International Business Environment Quiz
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Questions and Answers

Which factor does NOT directly influence a country's attractiveness for international business, based on the provided content?

  • Level of competition
  • Disposable income levels
  • Government incentives
  • The presence of natural disasters (correct)

    • To comprehensively assess a country's attractiveness, what combination of analyses is recommended?

  • Combining a macro-economic environmental analysis (e.g., PEST) with an industry-level analysis (e.g., Porter's Five Forces). (correct)
  • Focusing solely on government regulations and policies.
  • Only conducting a political risk assessment.
  • Analyzing only the disposable income levels of the population.

    • Which of the following is NOT a factor used by the Economist Intelligence Unit (EIU) to rank countries' business environment attractiveness?

  • Policy towards foreign investment
  • Macroeconomic environment
  • Political environment
  • Cultural heritage preservation (correct)

    • Which organization's Global Competitiveness Report utilizes 12 pillars based on Porter's model to assess countries?

    <p>World Economic Forum (WEF) (B)</p> Signup and view all the answers

    According to the WEF Global Competitiveness Index, which aspect is included in the 'Institutions' pillar?

    <p>Government attitudes toward markets and freedom (D)</p> Signup and view all the answers

    Within the context of the WEF Global Competitiveness Index, what does 'Financial market sophistication' primarily ensure?

    <p>Savings channeled to productive investment (A)</p> Signup and view all the answers

    According to the WEF Global Competitiveness Index, what characterizes 'Labor market efficiency'?

    <p>Flexible labor markets with appropriate reward systems (C)</p> Signup and view all the answers

    According to the WEF Global Competitiveness Index, which of the following affects 'Market size'?

    <p>Competitive domestic and foreign markets (B)</p> Signup and view all the answers

    Which of the following is a typical area where competition occurs among firms in an industry?

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

    What is the primary effect of horizontal mergers on market dynamics?

    <p>Expanding market influence and decreasing rivalry (A)</p> Signup and view all the answers

    What does a CR3 of 44% in the global smartphone industry indicate, based on the information provided?

    <p>The top 3 companies controlled 44% of the market in the specified year. (D)</p> Signup and view all the answers

    According to the European Commission, what does a CR1 greater than 40% suggest about a market?

    <p>The market may have a level of concentration that negatively impacts competition. (B)</p> Signup and view all the answers

    What is the range of values for the Hirschmann-Herfindahl Index (HHI)?

    <p>Close to 0 to 10,000 (B)</p> Signup and view all the answers

    According to the European Commission, what does an HHI greater than 1000 indicate?

    <p>A level of concentration that could adversely affect competition. (D)</p> Signup and view all the answers

    What is the main benefit for companies that pursue vertical mergers?

    <p>Efficiencies in the supply chain. (A)</p> Signup and view all the answers

    A market contains 5 firms with market shares of 40%, 20%, 15%, 15%, and 10%. What is the Hirschmann Index (HHI) for this market?

    <p>2550 (A)</p> Signup and view all the answers

    What is the primary purpose of conducting an impact analysis regarding environmental changes?

    <p>To forecast the probable effects of environmental changes on organizations. (B)</p> Signup and view all the answers

    According to the presented information, how do organizations typically handle incoming information about the environment?

    <p>They filter and interpret information through managerial cognition, organizational culture, and politics. (A)</p> Signup and view all the answers

    What factors can affect an individual's or organization's perception of the external environment, influencing strategic decisions?

    <p>Characteristics of individuals, organizational culture, politics, history, and industrial sector norms. (A)</p> Signup and view all the answers

    In the context of environmental scanning, what does PESTLE analysis encompass beyond the typical PEST framework?

    <p>Legal and environmental factors. (D)</p> Signup and view all the answers

    Why might managers' perceptions of their environment hold greater importance than objective information in strategic decision-making?

    <p>Perceptions directly shape how information is interpreted and acted upon, influencing strategic direction. (A)</p> Signup and view all the answers

    Which of the following entry strategies represents the lowest risk and return in global business?

