Midterm (Chapters 1, 2, 3, 4, 5, 6, 7, 8, 10, 12) Flashcards
What is the definition of international business (IB)
A business that engages in international economic activities // doing business abroad
What is the definition of the multinational enterprise (MNE)
A firm that engages in foreign direct investment (FDI)
What is the definition of foreign direct investment (FDI)
Investment in, controlling, and managing value added activities in other countries
What does global business include
International (cross-border) business activities
Domestic business activities
What are the three reasons to study global business?
Enhance your employability / career
Better preparation for assignments abroad
Stronger competence when interacting with foreign firms
What is the G20
A group of 19 major countries in the European Union, they talk about economic problems
What is a expatriate manager (expat)
A managear who works abroad
What is international premium?
A significant pay raise when working overseas
What is the institution based view?
Formal and informal rules of the game (focused on the external environment)
Triple bottom line
What is resource based view?
Firms own resources and capabilities (focused on the internal environment)
What do the formal rules of the game involve?
Laws, regulations, rules
What do the informal rules of the game involve?
Cultures, ethics, norms
Who are primary stakeholders?
Shareholders, customers, employees, suppliers…
Who are secondary stakeholders?
Governments, communities, social + environmental groups
What is the liability of foreignness
The disadvantage foreign firms have in countries due to their foreign status
What is globalization?
Businesses developing international influence or start operating on an international scale
Is globalization a pendulum?
Yes
What are emerging markets / economies?
Countries opening themselves up to globalization (growing developing economies)
What is the base of the pyramid?
Economies where people are making less than $2,000 per capita per year
What is reverse/frugal innovation?
Innovation that is adopted in emerging economies and diffused around the world
What is risk management?
The identification and assessment of risks and preparation to minimize the impact of high risk unfortunate events
What is a black swan event?
An unpredictable event that is beyond what is normally expected (has severe consequences)
What is GDP?
A measure of the value of all final goods and services a country produces
What is deglobalization?
The process of weakening economic interdependence among countries
What is organizational slack?
A cushion of resources that allow an organization to adapt successfully pressures?
What is the definition of institutional transition?
Changes to the formal and informal institutions that affect the firms 
What are transaction costs for institutions?
The cost that is associated with economic transactions (the cost of doing business)
What is opportunism?
The act of self-interest seeking (misleading, cheating…)
What can uncertainty lead to?
Transaction costs
What is bounded rationality?
The ability to make good decisions even when you don’t know all information
What are two core propositions in institutions based view?
- managers rationally pursue their interests
- Where formal institutions are unclear or fail, informal constraints play a larger role
What are nonmarket (political) strategy?
A strategy that focuses on leveraging political and social relationships
What is a democracy?
A political system where citizens elect representatives to govern on their behalf
What is totalitarianism (dictatorship)
One person or party has complete control over the population
What is authoritarianism?
Strict obedience to authority at the expense of personal freedom (Russia)
What is political risk?
The risk associated with political changes that negatively impact firms
What is geopolitics
International political relations
What is common law?
Legal tradition that is shaped by precedents and traditions from previous judicial decisions
What is civil law?
A legal transition that uses comprehensive statutes and codes to make legal judgements
What is theocratic law?
A legal system based on religious technigs
What are property rights?
The legal right to use your property / resources to make income or other benefits
What is intellectual property (IP)
Intangible property (books, videos, websites)
What are the three intellectual property rights?
Patents, copyrights, trademarks
What are patents?
Legal rights awarded by the government to inventors of new products or processes
What are copyrights?
Exclusive legal rights of authors and publishers to disseminate their work
What are trademarks?
Exclusive legal rights of firms to use specific names, brands, and designs
What is a market economy?
An economy that is characterized by the invisible hand of market forces
What is command economy?
An economy that is characterized by government ownership and control of factors of production
What is mixed economy?
An economy that has elements of both market and command economy
What are state owned enterprise? (SOE)
A firm owned and controlled by the state (government)
What is the objective of private firms vs state owned firms?
Private: maximize profits
SOE: protecting jobs, minimizing social unrest
What is the establishment of private vs SOE firms?
