Week 1 - 4

Question 1

What do countries consider when pursuing IB?

Answer 1

Laws/ Legal differences, Cultures (Power Distance). Economic/ Political Differences (Differences in education & healthcare).

Question 2

What is Power Distance?

Answer 2

The unequal distribution of power between parties and the level of acceptance of that inequality whether it is in the family, workplace or other organisations.

Question 3

What are the 6 elements of IB?

Answer 3

Foreign Market Entry Strategies

International Trade

International Investment

International Business Risks

Participants (Firms, intermediaries, facilitators, governments)

Globalisation of Markets

Question 4

Examples of Multilateral Agencies that aid with Global Collaboration.

Answer 4

The World Trade Organisation (WTO - System of rules & legal framework for over 160 economies worldwide with the aim of facilitating fair international trade)

The International Monetary Fund (IMF - Works to achieve sustainable growth and prosperity amongst 190+ countries by promoting financial stability and monetary cooperation across firms)

Question 5

International Portfolio Investment

Answer 5

Refers to the ownership of foreign securities such as stocks and bonds to gain financial returns.

Question 6

Foreign Direct Investment (FDI)

Answer 6

An internationalisation strategy in which the firm establishes physical presence abroad through acquisition of productive assets such as land, plant, equipment, capital and or technology.

Question 7

Which is growing faster? Exporting or domestic production?

Answer 7

Overall exporting is illustrating the fast pace of globalisation.

Question 8

What is liberalisation?

Answer 8

The loosening of government control (Reductions on restrictions on international trade). To trade with minimal government interaction.

Question 8

What is GDP?

Answer 8

Gross Domestic Product is the monetary measure of the market value of all the final goods and services produced by a country or countries often used to measure the economic health of a region. (Measures the size of an economy, quantity of output)

Question 9

What legal procedures are involved in FDI?

Answer 9

A firm will establish a new legal entity in the host country subject to the regulations of the host government.

Question 10

What are capital markets?

Answer 10

The venues where funds are exchanged between buyers (capital suppliers) and sellers in the form of equity securities, bonds of other financial assets.

Question 11

What are the four risks in internationalisation?

Answer 11

Cross Cultural Risk - When cultural misunderstandings puts human value at stake, these may arise from differences in language, lifestyles, mindsets, customs and religion.

Country Risk (Political Risk) - Refers to the adverse effects on company operations and profitability caused by developments in the political, legal and economic environment in a foreign country. Fluctuations in exchange rates, restriction to market access, imposition of bureaucratic procedures on business transactions.

Currency Risk - Refers to the risk of fluctuations in exchange rates, costs or earnings and how significant these effects can be. Can be alarming in nations with economic and political instability.

Commercial Risk - Occurs when business activities/ strategies are poorly perceived or executed, less market knowledge and required adaption when trading internationally.

Question 12

What are Bureaucratic Procedures?

Answer 12

Procedures that involve complicated rules and activities which can cause long delays such as registration related activities.

Question 13

Who participates in IB (Four)?

Answer 13

Focal Firm - The initiator of an international business transaction. They are primarily multinational enterprises (MNEs) or Small Medium Enterprises (SMEs).

Distribution Channel Intermediary - Specialist firm that provides various logistics and marketing services for focal firms as part of international supply chains, both in the focal firm’s home country and abroad (Examples include distributors or sales representatives).

Facilitator - Firm or individual with special expertise in baking, legal advice, customs clearance or related support services that help focal firms perform international transactions.

State Owned Enterprises (SOEs) - Companies that are founded and owned by government in order to undertake commercial activities on the government’s behalf. For example Sweden have significant ownership of companies in telecommunications and national resources.

Question 14

What is a Multinational Enterprise?

Answer 14

An MNE is a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. Well known examples are Nestle, Four Seasons Hotels, Pepsi & Barclays.

Question 15

What will MNEs FDI activities include?

Answer 15

Regional headquarters, production plants and marketing subsidiaries in different countries.

Question 16

Why do governments often impose trade barriers?