    <p>Export/Import business (D)</p> Signup and view all the answers

    What potential bias can affect an individual or organization's interpretation of the external environment?

    <p>Managerial cognition based on background, education within the company. (A)</p> Signup and view all the answers

    How do different organizations operating within the same industry typically view environmental forces?

    <p>Differently, based on their unique filters and interpretations. (D)</p> Signup and view all the answers

    What is a primary risk the licensor faces when engaging in a licensing agreement?

    <p>The licensee may manufacture licensed products and sell them under different brand names (sales diversion). (C)</p> Signup and view all the answers

    What is a key consideration when performing an impact analysis at the industry level?

    <p>Assessing how environmental change may affect an Organizations competition. (B)</p> Signup and view all the answers

    What is a key characteristic of export-import business that contributes to keen competition?

    <p>Ease of entry and exit (D)</p> Signup and view all the answers

    In a licensing agreement, how might the annual license fee be determined?

    <p>Based on a percentage of final sales revenue or number of units sold. (A)</p> Signup and view all the answers

    What factor determines the degree of risk an entrepreneur is willing to take in a global business venture?

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

    Besides patents, which of the following can a company provide a foreign partner in a licensing agreement?

    <p>Copyright or trademark (C)</p> Signup and view all the answers

    What is a common characteristic of higher-risk global business entry strategies?

    <p>Greater potential rewards (A)</p> Signup and view all the answers

    Which factor necessitates a closer relationship between the licensor and licensee versus a typical export-import arrangement?

    <p>The need for the licensor to trust the licensee with their technology and brand. (D)</p> Signup and view all the answers

    What percentage of US international trade is conducted by small businesses?

    <p>20% (A)</p> Signup and view all the answers

    Which advancement has significantly contributed to the expansion of export-import businesses?

    <p>Rise of the internet and internet sales (D)</p> Signup and view all the answers

    Which of the following best describes a cross-border acquisition?

    <p>A company purchases an existing firm in a foreign country to leverage its established resources and market presence. (B)</p> Signup and view all the answers

    What is a potential risk associated with cross-border acquisitions?

    <p>Potential for corporate cultural differences causing integration challenges. (D)</p> Signup and view all the answers

    What is the primary advantage of establishing a wholly-owned subsidiary through a greenfield investment?

    <p>Ability to design facilities tailored to exact needs and international standards. (B)</p> Signup and view all the answers

    Why do new subsidiaries require major marketing efforts to penetrate the new market?

    <p>Because the entrant's firm is new and unknown, and there are potential cultural barriers. (B)</p> Signup and view all the answers

    Which factor is most crucial when considering an acquisition?

    <p>The target company's established reputation in the local market (C)</p> Signup and view all the answers

    What does it mean to find the best possible balance between standardization and localization?

    <p>Adapting products and marketing to local customer preferences while maintaining core brand identity. (C)</p> Signup and view all the answers

    For a US company seeking global market expansion, why is understanding markets outside the US critical?

    <p>Because the majority of the global market and potential profits lie outside of the United States. (A)</p> Signup and view all the answers

    What makes wholly-owned subsidiaries a high-risk, high-reward entry strategy?

    <p>The large capital investments required, and uncertainty of penetrating a new market. (B)</p> Signup and view all the answers

    What is the primary goal of glocalization?

    <p>To integrate local markets into world markets while adapting products to local cultures. (D)</p> Signup and view all the answers

    Which of the following best describes the 'think globally, act locally' motto associated with glocalization?

    <p>Balancing global strategies with local adaptations to maximize satisfaction and minimize costs. (C)</p> Signup and view all the answers

    Which of the following business activities can be adapted to suit local markets in a glocalization strategy?

    <p>Products, technology, manufacturing, brands, marketing, distribution, and customer service. (A)</p> Signup and view all the answers

    What is the key difference between a global strategy and a glocal strategy?

