Chapter 7

Question 1

What is Globalization?

Answer 1

• The increase in international exchange. including trade in goods and services as well as exchange of money, ideas, and information
• The growing similarity of laws, rules, norms, values, and ideas across countries

Question 2

What are the four parts of the diamond structure?

Answer 2

• Factors endowments
• Demand conditions
• Related and supporting industries
• Frim strategy, structure, and rivalry

Gives a country advantages to help them in a target country

Question 3

What is factor of endowments

Answer 3

“The nation’s position in factors of production (inputs) for competing in a given industry”

Economist view: land, capital, labor, are building blocks that create usable consumer goods and services and are readily available for all firms
Strategy view: scientific innovation, infrastructure, banking system etc, can be deliberately created by firms
Ex: Roads, railways, banking system

These factors of production give the home country advantage when going to the target country

Question 4

Factors of production are industry and firm specific because

Answer 4

The pool of resources is less important than the speed and efficiency with which these resources are deployed

Therefore, firm-specific knowledge and skills created within a country that are rare, valuable, difficult to imitate, and rapidly and efficiently deployed are the factors of production that lead a nation’s competitive advantage

Question 5

What is an example of factors endowments

Answer 5

Mineral deposits in Canada are the factors of production that are the inputs and gives them competitive advantage when exporting these inputs to other countries who don’t have access to those inputs

Question 6

What are demand conditions

Answer 6

“Demands that consumers place on an industry for services and goods”

Consumers want highly specific sophisticated products and services forces firms to create innovative advanced products to meet the demand

Improvements of existing goods and services result in competitive advantage over other countries

Question 7

What are supporting industries

Answer 7

“Enables firms to manage inputs more effectively by:”

• A competitive supplier base reduces manufacturing costs
• Close working relationships with suppliers that allows for joint research and development

Ex: Italian shoe companies have a competitive advantage since their leather suppliers are in the same country

Question 8

What are related industries

Answer 8

“Creates opportunities and threats that lead to competitive advantages by:”

• Offering opportunities through joint efforts among firms
• New entrants from related industries (forces existing firms to practice cost control, produce innovation, better distribution methods)

Ex: Hardware firms and software firms rely on each other for gaining competitive advantages because developments in the hardware side create advances on the software side

Question 9

What is firm strategy, structure, rivalry

Answer 9

Rivalry is intense in nations with conditions of strong customer demand, strong supplier bases, and high new-entrant from related industries. This competitive rivalry increases the efficiency with which firms develop, market, and distribute products and services within the home country. Domestic rivalry leads to INNOVATION and rivalry increases EFFICIENCY

Question 10

What are some motivations for international expansion?

Answer 10

Increase size of potential markets

Take advantage of arbitrage opportunities

Enhance a product’s growth potential

Optimize the location of value chain analysis

Take advantage of learning opportunities

Explore reverse innovation

Question 11

Explain “increase size of potential markets”

Answer 11

Attain economies of scale

Question 12

Explain “take advantage of arbitrage opportunities”

Answer 12

An opportunity to profit by buying and selling the same good in different markets

Ex: Profit margin/competitive advantage to selling Banana from Cameroon to EU

Question 13

Explain “to enhance a product’s growth potential”

Answer 13

Reinvigorating the product life cycle: maturity stage in a firm’s home country but that has greater demand potential elsewhere

Ex: Old car models sold in developing countries

Question 14

Explain “to optimize the location of value chain analysis:

Answer 14

Example: Auto manufacturing and Electronics

Parts are not made from just one country because it is more effective to have a global value chain

Performance enhancements: some countries make better products than others

Cost reduction: some countries have cheaper labor, material for these productions

Risk reduction: reduces risk by spreading the parts of the value chain across multiple countries

Question 15

Explain “explore reverse innovation”

Answer 15

Design and manufacture products locally in emerging markets

Ex: Portable ultrasound machines for developing countries (no-frills machines), however in developing countries they can bring innovation back to more developed countries such as using the machine for paramedics

Question 16

Explain “take advantage of learning opportunities”

Answer 16

Ex: Biotech firms going to Nordic countries to look at the existing firms and take it as a learning opportunity

Question 17

What are the risk of international expansion

Answer 17

Political risk
Economic risk
Currency risk
Management risk

Question 18

Explain “political risk”

Answer 18

Reasons due to social unrest military turmoil, demonstrations, terrorism, and absence of the rule of law can lead to:

• Destruction of property
• Disruption of operations
• Non-payment for goods and services
• Arbitrary government decisions

Question 19

Explain “economic risk”

Answer 19

It is a potential threat to a firm’s operations in a country due to economic policies and conditions, including property rights laws and enforcement of those laws

Ex: Counterfeiting- selling of trademarked goods without the consent of trademark holder is a direct firm of intellectual property

Question 20

Explain “currency risk”

Answer 20

This is due to fluctuations in the local currency’s exchange rate
-Affects cost of production or net profit

Question 21

Explain “management risk”

Answer 21

The potential threat to a firm’s operations in a country due to the problems that managers have making decisions in the context of foreign markets

Due to differences in culture, customs, language, income level, customer preferences, distribution systems

Question 22

What are the opposing pressures and the four strategies

Answer 22

International strategy
Global strategy
Transnational strategy
Multidomestic strategy

Question 23

Explain “international strategy”

Answer 23

Low pressures for local adaptation, Low pressures to lower costs

Based on diffusion of the parent company’s knowledge and expertise to foreign market

Country units are allowed to make some minor adaptations to products and ideas coming from the head office

The primary goal is worldwide exploitation of the parent firm’s knowledge and capabilities

Ex: Orphan drug industry (diseases that are severe but affect only a small number of people)

Question 24

Explain “global strategy”

Answer 24

Low pressures for local adaptations, High pressures to lower costs

Based on firm’s centralization and control by the corporate office with the primary emphasis on controlling costs

Competitive strategy is centralized and controlled by the corporate office

Products are standardized, operations centralized, producing economies of scale

Worldwide volume supports investment in R&D

Ex: Commodities such as steel

Question 25

Explain “multidomestic strategy”

Answer 25

High pressures for local adaptation, Low pressures to lower costs

“Puts emphasis on differentiating products and services to adapt to local markets”

• Products and services are tailored to local use
• Can expand rapidly in some markets

Ex: Tax/accounting services

Question 26

Explain “transnational strategy”

Answer 26

High pressures for local adaptation, High pressures to lower costs

Optimize the trade-offs associated with efficiency, local adaptation, and learning

Assets and capabilities are disturbed according to the most beneficial location for a specific activity