International Business and Globalization Quiz

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Questions and Answers

What is globalisation primarily defined as?

  • The expansion of local businesses into nearby markets
  • The government intervention in international trade
  • The integration of world markets through technological advances (correct)
  • The reduction of trade barriers only

International business has no impact on the economy of a country.

False (B)

Name one positive impact of globalisation on countries.

Increased market access

The __________ advantage theory suggests that a country should specialize in producing goods it can make more efficiently than others.

<p>absolute</p> Signup and view all the answers

Which entry mode allows shared ownership and risks between two or more firms?

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

Match the following entry modes with their descriptions:

<p>Exporting = Access foreign markets with little investment Licensing = Granting rights to use proprietary technology Franchising = Transferring a complete business model Wholly owned subsidiary = Full investment and control in foreign market</p> Signup and view all the answers

Small firms typically begin their internationalisation process with wholly owned subsidiaries.

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

What does David Ricardo's comparative advantage theory suggest?

<p>Countries benefit by focusing on goods they can produce at a lower opportunity cost.</p> Signup and view all the answers

What is a key characteristic of emerging markets?

<p>Rapid GDP growth (C)</p> Signup and view all the answers

Multinational corporations operate only within their home countries.

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

What economic strategy do firms use to mitigate risks related to currency fluctuations?

<p>Hedging</p> Signup and view all the answers

Japan's comparative advantage in electronics arises from a skilled workforce and __________.

<p>advanced technology</p> Signup and view all the answers

Match the following strategies of MNCs with their descriptions:

<p>Global strategy = Focus on standardization for cost efficiency Transnational strategy = Balance global integration with local responsiveness Multi-domestic strategy = Customize products to meet local preferences Internalization strategy = Expand operations to foreign markets</p> Signup and view all the answers

What type of legal system is based on precedent?

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

Tariffs are used to increase the quantity of imports.

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

Name one of Hofstede's cultural dimensions.

<p>Individualism vs. Collectivism</p> Signup and view all the answers

Corporate Social Responsibility (CSR) encompasses a company's economic, legal, and ethical obligations to __________.

<p>society</p> Signup and view all the answers

Which of the following best describes the trade evolution reflected in the Product Life Cycle theory?

<p>Innovation to standardization (C)</p> Signup and view all the answers

All emerging markets share similar characteristics and challenges.

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

What is one example of a BRIC economy?

<p>Brazil</p> Signup and view all the answers

Government interventions like subsidies are primarily aimed at protecting __________ industries.

<p>domestic</p> Signup and view all the answers

Match the following types of political systems with their descriptions:

<p>Democracy = Supports market-friendly policies Totalitarian regime = Centralized control of the economy Market economy = Little government intervention Mixed economy = Combines elements of both markets and governments</p> Signup and view all the answers

Flashcards

Globalization

The process of integrating global markets through advancements in technology, reduced trade barriers, and converging consumer preferences.

International Business

The exchange of goods, services, and resources across national borders.

Absolute Advantage

The theory that a country should specialize in producing goods it can create more efficiently than others.

Comparative Advantage

The theory that countries benefit by specializing in goods where their opportunity cost is lower.

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Heckscher-Ohlin Model

The theory that explains trade patterns based on a country's resources like labor, capital, or land.

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Exporting

A mode of internationalization where a company sells its products or services to foreign markets without significant investments.

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Licensing

A mode of internationalization where a company licenses its technology or processes to a foreign firm.

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Franchising

A mode of internationalization where a company transfers its entire business model to another country.

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Product Life Cycle theory

A theory that explains how trade evolves as a product moves from its initial introduction to widespread adoption and standardization.

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Emerging Markets

Economies where rapid GDP growth is prevalent alongside industrialisation, a burgeoning middle class, and considerable government involvement in the economy.

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MNC Strategies

Strategies employed by multinational corporations (MNCs) to operate effectively in diverse markets, often balancing global reach with local adaption.

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Totalitarian Regime

A political system where power is concentrated in one central authority, often with limited individual rights and freedoms.

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Common Law System

A type of legal system based on previous court rulings and interpretations, where precedent plays a significant role.

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Civil Law System

Legal systems where laws are codified in written statutes and regulations, providing a clear framework for legal interpretation.

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Expropriation Risk

The risk that a government may seize or nationalize foreign assets, leading to potential losses for businesses operating within that country.

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Government Intervention in Trade

Policies used by governments to protect domestic industries from foreign competition, often through imposing taxes or restrictions on imported goods.

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Tariffs

Taxes imposed by governments on imported goods, increasing their cost and potentially making domestic products more appealing.

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Import Quotas

Quantitative restrictions imposed by governments on the amount of goods that can be imported, limiting competition from foreign producers.