    <p>A global strategy emphasizes standardization of global products, while a glocal strategy balances standardization and local adaptation. (A)</p> Signup and view all the answers

    Who is professor Mojmir Mrak lecturing about for the Week of Oct. 28-Nov. 1?

    <p>Global financial environment (D)</p> Signup and view all the answers

    What should students be working on the week of Oct. 28-Nov. 1?

    <p>Submitting the project plan. (B)</p> Signup and view all the answers

    According to Roland Robertson, what is a crucial component of glocalization?

    <p>The simultaneous presence of universalizing and particularizing tendencies. (A)</p> Signup and view all the answers

    Which topic is NOT listed among the lectures?

    <p>Adaptation -&gt; Glocalization (B)</p> Signup and view all the answers

    Flashcards

    PEST Analysis

    A framework for analyzing macroeconomic environments focusing on Political, Economic, Social, and Technological factors.

    SWOT Analysis

    A strategic planning tool used to identify Strengths, Weaknesses, Opportunities, and Threats within an organization.

    Managerial Cognition

    The mental processes managers use to interpret environmental information and make decisions.

    Organizational Culture

    The shared values, beliefs, and norms that shape how members of an organization interact and work.

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    Environmental Perception

    How individuals and organizations interpret their external environment based on various factors.

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    Impact Analysis

    A method for forecasting how environmental changes affect organizations, assessing impacts as positive or negative.

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    Positive and Negative Effects

    Environmental changes can have beneficial (+) or detrimental (-) impacts on organizations, measured by strength.

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    Factors Influencing Perception

    Characteristics such as background, culture, and history that affect how individuals perceive their environment.

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    Economic Environment

    The overall economic context that affects a country's attractiveness, including growth rates and stability.

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    Porter's Model

    A competitive analysis framework examining industry structure to determine profitability and competition.

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    IMD World Competitiveness Yearbook

    A report assessing countries based on economic performance and government efficiency among others.

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    EIU Ranking

    A ranking system evaluating 82 countries based on various factors affecting business environment attractiveness.

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    WEF Global Competitiveness Index

    A report assessing 148 countries based on 12 pillars of competitiveness including institutions and infrastructure.

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    12 Pillars of Competitiveness

    Key factors used by WEF to evaluate competitiveness, including institutions and market efficiency.

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    Labor Market Efficiency

    The degree to which labor markets are flexible and rewarding, impacting employment and productivity.

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    Entry Strategies

    Methods for entering foreign markets with varying levels of risk and return.

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    Export-Import Business

    Low-risk operations involving exporting goods to foreign markets or importing them for local sales.

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    Risk Profile

    An entrepreneur's willingness to accept financial loss in business decisions.

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    Licensing

    An arrangement where a licensor provides technology or trademarks to a licensee for a fee.

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    Franchising

    A practice where a parent company allows another to use its brand and business model for a fee.

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    Joint Ventures

    Business arrangements where two or more parties agree to work together on a project.

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    Strategic Alliances

    Cooperative agreements between businesses to pursue shared objectives while remaining independent.

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    Foreign Subsidiaries

    Companies that are owned or controlled by a parent company in another country.

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    High Risk and High Return

    The idea that taking higher risks can lead to greater rewards in business.

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    Penalties and Exit Strategies

    Clauses in agreements to manage risks and define how to terminate a deal if needed.

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    Sadara Chemical

    A $20 billion bio-chemical complex built by Dow Chemical and Saudi Aramco in Saudi Arabia.

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    Acquisition

    Purchase of established firms abroad to utilize existing networks and access foreign markets.

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    Merger

    Combination of two companies where management from both plays a role in business development.

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    Wholly-owned subsidiary

    New facilities built overseas tailored to the home firm’s needs, requiring large capital investments.

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    Green field plants

    Facilities built from scratch in a foreign market, tailored to the company's specifications.

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    Standardization vs. Localization

    The dilemma for companies of balancing global integration with local adaptation.

