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IBE Flashcards

1
Q

Globalization

A

A process of interaction and integration among the people, companies, governments and economies of different nations

Driven by

  • international trade and FDI
  • Information- and transport technology
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2
Q

Globalization of Markets

A

Refers to merging of historically distinct & separate markets into one global marketplace
- creating a ‘global market’

With increasingly similar consumer tastes and preferences

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3
Q

Globalization of Production

A

Refers to the sourcing of goods and services from location around the globe to take advantage of national differences in the cost and quality of ‘factors of production’

Factors such as
- labor, capital, energy, land

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4
Q

PESTLE

A

Framework for organizing country differences:
Political, Economic, Social, Technological, Legal, Environmental

  • Often used to analyze attractiveness of market
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5
Q

Culture

A

A system of values and practices that are shared among a group of people that when taken together constitute a design for living

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6
Q

Values

A

Ideas a group believes to be good/desirable and bad

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7
Q

Norms

A

Social rules and guidelines concerning appropriate behavior

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8
Q

Folkways/Customs

A

Norms/Social rules for everyday life

  • Fx dress code, social manners
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9
Q

Mores

A

Norms central to a functioning society

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10
Q

Society

A

A group of people that share a common culture

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11
Q

Sub-culture

A

A unique group within a larger culture

  • Fx language, race, lifestyle
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12
Q

HOFSTEDE

A

Model used for characterizing a culture (national)

  • Power distance:
    Hierarchy or equally distributed power
  • Individualism vs Collectivism:
    Focus on the individual or the whole/group
  • Uncertainty avoidance:
    Tolerance of unpredictability (control or let the future happen)
  • Masculinity vs Femininity:
    Preference in society for success - more competitive vs more cooperation and caring for the weak
  • Long-term orientation:
    High: Focus on future and delay short-term success
  • Indulgence vs Self-restraint:
    Allow or restrict free gratification (enjoying life etc)
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13
Q

Political Systems

A

Includes the structure, processes and activities by which a country govern itself

Individualism vs collectivism
Democratic vs totalitarian

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14
Q

Political System - Democratic

A

Fair elections, right to vote,

freedom of press and other civil rights

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15
Q

Political System - Totalitarian

A

Few or no civil rights, State control, Cencorship

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16
Q

Legal Systems

A

Include the raw and rules that regulate behavior

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17
Q

Common Law

A

Based on tradition,

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18
Q

Civil law

A

Codified legal system

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19
Q

Theocratic Law

A

Based on religion

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20
Q

Mercantalism

A

Goal of accumulating wealth by encouraging exports and discouraging imports

  • Affecting trade balance
  • Trade seen as a zero-sum game
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21
Q

Absolute Advantage

A

Situation where a country is more productive/efficient (lower cost) than another country for a particular product

Theory says: Countries should ‘specialize’ in production and export of products for which it has absolute advantage and import others

Limitation: Does not explain what a country with absolute advantage in all goods should do -> Comparative advantage

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22
Q

Comparative Advantage

A

Countries should specialize in production of of products in which it is ‘relatively’ more productive, meaning it has ‘lower opportunity cost’ than other countries
- Is dynamic and changes over time

Limitation:
- labor is not the only factor of production
Assumption of:
- Perfect competition and Constant returns to scale (no economies of scale)

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23
Q

Opportunity Cost

A

How much you sacrifice of one thing to do another thing

  • Largest sacrifice made to produce a given good
    (When lower than other countries = comparative advantage
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24
Q

Factor Endowments

A

The amount of land, labor, capital, infrastructure and entrepreneurship a country has and can use for production

  • A company exports the good where its production is relatively intensive in the factor of which the country is abundant
  • The abundant factor endowments benefit from openness to trade
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25
Q

Economies of Scale (New Trade Theories)

A

Reduction in unit cost achieved by producing a large volume

  • Average cost falls as the quantity of output increases
    (Increased rate of Input < Output increase)
  • unit costs spread out on fixed costs
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26
Q