Private: determined by entrepreneurs, owners, and investors
SOE: Determined by government officials and bureaucrats
How do firms finance the firm (private vs SOE)
Public: From private sources (shareholders if public firm)
SOE: From government sources, direct subsidiaries, bank owned by government
How do firms liquidate the firm (private vs SOE)
Private: Forced by competition, declare bankruptcy or acquire if financially insolvent
SOE: Determined by government officials, supported by taxpayer dollars indefinitely
How do firms compensate management (private vs SOE)
Private: determined b competitive market forces
SOE: determined politically, consider fairness and legitimacy in the eyes of the public
What is a moral hazard?
Recklessness when people and organizations do not have to face the full consequences of their actions
What is state capitalism?
A capitalist, market based system with substantial state ownership
What is ethnocentrism?
A self-centred mentality by a group of people who perceive their own culture, ethics, and norms as natural, rational and morally right
What is culture?
The collective programming of the mind that distinguishes members of one group of people from another
What is Lingua ranca?
A global business language
What are the four big categories of culture?
Language, religion, social structure, and education
What is social structure?
The way a society broadly organizes its members
What is social stratification?
The hierarchical arrangement of individuals into social categories (strata) such as classes, castes, and divisions within society
What is social mobility?
The degree to which members from a lower social category can rise to a higher status
What is low contect culture?
A culture where communication is usually taken at face value without much reliance on unspoken context
America, Canada
What is high context culture?
A culture where communication relies a lot on the underlying unspoken context, which is important as the words used
Chinese, Korean, Japanese
What is context?
The underlying background upon social interaction takes place
What is a cluster?
Countries that share similar cultures
What is a civilization?
The highest cultural grouping of people and the broadest level of cultural identity people have
What is power distance?
The extent to which less powerful members within a culture expect and accept that power is distributed equally
What is individualism?
The idea that an individual’s identity is fundamentally their own
What is collectivism?
The idea that an individual’s identity is fundamentally tied to the identity of their collective group
What is masculinity?
A relatively strong form of societal level gender role differentiation whereby men tend to have occupations that reward assertiveness and women tend to work in caring professions
What is femininity?
A relatively weak form of societal level gender role differentiation whereby more women occupy positions that reward assertiveness and more men work in caring professions
What is uncertainty avoidance?
The extent to which members in a culture accept or avoid ambiguous situations and uncertainty
What is long term orientation?
Dimension of how much emphasis is placed on perseverance and savings for future betterment
What are ethics?
The principles, standards, and norms of conduct that govern individual and firm behaviour
What is a code of ethics / code of conduct?
A set of guidelines for making ethical decisions
What is ethical relativism?
A perspective that suggests that all ethical standards are relative
What is ethical imperialism?
A perspective that suggests that there is one set of ethics and we have it
What is corruption?
The abuse of public power for private benefits, usually in the form of bribery
What is cultural intelligence?
An individual’s ability to understand and adjust to new cultures
What is SWOT analysis?
A tool for determining a firm’s strengths, weaknesses, opportunities, and threats
Which part of the SWOT analysis deals with the intuition based view and resource based view?
Intuition based view deals with external opportunity (O) and threats (T)
Resource based view deals with the internal strengths (S) and weaknesses (W)
What are resource and capabilities?
The tangible and intangible assets a firm uses to choose and implement its strategies
What are tangible resources and capabilities?
Assets that are observable and easily quantified
What are intangible resources and capabilities?
Assets that are hard to observe and difficult to quantity
What is the value chain?
A stream of activities from input to output that add value (input –> r&d –> components –> final assembly –> marketing –> output)
What is benchmarking
Examining whether a firm has resources and capabilities to perform a particular activity (ideally superior to competitors)
What is commoditization?
where products that command high prices and margins will eventually lose thier high price tag and become commodities
What is offshoring?
Outsourcing to a international / foreign firm
What is onshoring?
Outsourcing to a domestic firm
What is captive sourcing?
Using subsidiaries aboard, so the work is done in house but abroad (FDI)
What is reshoring?
