Globalization, Trade, and FDI Quiz
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Questions and Answers

What is the primary purpose of institutions in the context of international management?

  • To provide stability and meaning to social life (correct)
  • To eliminate all forms of economic uncertainty
  • To facilitate foreign direct investment only
  • To promote globalization and international trade

Which of the following best describes foreign direct investment (FDI)?

  • Investment that occurs when a firm invests directly in production and maintains control (correct)
  • A method of investing through international financial markets
  • Investment in financial assets such as stocks and bonds
  • The exchange of goods and services across borders without direct ownership

Which of the following is NOT considered a component of formal institutions?

  • Regulations
  • Laws
  • Rules
  • Norms (correct)

What type of economic system is characterized by government control over resource allocation?

<p>Command economy (C)</p> Signup and view all the answers

Which of the following pillars supports informal institutions?

<p>Normative (A)</p> Signup and view all the answers

What is the primary focus of the 'thin' view of institutions?

<p>Legal entities with established rules (C)</p> Signup and view all the answers

How do institutions influence multinational enterprises (MNEs) according to the 'thin' view?

<p>By constraining actions based on local laws (C)</p> Signup and view all the answers

What does isomorphism in organizational behavior refer to?

<p>Uniformity of structures and practices across organizations (B)</p> Signup and view all the answers

What is a key characteristic of the 'thick' view of institutions?

<p>Inclusion of informal norms and cultural values (C)</p> Signup and view all the answers

What do institutions provide to economic agents according to the 'thick' view?

<p>Incentives and constraints shaping behavior (A)</p> Signup and view all the answers

What influences organizational structure and practices the most due to institutional pressures?

<p>Laws and professional standards (A)</p> Signup and view all the answers

Which statement best describes the role of institutions in shaping managerial decisions?

<p>They influence both identity and capacities for action (C)</p> Signup and view all the answers

What does culture ensure within a social group?

<p>Uniformity and predictability of behaviors (B)</p> Signup and view all the answers

Which of the following concepts is closely correlated with culture?

<p>Language (B)</p> Signup and view all the answers

In Hofstede's framework, what does high power distance indicate?

<p>Acceptance of unequal power distribution (C)</p> Signup and view all the answers

What is a characteristic of organizations in high power distance cultures?

<p>Tall organizational pyramids (C)</p> Signup and view all the answers

What role does language play in perpetuating culture?

<p>It helps convey key values and norms (B)</p> Signup and view all the answers

Which dimension was NOT one of the original dimensions in Hofstede's study?

<p>Gender equality (A)</p> Signup and view all the answers

How are the behaviors and traditions of religious adherents influenced?

<p>By key values and norms within their religion (B)</p> Signup and view all the answers

What does a high power distance culture typically value?

<p>Large wage differentials (D)</p> Signup and view all the answers

What is a result of cultural learning through language and imitation?

<p>Cultures are perpetuated and shared across generations (B)</p> Signup and view all the answers

What is a key characteristic of firms in Liberal Market Economies (LMEs)?

<p>They emphasize flexibility in coordination arrangements. (A)</p> Signup and view all the answers

Which type of innovation is more commonly followed by firms in Coordinated Market Economies (CMEs)?

<p>Incremental innovation (C)</p> Signup and view all the answers

Which of the following is true regarding the sector focus of firms in LMEs compared to CMEs?

<p>LMEs and CMEs differ in the economic sectors they operate in. (B)</p> Signup and view all the answers

What type of relation is emphasized by firms in LMEs?

<p>Arm's length relations (B)</p> Signup and view all the answers

Which process do firms in CMEs utilize to resolve coordination problems?

<p>Strategic interaction through non-market institutions (D)</p> Signup and view all the answers

What does comparative institutional advantage lead to in LMEs?

<p>Flexibility of coordination arrangements. (B)</p> Signup and view all the answers

What is a significant finding regarding the classification of liberal and coordinated economies?

