Competency 1 OA Review C211 Econ
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Questions and Answers

What does the country-of-origin effect involve?

  • Trends in global supply chains
  • Influence of advertising on consumer choices
  • Evaluation of products based on their geographical origin (correct)
  • Perceptions based on a product's price

Which strategy involves reducing risk by diversifying investments across different markets?

  • Strategic hedging (correct)
  • Currency swapping
  • Currency hedging
  • Currency pegging

Which of the following concepts is related to how companies might behave in multiple markets?

  • Single-market focus
  • Temporary market diffusion
  • Isolated competitive strategies
  • Cross-market retaliation (correct)

What is a method of stabilization in which a currency's value is tied to another currency?

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

Which term describes the interconnectedness of firms across different markets leading to competitive strategies?

<p>Multimarket dependency (D)</p> Signup and view all the answers

What is the impact of mutual forbearance on market competition?

<p>Promotes cooperative behavior among rivals (D)</p> Signup and view all the answers

Which term describes an agreement to exchange currencies at a set rate and date?

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

Which view suggests a focus on the influence of long-term historical context in foreign market entry?

<p>Long-run historical view (A)</p> Signup and view all the answers

What technique is primarily used to offset the risk of currency fluctuations?

<p>Currency hedging (C)</p> Signup and view all the answers

How does market commonality influence competitive dynamics?

<p>Increases vulnerability to competitor actions (D)</p> Signup and view all the answers

What does the resource-based view imply that foreign firms must consider when entering a market?

<p>Numerous regulatory risks and trade and investment barriers (B)</p> Signup and view all the answers

Which of the following strategies is focused on balancing potential gains and risks in international investments?

<p>Strategic hedging (D)</p> Signup and view all the answers

Which view describes the fluctuations in foreign market strategies as a pendulum swing between different approaches?

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

Which of the following views is primarily concerned with the impact of newly emerging factors on market strategies?

<p>New-force view (B)</p> Signup and view all the answers

In the context of foreign market entry, which view emphasizes historical interpretations of market processes?

<p>Long-run historical view (C)</p> Signup and view all the answers

How does the resource-based view of global business fundamentally differ from the institution-based view?

<p>It emphasizes the competitive advantage gained through resources and capabilities. (D)</p> Signup and view all the answers

What key factor does the resource-based view prioritize in global business strategy?

<p>Firm-specific resources and competitive strengths. (D)</p> Signup and view all the answers

Which of the following is not considered a component of the resource-based view?

<p>Market share. (C)</p> Signup and view all the answers

In the context of global business, the institution-based view primarily considers what aspect?

<p>The influence of regulatory frameworks. (B)</p> Signup and view all the answers

What is a common criticism of the institution-based view in global business?

<p>It ignores the role of resources in achieving competitiveness. (C)</p> Signup and view all the answers

What is the primary goal of deploying overwhelming resources and capabilities in a foreign market?

<p>To offset the liabilities of foreignness (D)</p> Signup and view all the answers

Which of the following is crucial for understanding in international business?

<p>Cultural differences and norms (B)</p> Signup and view all the answers

What aspect should businesses consider regarding their actions in foreign markets?

<p>Legitimacy and appropriateness as defined by institutions (B)</p> Signup and view all the answers

Which theory assumes that the wealth of the world is fixed?

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

What can be a consequence of failing to understand foreign cultures in business?

<p>Cultural clashes and misunderstandings (B)</p> Signup and view all the answers

Why is it important for firms to act legitimately in the markets they enter?

<p>To gain consumer trust and acceptance (C)</p> Signup and view all the answers

What should companies focus on when offsetting their liabilities of foreignness?

<p>Leveraging local partnerships (D)</p> Signup and view all the answers

Which of the following practices is essential when entering new foreign markets?

<p>Understanding local customs and regulations (D)</p> Signup and view all the answers

What is a primary factor that affects exchange rates?

