Ch.9 Why firms internationalize

Question 1

What is globalization?

Answer 1

The widening set of interdependent relationships between different people in different parts of a world that is divided into nations

Question 2

What are the seven forces driving globalization?

Answer 2

1. Increase in and application of technology
2. Liberalization of cross-border trade and resource movements
3. Development of services that support international business
4. Growth of consumer pressures
5. Increased global competition
6. Changing political situations and government policies
7. Increased cross-national cooperation

Question 3

Are some organisations born global? True or False.

Answer 3

True (Ex. Peace Geeks)

Question 4

Name three costs of globalization?

Answer 4

1. Threats to national sovereignty
2. Economic growth or environmental stress
3. Growing income inequality and personal stress

Question 5

Describe offshoring and its benefits and drawbacks.

Answer 5

Transferring production abroad. Benefits: Lowers production costs and create higher quality jibs at home. Drawback: Less jobs at home, those new better jobs do not necessarily materialize.

Question 6

Describe four traits of geographic distance.

Answer 6

1. Natural resources are located in some countries and not others
2. Talent is concentrated in some locations
3. Transportation costs are not uniform even within one country
4. Communication & coordination costs rise with global operations

Question 7

Describe two traits of economic distance.

Answer 7

1. Purchasing power varies between and within countries. Can be challenging to design product for a country with significantly lower purchasing power. High distance disadvantage.
2. Wages very between countries. High distance advantage.

Question 8

Describe the flat world theory.

Answer 8

1. World is flattening & shrinking due to web & Internet
2. Flattening increases opportunity and intensifies global competition
3. Lower logistics costs
4. Evidence: Many MNC’s have their headquarters located in emerging economies

Question 9

Describe spiky world theory.

Answer 9

1. Economic landscape has steep peaks & valleys
2. Uneven distribution of innovation, knowledge, and patents
3. Uneven growth & opportunity, clusters of growth and opportunity
4. Uneven distribution of population

Question 10

Name the 5 myths of globalization.

Answer 10

1. Globalization is new
2. Globalization is extensive
3. Globalization is unavoidable
4. Globalization erases geographic distance
5. Globalization erases economic distance

Question 11

The subsidiaries of the top MNC’s tend to be located where?

Answer 11

In their home country or home trading block

Question 12

Name two examples of globalization before the 21st century?

Answer 12

Mesopotamian trades routes and the Great Silk Road

Question 13

Export % of GDP is relatively low but rising. True or False?

Answer 13

True

Question 14

How is increased interdependence uneven?

Answer 14

1. High diffusion of mobile phones, slower diffusion of Internet access
2. Strong culture barriers to homogenization of culture
3. Lower cost of media digitization facilitates diversity of content not homogeneity

Question 15

Why do political/social factors sometimes outweigh economic factors?

Answer 15

1. Increased political pressure to focus on inequality & redistribution rather than growth
2. Increased environmental barriers in the business world both nationally and internationally
3. Increased political opposition to free trade agreements

Question 16

In what ways does geographic distance exist in spite of globalization?

Answer 16

1. Unequal travel time to nearest major city
2. Importance of innovation clusters, some cities are more important than others
3. Immigration rules are now tighter than pre-WW1
4. Regional trading blocks facilitate trade division
5. Cultural distance somewhat impervious to reduction in geographic distance

Question 17

In what ways does economic distance exist in spite of globalization?

Answer 17

1. Uneven distribution of population (Spiky view)
2. Uneven distribution of innovation, patents, knowledge (Spiky view)
3. Clusters of innovation (Spiky view)
4. Cultural distance as barrier to greater interdependence

Question 18

True or false, increased inequality cannot be accompanied by reduced absolute poverty?

Answer 18

False, increased inequality can be accompanied by reduced absolute poverty.

Question 19

Can raising barriers to globalization to reduce poverty lead to slower growth and poverty reduction?

Answer 19

Yes

Question 20

What does it mean when a firm grows vertically?

Answer 20

Closer to or further from the customer

Question 21

What does it mean when a firm grows horizontally?

Answer 21

Expanded quantity of offering, more products or services

Question 22

Name the three ways an organisation can grow?

Answer 22

1. Organic: Go it alone
2. Joint venture/partnership: Collaborate
3. Merger/Acquisition: Unify

Question 23

Name the 4 reasons why firms internationalize?

Answer 23

1. To expand sales
2. to acquire resources
3. To diversify/reduce risk
4. And most importantly, INCREASE PROFITS

Question 24

Name the 2 types of investment?

Answer 24

1. Foreign Direct Investment (FDI): Take a controlling interest in a foreign company
2. Portfolio Investment: A non-controlling financial interest in another entity

Question 25

Describe P.E.S.T.E.L.

Answer 25

P: Politics
E: Economy
S: Social/Cultural
T: Technology
E: Environment/Geography
L: Legal