Diseconomics of Scale (New Trade Theories

A

Average cost falls as the quantity of output increases

Increased rate of Input > Output increase

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27
Q

Constant returns to Scale (New trade Theories)

A

Average cost falls/rises on same level as quantity of output increases
Increased rate of input = increased output

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28
Q

Perfect Competition (Market Structure)

A

Refers to the hypothetical situation where no producer or consumer has the power to influence prices

I.e. All act as ‘price takers’

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29
Q

Monopoly (Market Structure)

A

In which there is only 1 seller of a good

- Can control prices

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30
Q

Oligopoly (Market Structure)

A

In which there are few sellers of a good

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31
Q

Monopolistic Competition (Market Structure)

A

In which there are many sellers of a good

- Producing differentiated products

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32
Q

Monopsony (Market Structure)

A

In which there is only one buyer of a good

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33
Q

Oligopsony (Market Structure)

A

In which there is a small number of buyers for a good

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34
Q

Porters Diamond

A

Model with elements about building competitive advantage

  • Factor Endowments:
    land, labor, capital, infrastructure etc.
  • Demand Conditions:
    fx a large sophisticated consumer base offers an innovation friendly environment
  • Related and Supporting Industries:
    Local suppliers and other actors can cluster around producers and add to innovation (flow)
  • Firm Strategy, Structure and Rivalry:
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35
Q

Free Trade (Trade Policies)

A

Situation where the government does not attempt to restrict buying and selling (import/export)

Leads to:
- Static Economic gains:
More domestic consumption and more efficient utilization of resources
- Dynamic Economic gains:
Stimulates economic growth, Job creation and Wealth accumulation

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36
Q

Protectionism (Trade Policies)

A

Government policy by restricting imports and promoting exports
- aim to improve trade balance (current account)

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37
Q

Trade Contraction (Trade Policies)

A

Preventing trade

Price:
- Tariff, and Export Tax: (taxes on imports/exports)

Quantity:
- Import Quota: Limit on amount of a good that can be imported
- Voluntary Export Restraint (VER): Limit on amount of a good that can be exported
(Often a request from importer, accepted to avoid risk of worse terms)

38
Q

Trade Expansion (Trade Policies)

A

Boosting trade

Price:
- Import- and Export subsidy: Financial support for imports/exports

Quantity:
- Voluntary Import Expansion (VIE): Agreement to increase amount of imports
(Can include lowering Tariffs / dropping Import Quotas - often result of international pressure

39
Q

Local Content Requirement (Trade Policies)

A

Requirement to use certain percentage of good or service

- sometimes a requirement for FDI activities

40
Q

Anti-dumping Policies (Trade Policies)

A

Regulations to avoid dumping of goods

- fx by establishing a price floor (minimum price)

41
Q

Multilateralism (Economic Integration)

A

Situation where close to all countries in the world work together on a given issue under certain international relation agreements

GATT->WTO, IMF, World Bank, UN

42
Q

Regionalism (Economic Integration)

A

Any agreement that involves two or more countries (but much fewer than all possible)
- Typically in same geographic area, but can also be across the globe

EU, G7, G20, NATO

43
Q

Economic Integration (& the different levels)

A

A process by which economies of separate countries merge into larger entities

  • Levels:
    1) Preferiental Agreements
    2) Free Trade Agreements
    3) Custom Union
    4) Common Market
    5) Economic Union
    6) Economic & Monetary Union
    7) Political Union
44
Q

Unilateral (Economic Integration)

A

Trade policy of of countries not part of any multilateral or regional agreement

45
Q

Bilateral (Economic Integration)

A

Trade policy between 2 countries

  • Can both be geographically concentrated OR dispersed
46
Q

Minilateral (Economic Integration)

A

Trade policy between a group of countries

Can be geographically concentrated (EU, NAFTA) or dispersed

47
Q

GATT (Economic Integration)

