International Business and Globalization Overview
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Questions and Answers

What main feature characterizes globalisation in the context of international business?

  • Separation of goods and services across borders
  • Reduction of tariffs and quotas (correct)
  • Growing isolation of national markets
  • Increase in domestic production only

    • Which of the following entry modes allows firms to minimize investment while testing foreign markets?

  • Joint ventures
  • Wholly owned subsidiaries
  • Exporting (correct)
  • Franchising

    • What is a notable challenge associated with globalisation?

  • Reduction in technological advancements
  • Increased trade tariffs
  • Decreased consumer preferences
  • Widening income inequality (correct)

    • What advantage do licensing agreements provide to firms entering foreign markets?

    <p>Reduced risk with limited control (D)</p> Signup and view all the answers

    Which of the following best describes a wholly owned subsidiary?

    <p>Complete investment and control by one firm (C)</p> Signup and view all the answers

    What is an example of convergence in consumer preferences due to globalisation?

    <p>Local food preferences fading away (B)</p> Signup and view all the answers

    Which of the following best describes the role of the World Trade Organization (WTO) in international business?

    <p>Facilitating smoother trade flows globally (D)</p> Signup and view all the answers

    What factor is NOT considered a driver of globalisation?

    <p>Economic isolationism (D)</p> Signup and view all the answers

    What is a key characteristic of Japan's collectivist culture regarding decision-making?

    <p>Consensus-building as a fundamental process (B)</p> Signup and view all the answers

    Which aspect is NOT included in Corporate Social Responsibility (CSR)?

    <p>Maximizing shareholder profits (D)</p> Signup and view all the answers

    How do fixed exchange rates impact monetary policy flexibility?

    <p>They limit flexibility in monetary policy. (D)</p> Signup and view all the answers

    What role does the International Monetary Fund (IMF) play in the global economy?

    <p>It aids countries during balance of payments crises. (D)</p> Signup and view all the answers

    What ethical dilemma can negatively affect a company's reputation?

    <p>Labor exploitation (C)</p> Signup and view all the answers

    What is a potential consequence of a depreciating local currency for a business?

    <p>Increase in the cost of imports (B)</p> Signup and view all the answers

    Which of the following best explains sustainability in the context of business?

    <p>Balancing present needs with future resource availability (B)</p> Signup and view all the answers

    What method do companies use to mitigate financial risks like currency volatility?

    <p>Using forward contracts and options (A)</p> Signup and view all the answers

    What does Adam Smith’s absolute advantage theory emphasize for countries engaging in trade?

    <p>Countries should specialize in goods they produce more efficiently. (B)</p> Signup and view all the answers

    How does David Ricardo's comparative advantage theory differ from absolute advantage?

    <p>It allows trade benefits even if one country is less efficient in all goods. (B)</p> Signup and view all the answers

    What does the Heckscher-Ohlin model focus on regarding trade patterns?

    <p>Exporting goods based on abundant resources. (D)</p> Signup and view all the answers

    Which situation illustrates the Product Life Cycle theory?

    <p>A developed country innovating while a developing one manufactures it later. (B)</p> Signup and view all the answers

    What is a key characteristic of emerging markets?

    <p>They have rapidly growing GDPs and urbanization. (A)</p> Signup and view all the answers

    What strategy does a multinational corporation following a transnational approach adopt?

    <p>Customizing products for local markets while sharing resources. (A)</p> Signup and view all the answers

    How does culture influence international business practices?

    <p>It shapes practices and affects negotiations and management styles. (C)</p> Signup and view all the answers

    What role does government intervention play in international trade?

    <p>It encompasses tariffs, quotas, and subsidies among other tools. (D)</p> Signup and view all the answers

    What type of legal system relies on case precedents?

    <p>Common Law (D)</p> Signup and view all the answers

    Which type of strategy prioritizes local adaptation within multinational corporations?

    <p>Multi-Domestic Strategy (A)</p> Signup and view all the answers

    What challenge do multinational corporations commonly face?

    <p>Managing cultural diversity and political risks. (A)</p> Signup and view all the answers

    What characterizes Hofstede’s cultural dimension of high power distance?

    <p>Acceptance of hierarchical structures in society. (A)</p> Signup and view all the answers

    Which of the following is an example of trade intervention by the government?

    <p>Subsidizing domestic producers to enhance competitiveness. (C)</p> Signup and view all the answers

    Study Notes

    International Business and Globalization

    • International business encompasses transactions like trade, investment, and knowledge transfer across borders.
    • Globalization, a key driver, increases national market interconnectedness, driven by tech (communications, logistics) and policy shifts (trade liberalization).
    • The GATT and WTO reduced trade barriers, facilitating smoother global trade.
    • Globalization drivers include technological advancements, economic liberalization, and converging consumer preferences (e.g., smartphones, fast food).
    • Globalization challenges include environmental degradation, income inequality, and cultural homogenization.