<p>A majority of liberal economies are classified correctly. (D)</p> Signup and view all the answers

How do firms in CMEs typically behave compared to those in LMEs?

<p>They emphasize cooperative behaviors founded on information exchange. (C)</p> Signup and view all the answers

What is a typical outcome of the institutional frameworks in LMEs?

<p>High levels of competition and market coordination. (A)</p> Signup and view all the answers

Flashcards

Globalization

The interconnectedness of the global economy, marked by increased international trade, foreign direct investment, and financial market integration.

International Trade

The exchange of goods and services across national borders. It involves exporting and importing.

Foreign Direct Investment (FDI)

Investment made by a company in a foreign country to establish a presence and maintain control over operations.

Institutions

A set of rules, both formal and informal, that guide behavior and provide stability in society.

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Legal Systems

Different systems of laws that countries adopt, primarily categorized as civil law (based on codes) or common law (based on precedents).

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Ethics

Principles, standards, and norms of conduct that guide individual and firm behavior.

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Thin View of Institutions

A view of institutions that focuses on formal structures, laws, and regulations, emphasizing explicit rules to shape behavior.

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Thick View of Institutions

A view of institutions that considers both formal structures and informal norms, cultural values, and social practices that influence behavior.

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Isomorphism

The process where organizations in the same field begin to adopt similar structures, practices, and routines to gain legitimacy and approval.

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Institutional Distance

The differences between an MNE's home country institutions and the institutions in host countries it expands to.

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Institutional Context

The impact of host country institutions on the performance of multinational enterprises (MNEs).

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Rules of the Game

Formal and informal rules that provide incentives and constraints for economic actors, shaping their behavior and creating stable patterns.

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Culture

A shared way of life for a group of people, including their learned behaviors, beliefs, and values, passed down through generations.

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Power Distance

The extent to which a society accepts unequal power distribution between its members.

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Uncertainty Avoidance

The degree to which a society tolerates uncertainty and ambiguity.

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Individualism vs. Collectivism

The level of emphasis on individual achievement versus collective goals and interests.

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Language

A system of communication using conventional signs, gestures, or sounds to convey ideas and feelings.

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Masculinity vs. Femininity

The degree to which a society values assertiveness, competition, and achievement.

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Religion

A set of beliefs and practices related to the sacred, often involving rituals, ceremonies, and ethical guidelines.

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Cultural Values & Norms

A collection of key values and norms that are reflected in the behaviors of individuals and groups.

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Cultural Perpetuation

The continuation and transmission of cultural elements from one generation to the next.

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Coordination in LMEs

In Liberal Market Economies (LMEs), firms primarily use markets and internal hierarchies to resolve coordination challenges, fostering competition and flexibility. This results in arm's-length relationships between firms, favoring rapid change and adaptability.

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Coordination in CMEs

In Coordinated Market Economies (CMEs), firms utilize a combination of markets, hierarchies, and non-market institutions (like industry associations) to coordinate activity. This encourages strategic interaction and cooperation, promoting trust and stability.

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Comparative Institutional Advantage

The ability of an economy to excel in specific areas due to its institutional framework. For example, LMEs might be better at developing innovative technologies through rapid market adjustments, while CMEs may thrive in industries requiring long-term partnerships and shared knowledge.

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Innovation in LMEs

In LMEs, the focus is on rapid innovation and constant adaptation. This might involve developing new products, disrupting existing markets, or finding new uses for technology. Think 'radical' shifts.

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Innovation in CMEs

In CMEs, innovation tends to be more incremental and collaborative. This involves refining existing products, improving processes, and building upon existing knowledge. Think 'evolutionary' change.

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Corporate Strategy in LMEs

LMEs prioritize price competition and using cost advantages to gain market share. This focuses on efficiency, quick delivery, and finding cost-effective solutions.

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Corporate Strategy in CMEs

CMEs often emphasize quality competition, focusing on offering superior products, services, or solutions. This prioritizes reliability, long-term partnerships, and building a reputation for excellence.

