Globalization Flashcards
What is globalization
A close integration of countries and people of the world
What is international business
The action of doing business abroad
What is global business
Business around the globe
What is multinational enterprise
A firm that engages in foreign direct investment (FDI)
What is foreign direct investment (FDI)
Investing in, controlling and managing value added activities in other countries
What determines the success and failure firms around the globe?
Resource base view - all controls and blames on the firm. It indicates or states that the success and failure of the firm depends on themselves.
Institution base view - the success and failure of the firm lies in formal (government regulations, laws, rules) and informal (custom, tradition, and culture) institutions
What are the 3 views on globalization
A new force- the globalization is something new. Started with western countries and was enabled with technological advance. It is a way to exploit other developing countries.
A long run historical evolution- globalization has been with humans since human history started and has been growing with the population
A pendulum- globalization is not new or one way, but swings from one extreme to the other.
Why do nations trade
Because of the benefit from the trade.
What are the theories of international trade
Classical trade - developed before 20th century. They are static, meaning they don’t take into account changes over time.
Modern trade- developed in the 20th century. They are dynamic, taking into account changes over time.
Classical trade theories
developed before 20th century. They are static, meaning they don’t take into account changes over time.
Mercantilism, absolute advantage, comparative advantage
Mercantilism
International trade has winners and losers. they thought this because they believed there was limited amount of gold and silver the world.
Every other economy rejected this notion because both sides benefit from the trade.
Absolute advantage
The country that’s is more productive and efficient should specialize in that.
Comparative advantage
If a country can produce an item at the lower opportunity cost (cheaper) than the others, it has to specialize in that.
Modern trade theories
developed in the 20th century. They are dynamic, taking into account changes over time.
Product life cycles, strategic trade, national competitive advantage
Product life cycles
Patterns of trade change over time as production shifts from new to maturity and standardized stages.
(New - new product to the world. Maturity- other countries start developing the same new product. Standardized- developing countries start producing that same product)
Strategic trade
Suggests that strategic intervention by government in certain industries can enhance their odds of success.
National competitive advantage of industries
Competitive advantage of certain industries depends on 4 aspects
Trade barriers
Tariff - tax on imported goods
Non- tariff - import quota, local content requirement, subsidies, etc.
Deadweight loss
A net loss that occurs in an economy as a result of tariff or a loss of total surplus.
Foreign portfolio investment
Investment in stocks and bonds in foreign countries, but without a controlling interest.
*FDI controls, but foreign portfolio investment does not.
Multinational enterprise vs non multinational enterprise
Multinational enterprise engages in FDI. Non multinational enterprise does NOT engage in FDI
Why FDI?
Ownership (control)
Location
Internalization
What are the political views on FDI
Radical view, free market view, pragmatic nationalism
Radical view
Very hostile to FDI, they don’t like FDI, they think that it’s a way of exploitation
Free market view
They like FDI and they want less government intervention
Pragmatic nationalism
Each government will weigh the costs and the benefits of FDI, and if the benefits outweigh the costs, then the government will allow it.
What are benefits of FDI
Capital inflow, job creation, technological or management info that we can learn from foreign firms.
Horizontal and vertical FDI
Producing the same goods in host countries as at home - horizontal
Upstream downstream. Selling in other countries NOT producing - vertical
Alliances
Voluntary agreement of cooperation between firms.
“If you cannot beat them, join them”
Acquisitions
Transfer of the control of operations and management from one firm to another.
Resource based view- VRIO
Value
Rarity
Imitability
Organization
Resource similarity
The extent to which a given competitor possesses strategic endowment comparable to those of competitors
Market commonality
Overlap between 2 rival markets.
If commonality is low, competition is high. If commonality is high, competition is low.
Explain the new view of globalization
A new force sweeping through the world in recent times.
Explain the evolutionary view of globalization
Globalization has always been a part and parcel of human history.
Explain the pendulum view of globalization.
Not recent and is not one directional.
Globalization has both rosy and dark sides and these change over time
What is foreign direct investment?
Investing in, controlling, and managing value-added activities in other countries
What different political views exist on FDI?
Radical view - hostile towards FDI
Free market view - unrestricted by government. FDI is a win-win for home and host countries
Pragmatic nationalism- pros and cons with FDI. FDI is approved when benefits outweigh costs
What benefits exist to a country receiving FDI
Capital inflow, technology, management, job creation
What costs exist to a country receiving FDI
Loss of sovereignty, competition, capital outflow
How do resources and capabilities influence the competitive dynamics of a business?
In order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors
What is resource similarity and how does this impact competitive dynamics?
The extent to which a given competitor processes strategic endowment comparable, in terms of both type and amount.
High resource similarity has similar competitive actions
