communist(m)
centers on the communist party
82
Right-wing
Against communism, backed by the military, restricts political freedom
83
Theocratic
Religious led party
84
Tribal
One tribe or ethic group monopolizes power
85
Citizens elect representatives to the government of the country on their behalf.
Individual right to freedom of expression and organization is highly recognized. People are free to open businesses and the laws are transparent
political system of Democracy
86
Derived from roman law, is the oldest and most widely distributed around the world. Comprehensive statues and code
Civil Law
87
English origin, shaped by precedents and traditions from previous judicial decisions (more flexible compared to civil law)
Common Law
88
Based on religious teachings (Saudi Arabia, United Arab Emirates, and Iran)
Theocratic Law
89
characterized by invisible hand or market forces or supply and demand. All factors of production should be privately owned
Market economy
90
A system in which factors of production are owned by government, supply and demand and pricing are planned by government
Command economy (centrally planned)
91
Has elements of both a market economy and a command economy. Most economies are mixed
Mixed economy
92
Totalitarianism countries often experience war, riots, protests, chaos, and breakdowns, which result in higher political risk having a negative impact on domestic and foreign firms. Example – Iran, Saddam Hussein,
Political risk
93
The legal rights to use an economic property and derive income other benefits from it
Property right
94
Intangible assets resulting from intellectual activity such as patents, copyrights, and trademarks
Intellectual property rights
95
how are they property rights protected?
Property rights are protected on a country-by-country basis
96
the gold standard for a high level of intellectual property right protection that countries are required to adopt to become a signatory country to the World Trade Organization
the Paris Convention
97
Agreement on trade-related aspects of intellectual property rights is also called what?
TRIPS
98
What are the reasons why intellectual property protections are critical in today’s global business environment?
usually different among different countries and enforced differently
99
Shows what combination of goods one can afford given the price of those good and the given income
Budget constraint
100
What information is being represented by the constraint?
The price of the good/services and the consumers income
101
How would an increase in income impact a budget constraint?
the consumer can buy more goods, the budget line shifts out to right
102
How would the increased price of a good impact a budget constraint?
the consumer can afford less of that product
103
If the price of both goods decreased by 10%; what is the impact on the budget constraint?
the consumer can now afford 10% more of the goods
104
represents all combinations of goods/services that a person is different to.
Indifference Curve
105
What are the 4 properties of indifference curves?
1. Downward sloping
2. Higher ones are better
3. Don’t cross
4. Bowed inward
106
Two types of cost that make up total cost.
Fixed and variable costs
107
The cost of a firm factors of production (land, capital, and entrepreneurship) Total fixed cost doesn’t change as output changes.
Fixed costs
108
The cost of variable factors of production used by a firm (the cost of labor, inputs/ingredients).
Variable costs
109
The additional cost of producing one more unit (the change in total cost given the in quantity (growth)
Marginal costs
110
Average total cost equals what?
Average fixed cost + average variable cost
111
total fixed cost per unit of output
Average fixed costs
112
total variable cost per unit of output
Average Variable cost
113
total cost per unit of output
Average total cost
114
What is the relationship between Marginal Cost and Average Variable and Average Total Costs?
a. If marginal cost is below average variable and average total costs the averages cost are decreasing.
b. If marginal cost is above averages then the averages begin to increase
c. The marginal cost cross both average curves at their minimums
115
At least one input is fixed. Ex: rent
Short-run
116
All inputs are variable.
Long-run
117
What is the Federal Funds rate?
The equilibrium interest rate
118
A percentage of every individual bank deposit that banks hold.
Bank reserves
119
The discount interest rate that the Federal Reserve charges to loan out money
The discount window rate (window right)
120
The discount interest rate that the Federal Reserve charges to loan out money
Require reserve ratio
121
The buying and selling of government treasury bonds
Open market operations
122
What three actions could the Federal Reserve take to DECREASE the money supply?
a. Open market sale – The Fed takes M1 money in exchange for bonds
b. Increase the Discount Window Rate – Cost if borrowing for banks rises so they lend less
c. Increase reserve requirement ratio – Banks have less money to lend
123
What impact will the decrease in the money supply have on the Federal Funds rate?
