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Global Environment of Management > Midterm Exam > Flashcards

Midterm Exam Flashcards

Study for the midterm

1
Q

What is a globalized industry?

A

Refers to industries that effectively operate in all, or most, of the markets across the world. The industry offers roughly equivalent products or services to customers in every market, and the competitive position of companies in that industry depends on performance across all markets.

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2
Q

What is PPP?

A

Purchasing Power Parity

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3
Q

What is Purchasing Power Parity?

A

Compares different countries’ currencies through a market “basket of goods” approach

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4
Q

What is the direct quoting method?

A
  • How much does the dollar cost?
    • 1 / indirect quote
    • $0.79394 US = 1 CAN
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5
Q

What is the indirect quoting method?

A
  • How much milk can you get for a dollar?
    • 1 / direct quote
    • Canada = 1.18 USD
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6
Q

What are the BRICS?

A 
Brazil
Russia
India
China
South Africa
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7
Q

Where are the trends for emerging markets?

A
  • China and India: manufacturing, exports

- Brazil, Russia, and the Middle East: Natural Resources

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8
Q

What is globalization?

A

process by which products, are able to move quickly around the world with few cross-border impediments in their way

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9
Q

What is an MNC?

A

Multinational Corporation

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10
Q

What are the key institutional differences around the world?

A
  • Political systems
  • Legal systems
  • Economic development
  • Socio-cultural Differences
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11
Q

What is the TRIAD?

A

US, EU and Japan

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12
Q

How do you assess market potential?

A
  • Market size
  • Purchasing Power
  • Potential Market Growth
  • Economic, political and cultural environment
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13
Q

How is globalization measured?

A
  • Technological connectivity
  • Economic Integration
  • Personal Contact
  • Political Engagement
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14
Q

Where is the US in terms of Globalization?

A

23

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15
Q

What is a local industry?

A

dominance of an industry by a different set of local players across countries e.g. construction, hospitality, energy

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16
Q

What is the trend of MNCs?

A

Technology focused

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17
Q

Who are in the G7?

A 
Canada
France
Germany
Italy
Japan
UK
US
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18
Q

Who are in the G20?

A

19 countries and the EU.
Australia, Canada, Saudi Arabia, US, India, Russia, South Africa, Turkey, Argentina, Brazil, Mexico, France, Germany, Italy, US, China, Indonesia, Japan, South Korea

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19
Q

What is Regional Economic Integration?

A

Efforts to reduce trade and investment barriers among countries within a region

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20
Q

What are the five stages of regional economic integration?

A
  1. Free trade area
  2. Customs union
  3. Common Market
  4. Economic Union
  5. Political Union
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21
Q

What is a Free Trade Area?

A

Removal of intragroup tariffs. E.G. NAFTA

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22
Q

What is a Customs Union?

A

Common external tariff. Ex. Mercosur

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23
Q

What is a Common Market?

A

Free movement of goods, people, and capital. Ex. CACM (Central American Common Market)

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24
Q

What is a Political Union?

A

Integration of political and economic affairs

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25
Q

What are the benefits of integration?

A
  • Trade creation
  • Greater consensus
  • Political cooperation
  • Creates jobs
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26
Q

What are the potential drawbacks?

A
  • Trade diversion
  • Shifts in Employment
  • Loss of sovereignty
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27
Q

Who are the members of NAFTA?

A

Canada
Mexico
US

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28
Q

What is the USMCA?

A

The United States-Mexico-Canada Agreement (renegotiation of NAFTA)

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29
Q

What is MERCOSUR?

A

Mercado Commun del Sur

- The South American Trade bloc established in the 1988. - Members: Argentina, Brazil, Paraguay, Uruguay

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30
Q

What are formal institutions?

A
  • Laws
  • Regulations
  • Rules
    (supported by regulatory)
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31
Q

What are informal institutions?

A
  • Norms
  • Cultures
  • Ethics
    (supported by normative, cognitive)
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32
Q

What is the key role of institutions?