Answer 16

To restrict imports of products to protect infant industries (New industry - early stage of development).

Question 17

International Business today is predominantly the domain of what type of companies?

Answer 17

SMEs not MNEs.

Question 18

Host countries often pressure MNEs to undertake which type of FDI and why?

Answer 18

Green field investment as there’s greater job creation, higher potential for technology transfer and increased infrastructure development.

Question 19

True or false? Harmonisation of standards is one of the steps taken by the EU to become an economic union?

Answer 19

True.

Question 20

Which are more likely to internationalise via FDI because they require direct contact with customers? (Construction firms, retail firms, accountants or insurance firms)

Answer 20

Retail firms.

Question 21

In which of the following industries is proximity to customers likely to be an important influence on the decision to enter a foreign market using FDI? (Biotechnology research, Iron ore mining, Automotive component manufacturing or Garment manufacturing)

Answer 21

Automotive component manufacturing.

Question 22

What are the 4 WTO’s General Agreement on Trade in Services (GATS) modes of service supply?

Answer 22

Mode 1: Cross-Border Supply - Supplies are provided from one territory of one country into the territory of another without the movement of the service provider or consumer (Digital Marketing).

Mode 2: Consumption Abroad - Consumers from one country travel to another to consume services there (US to French Hotel).

Mode 3: Commercial Presence - A service supplier from one country establishes a physical presence (e.g. branch, subsidiary or office) in another country to provide services locally (Canadian bank opens in Mexico).

Mode 4: Presence of Natural Persons - Individuals travel from their home country to another country to provide a service temporarily (Consultant).

Question 23

Financing that a government provides to a firm or group of firms to ensure their survival or success is known as a…

Answer 23

Grant.

Question 24

What is a subsidy?

Answer 24

Financial assistance provided by the government to support businesses or individuals aiming to lover costs, encourage production/ consumption and overall support ongoing business activities.

Question 25

What is a quota?

Answer 25

A quota is a government imposed trade restriction that limits the quantity or value of a specific good that can be imported or exported during a given time period.

Question 26

The European Union’s “four freedoms” guarantee that goods, services, people and capital can move freely between the 27 member states. Which level or regional economic integration does this exemplify?

Answer 26

Common Market

Question 27

What is Regional economic integration?

Answer 27

Regional economic integration refers to the process by which countries in a specific geographical region come together to enhance economic cooperation and coordination. Typically involves reducing trade barriers, increasing economic interdependence and creating agreements that facilitate trade and investment among member countries.

Question 28

Key Features of Regional economic integration:

Answer 28

Trade liberalisation - Member countries work to eliminate tariffs, quotas and other trade barriers to encourage free trade.

Economic Cooperation - Countries collaborate on economic policies, standards and regulations to harmonise practises and facilitate smoother trade and investment.

Increased Investment - By creating a larger market, regional integration can attract FDI and enhance economic development opportunities.

Common Policies - Member states may adopt common policies on various issues such as labor standards, environmental regulations and competition laws.

Question 29

Types of Regional Economic Integration and what are they?

Answer 29

Free Trade Area - Countries eliminate tariffs and trade barriers among themselves but maintain their own external tariffs against non-member countries.

Customs Union - In addition to eliminating internal trade barriers, member countries adopt a common external tariff for non-member countries.

Common Market - Free movement of labour and capital among member states.

Economic Union - More advanced form of integration that combines elements of a common market with unified economic policies including monetary and fiscal policies.

Political Union - The most integrated form of regional cooperation, where countries unify their political and economic structures often leading to a single government or governing body.

Question 30

What are the benefits of Regional Economic Integration?

Answer 30

Enhanced Trade - Lower barriers lead to increased trade flows among member countries promoting economic growth.

Economic Stability - Greater economic interdependence can lead to stability within the region.

Shared Resources - Countries can pool resources together for mutual benefit, such as infrastructure development and technology transfer.

Competitive Advantage - Regional integration can improve competitiveness by creating larger markets and attracting investment.

Question 31

Remember to look at case study questions on phone!

Answer 31

Yes.