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    Cultural differences

    Variations in behavior, beliefs, and practices that can impact business operations in new markets.

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    Market penetration

    The strategy of entering and establishing presence in a new market, often requiring major marketing efforts.

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    Glocalization

    The adaptation of international products to local cultures while integrating them into world markets.

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    Standardization vs Adaptation

    Standardization focuses on uniform global products; Adaptation tailors products to local preferences.

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    Balance in Business Strategy

    Glocal strategy maintains equilibrium between global standardization and local customization.

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    Marketing Adaptation

    Adjusting marketing strategies based on local culture and consumer behavior.

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    Customer Service Localization

    Tailoring customer support to resonate with local practices and languages.

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    Segmentation in Glocalization

    Dividing markets into segments to better cater to local needs while leveraging global strategies.

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    Universalizing Tendencies

    The global principles that aim to standardize products and practices across markets.

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    Particularizing Tendencies

    The adaptations made to fit local cultures and practices when implementing global strategies.

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    CR3

    Concentration ratio of the top 3 firms in an industry.

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    Market Concentration

    A measure indicating the extent to which a small number of firms dominate a market.

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    Hirschmann Index (HHI)

    A measure of market concentration calculated as the sum of the squares of market shares.

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    EU HHI Threshold

    HHI > 1000 indicates potential adverse effects on competition.

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    Industry Rivalry

    Competition that occurs within an industry between firms.

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    Horizontal Mergers

    Mergers between firms at the same production stage to increase market share.

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    Vertical Mergers

    Mergers between companies at different production stages to improve supply chain efficiency.

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    Geographical Variation

    Differences in market shares across different regions or countries.

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    Study Notes

    International Business Environment 2024-2025: Lecture Notes Summary

    •  Lecture 2: Review: Covered the global business environment, measuring country and market competitiveness, and entering foreign markets. Key resources for the lecture were Hamilton and Webster textbook (Part 1), Brooks textbook (Chapters 1 & 2), and Gaspar et al. (Chapter 8).

    • Definitions: Environment is the totality of external forces that influence organizational activity. Environmental dynamism is the rate and quantity of changes in the environment. Environmental complexity is the number of variables present, leading to greater uncertainty.

    • Dynamism and Complexity: A graphic displayed different organizational types (e.g., European heavy truck manufacturer, Traditional car manufacturer, NHS trust hospital, small restaurant) positioned based on their environmental dynamism and complexity.

    • Definitions (Continued): The lecture defined macro-environmental, competitive, and market (and demand) uncertainty. It also described technology uncertainty.

    • Classification of environmental forces: PESTLE analysis, encompassing political, economic, social, technological, legal, and environmental factors, was presented as a method to analyze the macroeconomic environment of a region.

    • PEST vs. SWOT Analysis: A comparison of SWOT and PEST analysis, highlighting the differences in scope between the two frameworks. A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) focuses on internal factors and external opportunities/threats relevant to a firm. A PESTEL analysis (Political, Economic, Social, Technological, Environmental, Legal) assesses broader external factors (to a greater extent) affecting an enterprise as a whole, and can help to inform a SWOT analysis.

    • Example SWOT Analysis of Google: A sample SWOT analysis was shown for Google to illustrate the framework. The analysis identified internal strengths and weaknesses, and external opportunities and threats.

    • Interpretation vs. Reality: Organizations and their employees create a perceived business environment. The actual environment is partially constructed by human interpretation and partially "hard reality." Managerial cognition, organizational culture, and politics influence the process of perception.

    • Factors Affecting Perception: Individual characteristics (background, education, tolerance for ambiguity), organizational culture, organizational politics, structures and control mechanisms, history and development of an organization, and industrial norms impact individual and organizational perceptions of the external environment.

    • Impact Analysis: An effective method to forecast the impact of environmental changes on organizations. Steps include identifying potential environmental changes and their likely impact on the organization or industry, assessing the significance of those effects, and doing the same analysis at the industry level, considering the impact on competitors. The level of effect can be indicated by "+", "++", "+++".