Move offshored activities back to the home country
If a resource isnt valuable, what is the firms competitive advantage?
Competitive disadvantage
If a resource is valuable, what is the firm’s competitive advantage
Competitive parity
If a resource is valuable and rare, what is the competitive advantage for the firm?
Temorary competitive advantage
If a resource is valuable, rare and costly to intimidate, what is the competitive advantage for the firm?
Sustained competitive advantage
What is casual ambiguity?
The difficulty of identifying why a particular firm is successful
What is exporting?
Selling items abroad
What is importing?
Buying items from abroad
What is merchandise?
Tangible products being traded
What is service?
Intangible services being traded
What is a trade deficit?
A nation imports more than it exports
What is a trade surplus?
A nation exports more than it imports
What is a balance of trade?
The aggregation of importing and exporting that leads to the country level trade surplus or deficit
For international trade, what must be true?
Both sides must have economic gains
What is resource based view (RBV) on international trade?
One nation will export valuable, unique, hard to imitate goods, its beneficial for other firms to import
What is institution based view (IBV) on international trade
Rules govern how gains are shared or not shared
What are the three components of classical trade theory?
1) mercantilism
2) absolute advantage
3) comparative advantage
What are the three components of modern trade theory?
1) product life cycle
2) strategic trade
3) national competitive advantage of industries
What is the theory of mercantilism?
Suggests that the wealth of the world is fixed
What is protectionism?
The idea that governments should actively protect domestic industries from imports and promote exports
What is free trade?
Market forces should determine the buying and selling of goods and services (little or no government intervention)
What is the theory of absolute advantage?
Suggests a nation gains by specializing in economic actives in which it has an absolute advantage
What is comparative advantage?
Relative advantage in one economic activity that one nation enjoys in comparison with other nations
What are factor endowments?
Different countries possess various factors of production (labour, land, technology…)
What is the factor endowment theory?
Nations will develop comparative advantages based on locally abundant factors
What is product life cycle theory?
accounts for changes in the patterns of trade over time by focusing on product life cycles
What is strategic trade theory
Suggests intervention of governments can enhance odds for international success
What is strategic trade policy?
Government policy that provides companies a strategic advantage in international trade through subsidies
What is four things does the theory of national competitive advantage of industries depend on?
- firm strategy, structure, and rivalry
- domestic demand conditions
- related and supporting industries
- country factor endowments
What is high power distance
When people except that there is a power inequality (and very hierarchical)
What is a tariff barrier?
Trade barrier that relies on tariffs to discourage imports
What is a import tariff?
Tax imposed on imports
What is deadweight cost?
Net losses that occur in an economy as a result of tariffs
What is a trade war?
Economic confluct resulting from extreme protectionism where nations impose tariffs or other trade barriers against each other
What are non tariff bariers (NTB)
trade barriers that rely on non tarif means to discourage imports
Examples of non tariff barriers?
Subsidy, import quota, export restraint, local content requirement, administrative policy, antidumping duty
What are subsidies?
government payments to domestic firms
What is an import quota?
Restrictions on the quantity of imports
What is foreign portfolio investment (FPI)?
Investment in a portfolio of foreign securities (stocks and bonds)
What is a sovereign wealth fund (SWF)?
State owned investment fund composed of stocks, bonds, real estate…
What is horizontal FDI?
A firm duplicates its home country activities at the same value chain stage in a host country
What is vertical FDI?
A firm moves upstream or downstream at different value chain stages in a host country
What is upstream vertical FDI?
a firm engages in an upstream stage of the value chain in a host country
What is downstream vertical FDI?
firms engage in a downstream stage of the value chain in a host country
What is FDI flow?
the amount of FDI moving in a given period of time in a certain direction (usually a year period)
What id FDI inflow?
Inward FDI moving into a country in a year
What is FDI outflow?
Outward FDI moving out of a country in a year
What is FDI stock?
The total accumulation of inward FDI in a country or outward FDI from a country across a given period
What is OLI advantage?
Ownership, locaiton, and internalization advantages via FDI
What are ownership advantages?