The market interest rate increases, decreasing investments and aggregate demand
124
The economy is experiencing a recession. What are three ways the Federal Reserve can DECREASE the interest rate (federal funds rate)?
a. Decrease the reserve requirement
b. Decrease the discount window rate
c. Buy government treasury bonds
125
An increase in government expenditure or reduction in taxes can increase money demand pushing up the tax rate and decreasing aggregate demand
The crowding out effect
126
The initial spending by the government or tax cuts creates more money through increased consumption spending as it works through the economy. This leaves a larger total effect on aggregate demand than the initial change.
expenditure multiplier effect
127
If government spending increases, using the multiplier effect, is the effect on aggregate demand (AD) larger or smaller than the increase in government spending?
Larger total effect on aggregate demand than the increase in government spending
128
If the government uses fiscal policy to decrease government spending, what impact will this have on aggregate demand?
Aggregate demand will be left smaller than before (the crowding out effect)
129
What is the law of demand?
As price increases Quantity Demanded falls
130
How does the law of demand shape the market demand curve?
Demand curves are always downward sloping
131
a. Change in Quantity Demanded- A movement ALONG the Demand Curve
b. Change in Demand- A SHIFT of the ENTIRE Demand Curve
c. Change in Quantity Supplied- A movement ALONG the Supply Curve
d. Change in Supply- A SHIFT of the ENTIRE Supply Curve
What are the factors that shift the demand curve?
132
a. Shows the relationship between the Quantity Supplied and the Price
b. It represents the Marginal Cost of production to the firm
c. It is the minimum price the firm can accept
d. Which is why it is sometimes called the Willingness to Accept Curve
Supply curve
133
a. Law of supply: As price increases the Quantity Supplied increases
b. The supply curve is always upward sloping
Factors that shift the supply curve
134
the percentage change in the quantity demanded of a good or service divided by the percentage change in the price.
Price elasticity of demand
135
one where a change in price leads to a significant shift in demand and where substitutes are available for an item
Good elasticity
136
demand for a good or service is static even when its price changes without any acceptable goods
Good inelasticity
137
the corresponding change in the demand of a product in response to the change in a consumer's income
Income elasticity
138
The willingness of the consumers to pay for an item minus the actual payment that they make.
Consumer surplus
139
The price that a producer receives minus the cost of producing that item.
Producer surplus
140
the sum of consumer surplus and producer surplus
Total surplus
141
The market efficiency, which maximizes the consumer and producer surplus is also tells us what?
The equilibrium of supply and demand
142
Is defined as market value of all final goods and services produced within a country in a given period of time (year).
Gross domestic product (GDP)
143
four components of GDP
Consumption, investment spending,
Government purchases, net export
144
The spending by household on goods and services, except for new housing.
Consumption
145
The purchase of goods that we will use in the future to produce more goods and services. Including new house purchases.
Investment spending
146
the spending on goods and services by local, state and federal governments.
Government spending
147
exports minus imports, defined as foreign purchases of domestically produced goods
Net export
148
why national income must be equal to national expenditure in the economy as a whole?
each transaction has two side; both income and expenditure
149
Why are transfer payments such as social security not counted in the government expenditures portion of GDP?
They are not made in exchange for currently produced goods and services
150
GDP does not include access to health care, quality of environment, education, and leisure time; which means what?
It’s not always a good measure of wellbeing
151
Why do countries choose to trade?
To benefit both countries
152
If the country chooses to export the good, who are the winners and losers?
Consumers losers as consumer surplus decreases and producers are the winners as producer surplus increases
153
If the country chooses to import the good, who are the winners and losers?
Consumers are the winners as consumer surplus increases and producer surplus decreases
154
A reduction in total surplus; a loss to society
Deadweight
155
five arguments against free trade
Job argument, national security, infant industry, unfair competition, protection as a bargaining chip
156
Free trade destroys domestic jobs
Job argument
157
We will be dependent on foreign countries
National security
158
The idea that government restricts trade to allow new industries to get on their feet
Infant industry
159
The idea that other countries do not play but the same rules
Unfair competition
160
e. Protection as a barging chip
Retaliating