    • Impact Analysis: Business Examples: A diagram or matrix illustrating business impact analysis, categorizing impact (no impact, some impact, disastrous impact) and probability (very likely, average, very low) to determine priorities. This helps in determining which potential changes will bring the most significant impact or risk.

    • Impact Analysis: Truck Industry Example: Illustrative case study example about the effects of environmental, economic, and political factors on the different firms in the truck industry. This analyzes the possible effects of regulations, changes in economic conditions, and the effects of political decisions on sales, service, and parts sales.

    • Globalization: The creation of linkages between nations through reduced/removed barriers (e.g., physical, political, economic, cultural). Globalization stimulates exchanges in goods, services, money, and people. It encompasses, among other things, economic, political, and cultural activities, and is often seen as a process that widens, deepens, and speeds up interconnectedness.

    • Globalization's Pervasiveness: Globalization affects a wide range of cultural factors (e.g., mass media, diets, education, sport, health, crime, money laundering, human trafficking, and religion).

    • But: Most global trade and investment remains confined to four prominent economic blocks: Western Europe, NAFTA (US, Canada, Mexico), Japan, and China. This highlights a degree of regional concentration in global economic activity.

    • Drivers of Globalization: Economic factors (cost-cutting, competition, saturated domestic markets), political/regulatory factors (e.g., GATT, WTO), and technological factors (improvements in communication, transport cost reductions) drive globalization.

    • Barriers to Globalization: Includes government regulations (tariffs, subsidies, controls on capital, public procurement), technical regulations (technical standards, protection of intellectual property), and cultural/geographic distance (language differences, religious beliefs, differing social norms, distance & cost of transport).

    • Example: Health Regulations: The presentation cites aflatoxins and listeria as examples of how differing health regulations and standards affect international trade, especially impacting countries with less stringent regulations.

    • Cultural and Geographic Distances: This section discusses the challenges of cultural distance (differences in language, beliefs), and geographic distance, which impacts trade, especially for products low in value, high in volume or fragile/perishable products (e.g. cement, beer, glass, fruit). Corruptions is also a factor.

    • Review of IB: International trade, FDI, FII: International trade, Foreign Direct Investment (FDI) and Foreign Indirect Investment (FII) were reviewed as key components of the global economy. The lecture also identified important indicators – such as trade in goods and services, capital transfer, migration – as key indicators of globalization.

    • Changes to growth over time: A review of the effects of various economic and social events on global trade, GDP, and growth patterns.

    • Market Analysis: The distinction between market and industry, defining market structures (perfect competition to monopoly), analyzing the market structure of various industries and how this relates to market power. The concepts of market power & market concentration were discussed. 

    • Identifying Firms Competing in the Market: The use of cross-elasticity of demand and the consideration of business behaviour to ascertain the boundaries of the market segment that one wants to analyze.

    • Market Structure: Review of various market structures like perfect competition, monopolistic competition, oligopoly, and monopoly, and highlighting how a firm's market structure can influence their operations and strategies.

    • Market Structures – Monopoly: Detailing how one firm dominates a market with high entry barriers, allowing it to exert control, set prices, and avoid competition. Examples such as Wrigley gum and Microsoft's dominance in the software market are presented.

    • Market Structures – Natural Monopoly: High fixed costs can result in a natural monopoly. The high initial cost of infrastructure (e.g. gas, water) deters competitors from entering the market, hence creating a natural monopoly.

    • Market Structures – Monopolistic Competition: Market structure in the middle ground between monopoly and perfect competition, defined by freedom of entry and a degree of product differentiation. Specific examples were presented.

    • Market Structures – Oligopoly: This refers to a market structure dominated by just a few, large firms. High barriers to entry and the significant influence each firm has on others, including competition from competing products and rivals' actions.