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Government Subsidies

Financial assistance provided by governments to domestic companies in the form of grants, subsidies, or tax breaks, giving them an advantage in the market.

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Individualism vs Collectivism

A cultural dimension that focuses on the degree to which a society values individual goals and achievements over collective interests and group harmony.

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Power Distance

A cultural dimension that reflects the level of acceptance of hierarchical structures and power differences within a society.

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Corporate Social Responsibility (CSR)

A company's commitment to operating in a socially and environmentally responsible manner, often involving ethical practices and initiatives to benefit the community.

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Sustainability

A principle that emphasizes meeting current needs without compromising the ability of future generations to meet their own needs, focusing on long-term sustainability.

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Study Notes

International Business and Globalization

  • International business involves cross-border trade of goods, services, and resources, driven by globalization.
  • Globalization integrates world markets through technology (communication, transport), economic liberalization (reduced trade barriers), market convergence (consumer preferences), and cost drivers (economies of scale, outsourcing).
  • Positive impacts include increased market access, innovation, and economic growth.
  • Negative impacts include environmental degradation and income disparities.
  • Globalization progresses through stages: market participation, supply chain integration, and economic interdependence.

Alternative Routes to Internationalization

  • Firms internationalize using various entry modes with varying benefits and risks.
  • Exporting (direct and indirect) allows market access without significant investment.
  • Licensing grants foreign firms usage rights to technology/processes.
  • Franchising transfers a complete business model to another country.
  • Joint ventures involve shared ownership and risk among firms.
  • Wholly owned subsidiaries represent full foreign investment, offering control but requiring resources.
  • Entry mode choices depend on market size, risk tolerance, and resources. Small firms often start with indirect exporting.

Theories of International Trade

  • Trade theories explain why countries engage in trade.
  • Absolute advantage theory (Smith): Countries specialize in goods produced more efficiently.
  • Comparative advantage theory (Ricardo): Countries benefit by focusing on goods with lower opportunity costs.
  • Heckscher-Ohlin model: Trade patterns based on factor endowments (labor, capital).
  • Product Life Cycle theory: Trade evolution from innovation to standardization.
  • New trade theories highlight economies of scale and monopolistic competition (product differentiation).

Overview of Emerging Markets

  • Emerging markets are economies transitioning toward industrialization and modernization.
  • Marked by rapid GDP growth, a burgeoning middle class, and government influence.
  • Emerging markets offer expansion opportunities and access to resources.
  • Risks include political instability and regulatory challenges.
  • BRIC economies (Brazil, Russia, India, China) are important to global trade.
  • Challenges in emerging markets include infrastructure deficits and fluctuating regulations.

MNCs and Their Strategies

  • Multinational corporations (MNCs) operate globally and adapt strategies for diverse markets.
  • Global strategies emphasize standardization for cost efficiency.
  • Transnational strategies balance global integration and local responsiveness.
  • Multi-domestic strategies customize products for local preferences.
  • MNC challenges include cultural differences, complex supply chains, and political risks.
  • Successful MNCs adapt strategies to individual market dynamics.
  • Political and legal environments shape international business operations.
  • Political systems range from democracies (market-friendly) to totalitarian regimes.
  • Legal systems include common law, civil law, and religious law.
  • Political risks include expropriation, trade barriers, and nationalization.
  • Companies must assess market stability and regulatory frameworks.

Government Intervention

  • Governments intervene in trade to safeguard domestic industries, ensure security, and foster economic growth.
  • Instruments include tariffs, quotas, and subsidies.
  • Interventions can protect local economies but lead to inefficiencies and disputes.
  • Businesses must understand government policies to adapt their strategies.

Cultural Environment of IB

  • Cultural differences significantly impact international business.
  • Hofstede's cultural dimensions (individualism/collectivism, power distance) explain these differences.
  • Individualistic societies prioritize personal goals, collectivist cultures value group harmony.
  • High power distance societies accept hierarchy, low power distance cultures value equality.
  • Businesses adapt to local cultures to enhance negotiations & partnerships.

Ethics, CSR, and Sustainability

  • Ethical principles guide international business decision-making.
  • Corporate Social Responsibility (CSR) encompasses economic, legal, and ethical obligations.
  • CSR often involves supporting local communities and reducing environmental impact.
  • Sustainability prioritizes present needs without compromising future generations.
  • Ethical practices build stronger reputations and contribute to long-term success.

International Monetary and Financial Environment

  • The international monetary system includes fixed and floating exchange rate regimes.
  • Fixed rates are pegged to another currency for stability, floating rates fluctuate based on market conditions.
  • Institutions like the IMF and World Bank provide financial stability.
  • Financial risks include currency fluctuations and interest rate changes.
  • Businesses use hedging to mitigate financial risks.

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