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Economic Sectors in LMEs

LMEs favor industries characterized by fast-paced change, high risk, and rapid adoption of new technologies. This might include sectors like biotechnology, software, or digital services.

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Economic Sectors in CMEs

CMEs often specialize in industries requiring long-term investment, complex knowledge, and skilled labor. This might include sectors like manufacturing, engineering, or precision machinery.

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Study Notes

Globalization, Trade, and FDI

  • Globalization is the growing interconnectedness of the international economy.
  • International trade involves the exchange of goods and services across borders.
  • Foreign Direct Investment (FDI) occurs when a firm invests in production or facilities in a foreign country.
  • Foreign portfolio investment involves investments in foreign financial assets like stocks and bonds.

Institutions

  • Institutions are a set of formal and informal rules followed by actors.
  • Key functions of institutions include reducing uncertainty, curbing transaction costs, and constraining opportunism.
  • Institutions are comprised of regulative, normative, and cognitive elements.
  • Formal institutions include laws, regulations, and rules.
  • Informal institutions include norms, cultures, and ethics.
  • Institutions framework components: political, economic, and legal systems.
  • Further institutions include property rights and corporate governance.
  • Two main informal institutions are cultures and ethics.

Culture as an Informal Institution

  • Culture is an informal institution, learned behaviors, values, and beliefs shared among people.
  • Culture is built on norms, values, symbols and traditions and affects behaviour and managerial decisions.
  • Cultures with similar beliefs, values, and norms can be grouped (GLOBE, Hofstede)
  • Two views of institutions: "thin" and "thick"
  • "Thin" view, focus on formal structures and regulations, constrain actions of multinational enterprises (MNE)
  • "Thick" view, broader societal context influencing managerial decisions and actions.

Multinational Enterprises (MNEs)

  • MNEs are key actors in international business, operating in multiple countries.
  • MNEs maintain units in several countries, local headquarters and foreign subsidiaries
  • Key challenge for MNE managers is to balance global unity and flexibility, adapting to local conditions.
  • MNE strategies need to adapt to their countries of origin and emerging markets.

MNEs and Global Governance

  • MNEs are considered major global promoters of economic development.
  • MNEs can also be seen as instruments of exploitation due to concerns about their international supply chains. International labor standards are a concern.

International Human Resource Management (IHRM)

  • IHRM involves managing human resources (recruitment, training, and performance management) across multiple countries.
  • Balancing global consistency with local adaptations in HR practices is key.
  • Strategic international HRM (SIHRM) for example aligns HR policies with MNE's overall international goals, to support global competitiveness and market adaptation.

Varieties of Capitalism Approach

  • Capitalism is a system with private ownership, free enterprise and reliance on markets and competition
  • Two ideal types of capitalism (LMEs-Liberal Market Economies and CMEs- Coordinated Market Economies)
  • LMEs rely on hierarchies and competitive markets.
  • CMEs rely more on non-market relationships to coordinate activities.
  • Complementary institutions create economic competitiveness and lead to better economic results.

Cultures as Informal Institutions, Continued

  • Culture influences how we communicate, make decisions, behave in groups, and interact with others.
  • There are different types of culture in various parts of the world and these classifications can be used to describe/compare cultures
  • GLOBE study developed cultural dimensions – Hofstede and Globe dimensions used to analyse culture
  • Cultures categorized by national borders, but can contain multiple cultures.

National Cultural Classifications

  • Hofstede's study provided a framework with dimensions like power distance, uncertainty avoidance, and masculinity/femininity, describing cultural variations across nations, which can influence management practices.
  • GLOBE expanded on Hofstede's framework.
  • These classifications can help understand and adapt to cultural differences.

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Description

Test your knowledge on globalization, international trade, and foreign direct investment. This quiz also covers the role of institutions in shaping economic interactions. Challenge yourself with questions that explore both formal and informal institution frameworks.

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