A

Reduce uncertainty

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33
Q

Why is legitimacy important to an MNC?

A

legitimacy is not a commodity that can be possessed, it is a perceived attribute that is attached to an organization by key constituencies

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34
Q

What are the four key forms of legitimacy?

A
  • Local government and regulatory authorities
  • Local public
  • Local financial community
  • Local media
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35
Q

How does local government and regulatory authorities control legitimacy?

A
  • Directly: business licenses, public contracts and grants

- Indirectly: transfer of resources through regulation and legislation

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36
Q

How does the local public impact legitimacy?

A
  • Directly: consumer groups and public opinion influence regulation and legislation thru lobbying
  • Indirectly: influence on voters
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37
Q

How does the local financial community impact legitimacy?

A

through evaluation of credit worthiness and economic viability of MNCs and allocation of financial capital

38
Q

How does the local media impact legitimacy?

A

little direct control but considerable influence on allocation of resources by other three consituencies

39
Q

What are the characteristics of Totalitarianism?

A
  • imposed authority
  • lack of constitutional guarantees
  • restricted participation
40
Q

What are the forms of Totalitarianism?

A
  • Communist
  • Theocratic
  • Tribal
  • Right-wing
41
Q

What is right-wing totalitarianism?

A

Generally permits individual economic freedom, but restricts political freedom to prevent the rise of communism

42
Q

What is political risk?

A

corporations face the risk that political decisions, events, or conditions will significantly affect the profiability of a business

43
Q

What are the forms of political risk?

A
  • Outside governmental control
  • Foreign government action
    • against ownership
    • against operations
44
Q

What is expropriation?

A

Against ownership

Loss of property

45
Q

What is repatriation?

A

Returning assets to the home country

46
Q

How could MNCs manage political risk?

A
  • Information gathering to better predict and manage risk
  • Adaptation, incorporate risk into strategies
  • Influence local politics
47
Q

What is the difference between economic risk analysis and political risk analysis?

A

Economic risk assesses creditworthiness of governments and countries

48
Q

What are the 4 main types of legal institutions

A
  • Civil Law
  • Common Law
  • Theocratic Law
  • Bureaucratic Law
49
Q

What are the steps in dealing with international commercial disputes?

A
  1. Conciliation
  2. Mediation
  3. Arbitration
  4. Litigation
50
Q

What is a problem for international business?

A

There is no single, uniform international commercial law.

51
Q

What is Intellectual Property?

A

the product of intellectual activity, has a high fixed cost

52
Q

What are the 3 Economic Systems?

A
  1. Command
  2. Mixed
  3. Market
53
Q

What is the government’s role in a market economy?

A
  • enforce antitrust laws
  • preserve property laws
  • provide fiscal and monetary stability
  • preserve political stability
54
Q

What are 3 possible effects of the violation of Intellectual Property rights?

A
  1. Negative
  2. Neutral
  3. Positive
55
Q

How is the HHI calculated?

A
  • summing the squares of the market shares of the competitors in a specific industry
  • ranges from 10,000 to zero
  • closer to 10,000 the most consolidated
56
Q

What are the 2 ways to compare GDP across countries?

A
  1. FX - current currency exchange rate

2. PPP - purchasing power parity fx rate

57
Q

What does GDP FX indicate?

A

country’s international purchasing power and relative economic strength

58
Q

What does GDP PPP indicate?

A

living standards of less-developed countries (parity of currency to the dollar)

59
Q

What are the top 3 economies based on GDP FX?

A
  1. US
  2. China
  3. Japan
60
Q

What are the top 3 economies based on GDP PPP?

A
  1. China
  2. US
  3. India
61
Q

How can MNCs gain a competitive advantage?

A
  • leveraging regional differences around the world (institutional arbitrage)
  • tapping into location advantages by becoming part of an industry cluster
62
Q

What is agglomeration?