A

General Agreement on Trade and Tariffs
- signed after WW2

  • 1986: The Uruguay Round, new round of negotiations launched. Culminates in 1994 with treaty that establishes WTO (World Trade Organization)
48
Q

WTO (Economic Integration)

A

World Trade Organization
-Entity that regulates international trade

Formally created at the end of the Uruguay Round, replacing GATT
WTO now included aspects of trade in Services and rules on Intellectual Property
- 123 participating countries

Principles:
- Reciprocity: one county offers to reduce a barrier to trade and a second country “reciprocates”
- Nondiscrimination: Equal treatment
(However FTAs and Custom unions are allowed)
- Freer trade

49
Q

RTAs (Economic Integration)

A

Regional Trade Agreements
- Examples: UN, EFTA

Effects:
Are positive if if Trade Creation dominates Trade Diversion

Statistics show that deeper level of economic integration = more economic growth

50
Q

Mega-Regional Trade Blocs (Economic Integration)

A

TPP (Trans-Pacific Partnership) - Not in effect
TTIP (Transatlantic Trade and Investment Partnership)
- Both of which are still frozen

CPTPP (Comprehensive and Progressive Agreement for Trans-pacific Partnership): In effect for 7/11 partners (US waithdrew)

  • BRI (China’s Belt and Road Initiative): Set of bilateral agreements between China and other countries
  • USMCA (United States-Mexico-Canada Agreement): Successor to NAFTA, also called NAFTA 2.0
  • AfCFTA (African Continental Free Trade Agreement): 30 members - Not in effect before 2021
51
Q

GDP

A

Gross Domestic Product

- value of all final goods and services produced within a country in a given period

52
Q

Monetary Policy

A

The process by which the monetary authority of a country controls the supply of money

Expansionary monetary policy: Increase total supply of money more rapidly
Contractionary monetary policy: Expand money supply more slowly or decrease

Tools:
- Open Market Operations
Buying and selling of government securities/bonds - Manipulates interest rate and money supply
- Setting reserve requirements
Certain fraction of deposits that banks are required to reserve - affect available amount to lend
- Setting the discount rate
Interest rate charged by Central banks to banks on loans - Increase/decrease borrowing from banks affecting money supply
- Print money
Increase money supply. Quantitative easing

53
Q

The International Monetary System

A

Comprises the set of rules and institutions that facilitate exchange of goods, services and movement of capital among countries.
Consists of 4 elements:
- Exchange arrangements and exchange rates
- International payments and transfers
- International capital movements
- International reserves

The key institution:
	IMF (International Monetary Fund)
54
Q

IMF

A

International Monetary Fund

  • “ Lender of last resort” - goal: economic stability
  • formed after WW

Periodically depending on the World Bank for resources to carry out its activities, such as:
-Managing balance of payment issues and financial crises

55
Q

Exposure to foreign exchange risk

A

Risk that a foreign currency that a firm is dealing with moves in a direction which has a negative economic effect

3 types:
		- Transaction exposure
Results from cash flows from foreign denominated currency (receivable/revenue, payable/costs, loans)
		- Economic exposure
“Future” transaction exposures
		- Translation exposure
Results from having to consolidate financial statements to include results from foreign operations
(Can result in gains or losses)
56
Q

Hubris Hypothesis

A

Theory that says top managers often are too optimistic about the value that can be created via an acquisition, and then paying a premium

57
Q

The World Bank

A

Similiar to IMF, its goal is economic stability
Compared to IMF it has a more long-term approach, aiming to reduce poverty by funding specific project (infrastructure etc)

58
Q

Debt Financing vs Equity Financing - pros and cons

A

Debt financing:
Pros - Fast turnaround, and a variety of products and payment structures for short or long-term use
Cons - Has to be paid back with interests, and may require collateral

Equity financing:
Pros - Large amounts of capital, no interest
Cons - Slow proces, Loss of ownership stakes, and Control

59
Q

How to hedge agains Exposure to Foreign Exchange Risk

A

Financial Contracts:

  • Forward Contracts: agreement to exchange 2 currencies at a specific time in the future
  • Option Contracts: paying premium for the “right” to buy a currency at a specified rate in the future

Operational techniques:
- Geographic diversification (spread out operations/risks)

60
Q

UN

A

United Nations
Aim to maintain Political Stability and peace
- also has a peacekeeping force (100k soldiers)

Big goals, such as fighting global warming, human rights etc.