MNE’s possession and leveraging of certain VRIO assets overseas (aka firm specific advantages)
What are location advantages?
Advantage enjoyed by firms operating in a certain locaiton
What are internalization advantages?
The replacement of cross-border markets (such as exporting and importing) with one firm locating and operating in two or more countries
What is licensing?
A firm gives another firm the rights to a proprietary technology like a patent, trademark, logo, for a royalty fee
What is agglomeration?
Clustering of economic activities in certain locations
What is intrafirm trade?
international transactions between two subsidiaries in two countries controlled by the same MNE
What is dissemination risk?
Risk associated with unauthorized diffusion of firm specific know how
If a firm doesnt have ownership advantage what should they do?
Remain domestic
IF a firm does have ownership advantage but not location, what should they do
Product at home then export
If a firm has ownership and location advantage, but not internalization what should they do?
Contract out (licensing…)
If a firm has all three advantages (ownership, location, internalization) what should they do?
FDI
What is radical view?
A political view that is hostile to FDI
What is free market view?
A political view that suggests that FDI unrestricted by government intervention is the best
What is pragmatic nationalism?
A political view that only approves FDI when its benefits outweigh its costs
What is the demonstration effect (also called contagion or imitation effect)
the reaction of local firms to rise to the challenge deomonstrated by MNEs through learning and imitation
What is exporpriation?
Governments confiscation of foreign assets
What is sunk cost?
Cost that a firm has to endure after making the initial investment
What is institutional void?
Institutional conditions of a country lacking market supporting infrastructure
What is country of origin effect?
The positive or negative perception of firms and products from a certain country
What is first mover advantage?
Benefits that accrue to firms that enter the market first and that late entrants do not enjoy
What are examples of first mover advantage?
Relationship with key stakeholders, establish entry barriers for late entrants, avoid competition…
What is late mover advantage?
Benefits that accure to firms that enter the market later and that early entrants do not enjoy
What are examples of late mover advantage?
Can free ride on first movers investments, first movers difficulty to adapt to market changes
What is scale of entry?
The amount of resources committed to entering a foreign market
What are the benefits / drawbacks of a large scale entry?
Benefits: demonstraits commitment (can help assure local customers, suppliers…)
Drawbacks: limited flexibulity elsewhere, can be a huge loss if it goes porly
What are the benefits / drawbacks of a small scale entry?
Benefits: less costly
Drawbacks: lack commitment (can be difficult to build market share and get first mover advantage)
What is entry mode?
A form of operation that a firm employs to enter foreign markets
What is nonequity mode?
A mode of entry, that reflects relatively smaller commitments to overseas markets
What is equity mode?
A mode of entry, that indicates relatively larger commitments to overseas markets
What is turnkey project?
A project where clients pay contractors to design and construct new facilities and train personnel
What is co marketing?
Effects from multiple firms to market their product and services together
What is a joint venture?
A corporate entity jointly created and owned by two or more parent companies
What is a wholly owned subsidiary (WOS)
A subsidiary located in a foreign country that is entirely owned by the parent multinational
What are the two ways to set up a WOS?
Greenfield operations or acquisition
What is greenfield opersations with WOS?
Building new factories and offices from scratch
What is the acquisition establishment mode for WOS?
Acquire the control of another firms operations and management
What is hubris?
Overconfidence in ones capabilities
What is a contractual nonequity based aliance?
alliance between two firms that is based on contracts and doesnt involve sharing of ownership
What is equity based alliance?
Alliance based on ownership or financial interest between the firms
What is strategic investment (equity based alliance)
One firm investing in another as a strategic investor
What is cross shareholding (equity based alliance)
Both firms invest in each other
What is a strategic alliance?
A voluntary agreement of cooperation between firms
What are the two nonequity modes?
Exports & contractual agreements
What are the two equity modes?
Joint ventures & wholly owned subsidaries
What is relational (collaborative) capability?
Ability to manage interfirm relationships
What is acquisition premium?
the difference between the acquisition price and the market value of target firms
What is strategic fit?
The effective matching of complementary strategic capabilities
What is organizational fit?
The similarity in cultures, systems, and structures