    Alternative Routes to Internationalization

    • Firms internationalize via various entry modes with varying risk levels and advantages.
    • Exporting is a common initial step, with direct (firm-buyer) and indirect (intermediaries) variations.
    • Licensing allows foreign firms to use trademarks or technology, reducing risk and control.
    • Franchising provides a complete business model; an example is McDonald's.
    • Joint ventures share risks and resources with local partners, particularly in complex markets.
    • Wholly owned subsidiaries provide full control but entail higher operational risk; e.g., Toyota's factories in North America.
    • Entry mode selection depends on resources, risk tolerance, and market potential.

    Theories of International Trade

    • International trade theories explain why countries trade and gain.
    • Absolute advantage (Adam Smith): Specialization in goods produced most efficiently.
    • Comparative advantage (David Ricardo): Benefit even if a country is less efficient in all goods (lowest opportunity cost specialization).
    • Heckscher-Ohlin model: Trade based on factor endowments (resources). Examples include oil-exporting nations or garment exports from labor-abundant countries.
    • Product Life Cycle theory: Trade shifts from developed to developing nations, following product innovation, standardization, and manufacturing.
    • New trade theories (economies of scale and product differentiation): Important for impactful global markets. Example: Airbus and Boeing's dominance.

    Overview of Emerging Markets

    • Emerging markets are transitioning from developing to developed.
    • Rapid industrialization and integration into the global economy. Examples include China's recent transformation.
    • Characterized by increasing GDP growth rates, urbanisation, and expanding middle classes with rising purchasing power; e.g., India, Brazil, and South Africa.
    • Governments in emerging markets attract FDI through policies like tax incentives and infrastructure. Example: China's Special Economic Zones.
    • Opportunities include large consumer bases and cost-effective labor, accompanied by challenges. Examples include political instability, corruption, and complex regulations and underdeveloped infrastructures.

    MNCs and Their Strategies

    • Multinational Corporations (MNCs) operate globally, balancing global efficiency with local needs.
    • Global strategy: Standardizes products for global markets, resulting in economies of scale (e.g., Coca-Cola).
    • Transnational strategy: Balances global integration with local responsiveness (e.g., Unilever, adapting to local tastes, but benefiting from shared global resources.)
    • Multi-domestic strategy: Prioritizes adaptation to local markets (e.g., McDonald's menus).
    • MNC challenges: managing cultural diversity, regulations, and political risks, e.g. trade disputes such as US-China tensions.
    • Political systems (democracies vs. totalitarian regimes) and legal systems (common, civil or religious law) affect business operations.
    • Political risks like nationalization, corruption, and trade restrictions threaten businesses; e.g., Venezuelan nationalizations.
    • Understanding and adaptation to these systems are crucial for mitigating risks.

    Government Intervention

    • Governments intervene in trade to protect domestic industries, national security, and economic growth; examples of intervention tools include tariffs (taxes), quotas (limit quantities), and subsidies (financial support for local producers).
    • EU agricultural subsidies illustrate protection, but potentially distort trade.
    • Balance between free trade and protectionism is essential for sustainable growth and international cooperation.

    Cultural Environment of IB

    • Culture profoundly influences business practices and interactions.
    • Hofstede's cultural dimensions (individualism vs. collectivism, power distance, uncertainty avoidance) are crucial for understanding cross-cultural differences. Examples include Japan's collectivist culture's emphasis on consensus.
    • Cultural adaptation is critical for success in international operations.

    Ethics, CSR, and Sustainability

    • Ethics in international business promote fairness and integrity, while CSR broadens perspectives to include legal, ethical, and philanthropic responsibilities. Patagonia's emphasis illustrates this.
    • Sustainability focuses on balancing present and future needs, facing ethical dilemmas such as labor exploitation and environmental damage.
    • Incorporating ethics benefits trust and long-term success.

    International Monetary and Financial Environment

    • The international monetary system (exchange rate systems) and institutions (IMF, World Bank) support global trade and investment.
    • Fixed vs. floating exchange rates; Fixed rates offer stability but limit monetary policy flexibility.
    • IMF assists countries facing balance of payments crises, while World Bank supports development projects.
    • Financial risks (currency volatility, interest rate fluctuations) affect businesses. Hedging instruments (e.g., forward contracts, options) mitigate these risks.

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    Description

    This quiz explores the key concepts of international business and globalization. It covers the drivers of globalization, such as technological advancements and economic liberalization, as well as the challenges it poses. You will also learn about alternative routes to internationalization, including exporting and licensing.

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