Globalization and International Business Quiz

Globalization

• Globalization is the spread of humans, information, knowledge, culture, wealth, goods, and services around the world.
• Globalization leads to an increase in the flow of goods, services, capital, people, and ideas across international boundaries
• It's a social, cultural, political, and legal phenomenon.
• Socially, it leads to greater interaction among various populations.
• Culturally, globalization represents the exchange of ideas, values, and artistic expression among cultures.
• Politically, globalization has shifted attention to intergovernmental organizations like the United Nations (UN) and the World Trade Organization (WTO).
• Legally, globalization has altered creating and enforcing international law.

International Business

• International Business is any company that operates and produces or sells goods between two or more countries.
• International Business falls into the following categories:
  • Produces goods domestically and sells domestically and internationally.
  • Produces goods in a different country but sells domestically.
  • Produces goods in a different country and sells domestically and internationally.
• There are two types of international business models: transnational and multinational.

Business and Globalization

• Corporations gain a competitive advantage through globalization.
• They can reduce operating costs by manufacturing abroad.
• They can buy raw materials more cheaply due to the reduction or removal of tariffs.
• They gain access to millions of new consumers.

Key Factors for International Business

• Politics and Laws: International politics can affect relationships between nations and regulate what products are allowed in and out of their borders.
• Current Events: Keeping up with current events can help businesses prepare for shifts in policy and foreign affairs.

Global Strategic Rivalry Theory

• Emerged in the 1980s, based on the work of Paul Krugman and Kelvin Lancaster.
• Focuses on multinational corporations (MNCs) and their competition to gain an advantage.
• Companies secure competitive advantages by overcoming barriers to entry.
• Examples of barriers to entry include:
  • Research and development
  • Intellectual property rights
  • Economies of scale
  • Unique business processes and extensive industry experience
  • Building new facilities on greenfield sites

Product Life Cycle Theory

• Developed by Harvard Business School professor Raymond Vernon in the 1960s.
• States that a product life cycle has three stages:
  • New product
  • Maturing product
  • Standardized product
• Production of new products initially occurs in the home country.
• Explains the manufacturing dominance of the United States after World War II.

Foreign Direct Investment (FDI)

• Two forms: horizontal and vertical.
• Horizontal FDI involves expanding into new markets - for example, a retailer opening a store in a foreign country.
• Vertical FDI involves investment in international production for input into core operations in the home country.
• Backward vertical FDI: a company brings components back to its home country (acting as a supplier).
• Forward vertical FDI: a company sells goods into the local or regional market (acting as a distributor).

Barriers to entry for FDI

• Greenfield FDI: involves building new facilities on greenfield sites, creating jobs, and potentially receiving tax breaks and subsidies.
• Brownfield FDI: involves purchasing or leasing existing production facilities, potentially requiring less investment and offering faster implementation.

Average Tariff Rates and Trade Protection

• Average tariff rates are a measure of protection, but they don't account for all trade policies or regulations.

Capital Markets

• Provide access to funds through debt or equity.
• Savers invest their money in capital markets, such as stocks and bonds.
• Borrowers (governments, businesses, and individuals) access savers' investments through these markets.

International Capital Markets

• Similar to domestic capital markets but operate across national boundaries.

International Monetary Fund (IMF)

• Provides loans to countries in need, possibly with conditions for economic policy compliance.
• Designed to stabilize global currencies and finances.
• Critics argue that the IMF favors free-market countries over others.

World Bank Group

• Focused on reducing poverty and supporting development in developing countries.
• Consists of five institutions, including:
  • International Bank for Reconstruction and Development: loans to creditworthy middle- and low-income nations.
  • International Development Association: loans and grants to poor countries.
  • International Finance Corporation: monetary and advisory support for private sector entities.
  • Multilateral Investment Guarantee Agency: encouraging foreign direct investment in developing countries.
  • International Centre for Settlement of Investment Disputes: resolving disputes arising from international investment.

Gold Standard

• A monetary system where a country's currency value is directly linked to gold.

• No longer used, replaced by fiat money.

• Advantages of Gold Standard:

  • Limits inflation
  • Provides stability to currency value

• Disadvantages of Gold Standard:

  • Reduces government's control over money supply
  • Limits economic growth

Fiat Money

• Currency whose value is not based on any physical commodity but is instead determined by government fiat.
• Fluctuates against other currencies on the foreign exchange market.

Reasons for Abandoning the Gold Standard

• Curbing inflation.
• Preventing foreign nations from redeeming their dollars for gold, overloading the system.

Test your knowledge on globalization and its impact on international business. This quiz covers the cultural, social, political, and legal dimensions of globalization, as well as the fundamentals of international business operations. Challenge yourself and see how well you understand these interconnected concepts!