Lecture 7

Question 1

What must a firm possess to become an MNC?

Answer 1

A firm must possess a valuable/rare capability that is difficult to copy

Question 2

What is enterprise valuation?

Answer 2

The book value of a company (Past 3 month’s profit) and the market value (stock prices)

Question 3

What are the two components that determine enterprise valuation?

Answer 3

Profitability and profit growth

Question 4

What are the two ways to increase profitability?

Answer 4

Reduce costs

Add value and raise prices

Question 5

What are the two ways to increase profit growth?

Answer 5

Sell more in existing markets

Enter new markets

Question 6

What is consumer surplus?

Answer 6

Difference between the value of the consumer’s time and the price of the product

Question 7

What are primary activities?

Answer 7

Core activities to produce a good or service including, research and development, production, marketing and sales, and customer service

Question 8

What are support activities?

Answer 8

Those more distal factors that influence primary activities including, information systems, company infrastructure and logistics, and human resources

Question 9

What does a firm engaged in FDI mean for the home country?

Answer 9

The firm has chosen not to invest in the home nation and the host nation has an advantage over the home nation

Question 10

Why would an MNC choose not to exploit the host advantage through trade?

Answer 10

Tariffs place on imports in the host country

Question 11

Why are tariffs put in place?

Answer 11

To prevent MNCs destroying local markets

Question 12

Approximately when did the first trade, FDI and offshoring tasks and functions occur?

Answer 12

Trade-1870
FDI-1960
Offshoring tasks and functions-1980

Question 13

What is the difference between trade, production and tasks?

Answer 13

Trade is separating production from consumption
Production is geographical separation of different elements of production
Tasks is the geographical separation of specific tasks, eg. having production, sales and customer service all in different places

Question 14

What did international trade result from?

Answer 14

Falling cost of transporting completed goods (affected most sectors equally)

Question 15

What did international production result from?

Answer 15

Falling costs of managing production resources and coordination (Impacted different sectors differently)

Question 16

What did international tasks come from?

Answer 16

Falling costs of transferring knowledge-internet (impacted at the level of the individual)