<p>Supply and demand for the currency (D)</p> Signup and view all the answers

What does it mean for a currency's value to fluctuate?

<p>It varies based on foreign exchange market conditions (D)</p> Signup and view all the answers

Which of the following best describes a gold standard?

<p>A system where currencies are linked to gold (B)</p> Signup and view all the answers

Selective government intervention in exchange rates typically implies what?

<p>Strategic actions to stabilize or influence currency value (A)</p> Signup and view all the answers

Efficiency-seeking firms often target countries that have which of the following?

<p>Competitive exchange rates and favorable business conditions (B)</p> Signup and view all the answers

What role does supply and demand play in determining exchange rates?

<p>They determine the market price of currencies (C)</p> Signup and view all the answers

In the context of financial markets, what does it mean for exchange rates to be linked to a gold standard?

<p>They are pegged to the value of gold (C)</p> Signup and view all the answers

Which statement best defines a currency that fluctuates according to foreign exchange rates?

<p>It adjusts based on trade balance and economic factors (D)</p> Signup and view all the answers

Flashcards

Cross-market retaliation

Actions taken in one market to hurt rivals in another related market.

Multimarket dependency

A company's dependence on competing across multiple markets.

Market commonality

The degree to which companies compete in the same market areas.

Mutual forbearance

Companies avoid aggressive actions in order to avoid retaliation in related markets.

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Country-of-origin effect

Consumer perception of a product influenced by the country where it was made.

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Strategic hedging

A strategy to manage risks associated with exchange rate fluctuations.

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Currency pegging

A fixed exchange rate is set between a country's currency and another currency or a basket of currencies.

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Currency hedging

Actions taken to minimize financial risk from exchange rate changes.

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Currency swapping

Exchanging one currency for another, often for a specific period.

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FDI cost to home country

The disadvantages to a home country from foreign direct investment.

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Resource-based view

This view emphasizes a company's internal strengths and weaknesses, focusing on how to leverage unique resources to achieve competitive advantage in global markets.

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Institution-based view

This view emphasizes external factors like formal institutions (laws, regulations) and informal institutions (culture, ethics) that shape how companies operate in global markets.

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What's the difference?

The resource-based view focuses on a company's internal strengths, while the institution-based view focuses on external factors influencing a company's success.

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Competitive Advantage

This is a company's superior ability to generate value and outperform competitors in global markets.

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Global Business Context

This refers to all factors, both internal and external, that shape how companies compete and succeed in the global marketplace.

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Pendulum View

This view suggests that the importance of resources varies over time, fluctuating like a pendulum between being a source of competitive advantage and being less important.

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Resource-Based View & Foreign Market Entry

This perspective argues that companies entering foreign markets need to leverage their internal resources (assets, capabilities, and knowledge) to overcome challenges and gain a competitive edge.

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Regulatory Risks & Barriers

Foreign companies entering new markets face various regulations, trade restrictions, and investment hurdles that can impact their success.

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Competitive Advantage in Foreign Markets

Companies seeking to succeed in foreign markets need to find ways to differentiate themselves and offer something unique that customers value.

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Resource-Based View & Internationalization

The resource-based view emphasizes that companies must carefully assess their own strengths and weaknesses, and how these resources can be used to overcome challenges presented by foreign markets.

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Flexible Exchange Rate

A currency's value is allowed to fluctuate freely based on market forces (supply and demand).

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Fixed Exchange Rate

A country sets a fixed value for its currency against another currency or a basket of currencies.

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Managed Float

A country allows its currency to fluctuate but intervenes to moderate fluctuations.

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Gold Standard

A system where a country's currency is backed by gold, with its value tied to the price of gold.

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What are the reasons for a flexible exchange rate?

A flexible exchange rate allows a country's currency to adjust to market conditions, promoting trade and economic stability.

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What is a drawback of a fixed exchange rate?