61
Q

Business Ethics (CSR)

A

Moral principles or actions. Has to do with ‘what is fair/right and wrong’

4 components of moral behavior / ethical decision making:

	1) Moral sensitivity: ability to see an ethical dilemma
	2) Moral judgement: ability to reason correctly (what has to be done)
	3) Moral motivation: a personal commitment to moral action
	4) Moral character: courageous persistence instead of taking the easy way out
62
Q

OECD

A

Organisation for Economic Cooperation and Development
- 1961

Countries working together to promote economic growth and sustainable developments
- They continue to update guidelines/recommendations for how to conduct business in foreign markets in a fair and sustainable way

63
Q

CSR

A

Corporate Social Responsibility refers to ones obligation to maximize positive impact and minimize negative impact on society

Stakeholder Theory: argues that it is in the companys strategic interest to respect the interests of all its stakeholders - any group or individual who can affect or is affected by the company

64
Q

Sustainability

A

Ability to sustain, or The capacity to adapt/sustain to meets societies needs in ways that do not compromise future generations

  • responsible with resources (land, people, energy, water, materials, capital)
65
Q

Exporting (Internationalization Mode)

A

Manufacture at home and serve foreign markets by exporting
-often with support from local or foreign agents

Why not export:

	- Products may have a low value to weight ratio making transportation costs too high
	- Trade barriers maymake export unattractive
	- Export can limit understanding of tastes and preferences in the export market
66
Q

Licensing (Internationalization Mode)

A

An arrangement in which the owner of intellectual property grants another firm the right to use that property in exchange for royalties or other compensation

  • Less investment needed / less risk
  • Not good if the technology is a core competency and can be stolen
67
Q

Franchising (Internationalization Mode)

A

An arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties or other compensation

  • Typical for service industry
  • Low investment / risk
  • But difficult to control
68
Q

FDI (Internationalization Mode)

A

We refer to FDIs when firms own or control production or service facilities/resources outside the country in which they are based
- A firm will have an advantage to internalize foreign activities when the cost of using the market for conducting those activities is perceived to be too high due to market imperfections

  • Greenfield investment
    refer to a company establishing operations in a foreign country by constructing own facilities
  • Cross-border Acquisitions
    refer to the purchasing of assets (part of or all) of a foreign firm that result in operational control
69
Q

OLI - Framowork (FDI)

A

Internationalization Theory proposes that FDI is the most appropriate form of IB if three conditions are met:

  • Ownership Advantages:
    Firm must have some competitive advantage which can be transferred across borders
    No: No International activity - Yes: Where/how
  • Location Advantages:
    Location needs to leverage a firms competitive advantage and ability to increase its value
    No: Produce at home and export - Yes: Go to market, but what entry mode?
  • Internationalization Advantages:
    Advantages firms experience when they organize their foreign activities within the boundaries of the firm (hierarchy) rather than using the market
    No: License/Franchise - Yes: FDI
70
Q

the Liability of Foreigness (LOF)

A

The natural disadvantage foreigners experience in new environment
Costs associated to: - Cultural distance
cost arising due to unfamiliarity with environment
- Administrative distance. costs arising due to trade barriers and other restrictions
- Geographical distance
costs arising due to travel, transportation and coordination over long distance
- Economic distance
costs arising due to differences in the quality of the labor market and availability of natural resources