A

location advantages that arise from the clustering of economic activities in certain locations (Netherlands and flowers)

63
Q

What are sources of agglomeration advantages?

A
  • knowledge spillovers
  • industry demand that creates skilled labor force
  • industry demand creating pools of specialized suppliers and buyers
64
Q

What is a cluster?

A

geographic concentration of interconnected companies and institutions in a particular filed (California wine)

65
Q

What are the five forces that shape industry competition?

A
  1. Threat of new entrants
  2. Bargaining power of buyers
  3. threat of substitute products or services
  4. bargaining power of suppliers
  5. rivalry among existing competitors
66
Q

What are demographic trends?

A
  • population growth
  • rise of urbanization
  • rise of income inequality
67
Q

What are the role of credit agencies?

A

Assessing creditworthiness of governments

68
Q

What is the Balance of Payments?

A

National accounting system that records all payment to entities in other countries and all receipts coming into the nation

69
Q

When are current accounts and capital accounts in surplus?

A
  • current = exports + income from abroad > imports + payments abroad
  • capital = capital inflows > capital outflows
70
Q

What is a current account?

A
  • record of transactions involving the import & export of goods abroad, and income payments on foreign assets inside the country
  • exports + income from abroad vs. imports + payments abroad
  • made up of trade in goods, services, and profits earned from overseas assets
71
Q

What is a capital account?

A
  • record of transactions involving the purchase or sale of assets
  • capital inflows vs. capital outflows
  • includes transactions involving the sale and purchase of assets, such as investment in shares
72
Q

What is foreign portfolio investment?

A

investments in foreign financial instruments (no control) <10%

73
Q

What are sovereign wealth funds?

A

state-owned investment investment funds composed of financial assets such as stocks, bonds, real estate, or other financial instruments

74
Q

What fuels a SWF?

A

excess accumulations of foreign exchange reserves, often derived from the export of natural resources

75
Q

Who are key players owning SWF?

A
  • Norway
  • China
  • Saudia Arabia
  • Singapore
  • ANZ
76
Q

What are the tensions around SWFs?

A
  1. dramatic redistribution of wealth from mature industrial countries to less important
  2. governments own or control a substantial share of wealth
77
Q

What are the two systems of Financial Markets?

A
  1. International Capital Market

2. Foreign Exchange Market

78
Q

What are the three components of the International Capital Market?

A
  1. International Bond Market
  2. International Equity Market
  3. Eurocurrency
79
Q

What are the two types of bonds?

A
  1. Eurobond

2. Foreign bond

80
Q

What is a Eurobond?

A

Bond that is issued outside the country in who currency the bond is denominated.

81
Q

What is a foreign bond?

A

Bond sold outside a borrower’s county and denominated in the currency of the country in which is was sold.

82
Q

What is the most popular type of bond?

A

Eurobond

83
Q

Why is the eurobond so popular?

A

Absense of regulation - government of countries in which they are sold do not regulate them

84
Q

What is the driving force behind the international bond market?

A

differential interest rates between developed and developing nations

85
Q

What is the key determinant of the price of a (freely convertible) currency?

A

freely traded in the foreign exchange market and price determined by market forces (supply & demand)

86
Q

How are direct and indirect quotes related?

A

They depend on the location of the speaker

87
Q

If the direct (or indirect) rate of a currency

changes, how does the value of this currency change?

A

In indirect quote, the foreign currency is variable and the domestic currency is fixed at as one unit.

88
Q

What is the Big Mac Index?

A
  • Purchasing Power Parity
  • Published by the Economist
  • Comparing to the exchange rate
89
Q

What year was the GCC formed?

A

1981

90
Q

What is an economic union?

A

Common economic policies

- For example: The EU

91
Q

What is foreign direct investment?

A

Purchase of physical assets or significant amount of ownership of a company in another country to gain some measure of management control (≥ 10% of stock)

Global Environment of Management (1 decks)

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