A fixed exchange rate can limit a country's ability to manage its own monetary policy, potentially hindering economic growth.

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Why might a country use a managed float?

A managed float allows a country to control exchange rate fluctuations while maintaining some flexibility to adjust to economic conditions.

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What is the key difference between a managed float and a fixed exchange rate?

A managed float allows for some fluctuations, while a fixed exchange rate keeps the currency value stable.

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Liability of Foreignness

The disadvantages faced by companies when entering foreign markets, stemming from their unfamiliarity with the local environment (e.g., culture, regulations, business practices).

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Overcoming Liability of Foreignness

Strategies companies use to minimize the disadvantages of operating in unfamiliar markets, such as adapting to local culture, building strong relationships with local partners, and demonstrating legitimacy.

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Understanding Local Culture

A crucial aspect of overcoming the liability of foreignness; involves recognizing and adapting to the unique cultural norms, values, and beliefs of a new market.

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Legitimacy in Foreign Markets

Companies seeking to succeed in a foreign market need to gain legitimacy in the eyes of local stakeholders (e.g., government, consumers, businesses), ensuring their actions are perceived as ethical and appropriate.

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Zero-Sum Theory of Wealth

The belief that the total wealth in the world is fixed, leading to a competitive mindset where one party's gain is another's loss.

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Challenges for International Expansion

Companies venturing into international markets face obstacles, including cultural differences, regulatory barriers, and competition from local players.

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Strategic Advantages in Global Markets

Companies can gain a competitive edge in global markets by utilizing their unique strengths and resources, adapting to local conditions, and building strong relationships.

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Navigating Institutional Differences

Companies entering foreign markets need to understand and adapt to the differing formal (laws) and informal (culture, ethics) institutions that govern business practices.

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Study Notes

OLI Advantages

  • OLI advantages are a firm's quest for FDI (Foreign Direct Investment).
  • They include ownership advantages, location advantages, and internalization advantages.

Market Commonality

  • Market commonality occurs when a firm attacks a competitor's other markets if that competitor attacks the firm's original market.

Country-of-Origin Effect

  • The country-of-origin effect refers to the positive or negative perception of firms and products from a specific country.

Mercantilism

  • Mercantilism views international trade as a zero-sum game.

Emerging Economies

  • The term "emerging economies" replaces "developing countries" or "first-world markets"

Currency Hedging

  • Currency hedging refers to non-financial companies spreading activities across currency zones to offset currency losses in specific regions.

FDI Costs to Host Countries

  • One cost to host countries of FDI is capital outflow and job loss.
  • Other costs include loss of sovereignty, increased competition, and an increase in local competition.

Import Quotas

  • Import quotas are restrictions on the quantity of imports.

Trade Deficit

  • A trade deficit occurs when a nation imports more than it exports.

Resource-Based View vs. Institution-Based View

  • The resource-based view focuses on the internal strengths of a firm.
  • The institution-based view focuses on understanding the laws and values in a host nation.

Modes of Entry

  • Equity modes involve the establishment of independent organizations overseas (indicate larger, harder to reverse commitments).
  • Non-equity modes do not require overseas organization establishment.

First-Mover Advantages

  • First-mover advantages include, avoidance of clash with a dominant firm and the opportunity to free ride on second mover investments.
  • Also, resolving technological and market uncertainty.

Import Quotas

  • Import quotas are a type of nontariff barrier.

Antidumping Duties

  • Antidumping duties are tariffs levied on imports sold below costs to drive domestic firms out of business.

Classical Theory of International Trade

  • Comparative advantage theory is a classical international trade theory.

Scale of Entry

  • Scale of entry refers to the amount of resources committed to entering a foreign market.

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Competency 1 OA Review PDF

Description

Explore key concepts in international business including OLI advantages, market commonality, the country-of-origin effect, and more. This quiz covers essential principles that influence foreign direct investment and international trade. Test your understanding of these vital business concepts!

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