Globalization and Michael Porter's National Advantage Theory
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Questions and Answers

What does globalization have to do with the rise of market capitalization around the world?

  • It has led to a decrease in international exchanges
  • It has increased trade in goods and services, exchange of money, information, and ideas, and growing similarity in laws, rules, norms, values, and ideas across countries (correct)
  • It has no relationship to market capitalization
  • It has led to challenges in balancing emerging and developed markets

    • According to Michael Porter's diamond of national advantage, which of the following is not one of the four key determinants of why some nations and their industries outperform others?

  • Factor endowments
  • Related and supporting industries
  • Demand conditions
  • Government policies (correct)

    • What is a key characteristic of factors of production according to the passage?

  • They must be general and applicable across all industries
  • They must be rare, valuable, difficult to imitate, and rapidly and efficiently deployed (correct)
  • They are limited to land, capital, and labor
  • They are not industry or firm specific

    • How do demanding consumers in a country drive firms in that country to perform better?

    <p>Demanding consumers drive firms to meet high standards, upgrade existing products and services, create innovative products and services, and better anticipate future global demand</p> Signup and view all the answers

    What is a key benefit of related and supporting industries according to the passage?

    <p>They provide a competitive supplier base that reduces manufacturing costs and allows for close working relationships and joint R&amp;D</p> Signup and view all the answers

    Why might a company decide to become a multinational firm?

    <p>To increase the size of potential markets, attain economies of scale, and take advantage of arbitrage opportunities at various stages of the value chain</p> Signup and view all the answers

    What is a key risk that multinational firms face due to political factors?

    <p>Destruction of property, disruption of operations, non-payment for goods and services, and arbitrary government decisions</p> Signup and view all the answers

    What is a key hidden cost of offshoring according to the passage?

    <p>All of the above</p> Signup and view all the answers

    How does global dispersion of value chains help multinational firms manage economic risk?

    <p>It spreads the firm's various activities across several countries and continents via outsourcing and offshoring</p> Signup and view all the answers

    Which of the following is not a key determinant of national advantage according to Michael Porter's diamond model?

    <p>Government intervention</p> Signup and view all the answers

    Study Notes

    Globalization and Market Capitalization

    • Globalization is linked to the rise of market capitalization around the world
    • It allows companies to expand their reach and increase their market value

    Michael Porter's Diamond of National Advantage

    • The diamond model identifies four key determinants of national advantage:
      • Firm strategy, structure, and rivalry
      • Demand conditions
      • Related and supporting industries
      • Factor conditions
    • Government is not one of the four key determinants of national advantage according to the model

    Factors of Production

    • A key characteristic of factors of production is that they can be created and upgraded through investment and innovation

    Demanding Consumers

    • Demanding consumers drive firms to perform better by pushing them to innovate and improve their products and services
    • This leads to increased competitiveness and better quality offerings
    • A key benefit of related and supporting industries is that they create a competitive advantage for firms operating in that industry
    • This is because they provide specialized inputs, services, and knowledge that are not easily available elsewhere

    Multinational Firms

    • A company may decide to become a multinational firm to:
      • Take advantage of differences in labor costs and skills
      • Access new markets and customers
      • Utilize resources and capabilities not available in their home country
    • Key risks faced by multinational firms due to political factors include:
      • Expropriation of assets
      • Changes in trade policies and regulations
      • Political instability and conflict

    Offshoring and Value Chains

    • A key hidden cost of offshoring is the potential loss of control over operations and intellectual property
    • Global dispersion of value chains helps multinational firms manage economic risk by:
      • Diversifying their operations and revenue streams
      • Reducing dependence on a single market or location
      • Allowing for quicker responses to changes in demand and supply

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    Description

    Explore the concept of globalization and how it influences market capitalization, international exchanges, trade, and cultural exchange. Understand Michael Porter's theory of national advantage and its implications for balancing emerging markets with developed markets.

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