71
Q

Knickerbockers Theory

A

2 types of FDI:
- Aggressive investment: establishment of first foreign subsidiary in given industry & country
To gain first-mover advantage (best suppliers, locations and stronger relations and loyalty)
- Defensive investment: establishment of subsequent foreign subsidiaries
To avoid losing market share in foreign markets - to prevent first-mover advantages
Benefits: They can free-ride and avoid costly activities such as analyzing market opportunities

72
Q

Differentiation strategy

A

developing products that customers value and thus are willing to pay a premium price

73
Q

Cost leadership strategy

A

perfecting processes and products to do things more efficiently thus lowering costs

74
Q

Value Chain

A

set of activities that a firm performs to design, produce, market, distribute and service a product

		Separated into primary and support activities

			- Primary activities: core business functions
			- Support activities: firm infrastructure and activities that support primary activities
75
Q

Learning effects

A

Cost savings that come from learning by doing

76
Q

Global innovation and learning

A

able to transfer knowledge gained in foreign market

77
Q

I-R - Framework

A 
- Pressures for global integration:
			force the firm to lower unit costs
- Pressures for local responsiveness:
			require the firm to adapt its product to meet local demands in each market
(Global learning third dimension)

Firm strategy being a function of the different pressures:

  • Global Standardization Strategy - Transnational Strategy
  • International Strategy - Localization Strategy
78
Q

Organizational Architecture

A
  • Structure
  • Processes
  • People
  • Incentives and Controls
  • Culture

Elements must be consistent and fit with the firms strategy

79
Q

Vertical Differentiation (Organizational Structure)

A

the location of decision-making responsibilities within a firms structure

  • Centralized:
    Consistent decision, but less flexible and burden on top management
  • Decentralized:
    Flexible, relieves burden on top management, but less flexible and difficult to enforce change
80
Q

Horizontal Differentiation (Organizational Structure)

A

the formal division of the organization into subunits

  • Functional structure
  • Product division structure
  • International division structure
  • Worldwide product division structure
  • Worldwide area structure
  • Global Matrix structure
81
Q

Integrating mechanisms

A

the mechanisms for coordinating subunits

  • Formal integration mechanisms:
    Direct contact, teams etc
  • Control Systems:
    Personal controls, Bureaucratic controls (budget/spending), Output controls, Cultural Controls
  • Incentives
82
Q

Implementing organizational change

A
  • Unfreeze:
    through shock therapy, taking bold actions
      - Move to new state:
      through proactive change in architecture so it matches new strategy

  - Refreeze
83
Q

Emerging economies

A

former developing economies that have achieved substantial industrialization and growth through economic liberalization

  • Typically point to BRICS (Brazil, Russia, India, China, South Africa)
84
Q

Timing of entry

A
  • Early:
    pros: Gain first-mover advantages, brand loyalty, learning effects
    cons: Pioneering costs (investing and learning), overall risk

Late:

pros: less risky, can copy early entrants
cons: might miss out on market, and competitor has first-mover advantage

85
Q

Turnkey projects

A

contractor handles every detail of the project for foreign client, including training personnel

86
Q

Wholly owned subsidiary (FDI)

A
  • Greenfield operation: Set up own operations

- Cross-border acquisition: Aquire existing firm

87
Q

Strategic alliances

A

similar to joint ventures - is a cooperative agreement between competitors

88
Q

Onshoring

A

locate activities in home country

	Domestic in-house
	Domestic outsourcing
89
Q

Offshoring

A

global relocation of activities typically from home country to foreign markets with location-specific advantages

		Captive offshoring (in-house)

		Offshore outsourcing

(Companies should generally control the most value adding activities in-house)

90
Q

Exchange rates, types, pros/cons

A
  • Fixed (pegged/tied to another):
    Pros: Greater certainty for importers/exporters -> facilitates trade & investment
    Cons: Prevents currency adjustments (over- or undervalued), Limits central banks ability to adjust interest rates for economic growth

-Floating:
Pros: Automatic adjustment (trade deficit=depreciation->exports cheaper), and freeing monetary policy
Cons: More uncertainty

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