    • Market Structures - Oligopoly Cartels: Describes how oligopolists may collude to avoid competition, setting up cartels to control pricing and market division, which is unlawful in many countries; also discussing occurrences of cartels in various industries.

    • Market Structures – Perfect Competition: Assumes perfect knowledge of all producers and sellers and perfect mobility of resources causing firms to be unable to set their own prices, which is a theoretical construct, with minimal real-world examples.

    • Measuring Market Concentration: Two concepts explained are Concentration Ratio (CR), and Hirschmann Index (HHI). CR measures the share of the largest firms in industry sales with CR2 referring to the largest two firms, and CR10 to the ten largest. HHI is the sum of square market shares. Each of these is useful in identifying the level of competition in an industry.

    • Analyzing Industry Competition: Detailed review of Porter's Five Forces (new entrants, substitute products, supplier power, buyer power, and rivalry among existing competitors), and a discussion of how to assess industry competition using these forces.

    • Assessing Country Attractiveness: Assessing the attractiveness of different countries for business. Some considerations include trade-offs between risk and return, evaluating economic conditions, growth rates, political stability, disposable income, available resources, governmental policies and incentives, level of competition, risk of economic/political instability.

    • Collecting Data: Presented various sources for collecting data about a country's attractiveness, including the IMD World Competitiveness Yearbook, Economist Intelligence Unit (EIU) reports, the World Economic Forum (WEF) Global Competitiveness Index, and the World Bank's Doing Business index and data sources.

    • Country Assessment: The procedure for assessing the attractiveness of a country, including initial screening, general market/site and business environments assessment, as well as market and production site assessments and risk assessments.

    • Entry Strategies: A review of different approaches to entering foreign markets, varying in level of risk and return, from low-risk, low-return choices to high-risk, high-reward measures. Strategies include export/import business, licensing, franchising, strategic alliances, joint ventures, foreign acquisitions, and wholly-owned subsidiaries.

    • Standardization vs. Localization: The dilemma of balancing company strategy across diverse markets in terms of costs, efficiency, and local responsiveness while maximizing customer satisfaction. The concepts of globalization, global integration, and local responses were explained.

    • Glocalization: Explained glocalization as a middle ground between complete standardization and complete local adaptation that seeks to combine global efficiencies with local customization.

    • Examples of Standardization vs. Local Adaptation: The presentations include several real-world examples (such as IKEA) where companies struggled to find the correct global/local interplay across regions.

    • Cross-Cultural Management (CCM): Describes how to successfully manage in different social and cultural settings from a cross-cultural competence perspective.

    • Examples of Expatriate Failures: Illustrative examples where businesses failed to adapt appropriately to local conditions (and the costs of such failings).

    • Introduction to Ethics and Ethical Decision-Making: Review of the basic concepts and importance of ethics and ethical decision making for international businesses.

    • Ethics: Types of ethical theories such as Utilitarianism (measuring consequences), Kantian-ethics (treating people as ends and not mere means), and the Friedman doctrine (focus on profitability).

    • Main Issues in International Business Ethics: Explores employment practices, human rights, environmental regulations, corruption, and moral obligations.

    • Importance of Ethics for Business This outlines and assesses the need for ethical practices, particularly for sustainability and for relationships with various stakeholders.

    • Legal: Different types of law, including Contract Law, Tort Law, Criminal Law, and Competition Law and how each impacts international business. The lecture also discusses legal families (common law, civil law) and the implications such as territoriality of law and differences/variations between countries / regions. Examples of various legal systems are discussed and assessed via Nigeria and US state laws

    • Additional Concepts: Contains material about the World Trade Organization (WTO), regional trade agreements, legal families, and the ease of doing business index.

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    International Business Environment 2024-2025 Lecture 2 PDF

    Description

    Test your knowledge on the factors influencing a country's attractiveness for international business and the analyses needed for assessment. Explore concepts from the Economist Intelligence Unit (EIU) and the World Economic Forum's Global Competitiveness Index. This quiz will help you understand key pillars and dynamics of global business environments.

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