Understanding Globalization

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Questions and Answers

What is a common consequence of globalization that affects employment?

Offshoring and the flight of jobs (correct)

Increased local production

Expansion of national culture

National sovereignty

Which economic bloc is associated with countries in South America?

NAFTA

MERCOSUR (correct)

ASEAN

What does international business primarily involve?

Local trade within a country

Cross-border trade and investment activities (correct)

Acquisition of foreign companies only

Only exporting goods to foreign countries

What is meant by 'contagion' in the context of globalization?

The rapid spread of financial crises between countries Signup and view all the answers

What type of investment involves actively managing and controlling foreign assets?

International investment Signup and view all the answers

Which of the following is NOT a characteristic of international trade?

Purchase of exclusively local products Signup and view all the answers

What type of flow is importing or global sourcing classified as?

Inbound flow Signup and view all the answers

Which of the following best describes the 'global value chain'?

The internationalization of a firm's operations Signup and view all the answers

What is one common misconception about globalization?

It solely refers to standardized products sold worldwide. Signup and view all the answers

What alternative term was commonly used to describe companies operating globally before the concept of globalization emerged?

Transnational corporations Signup and view all the answers

How is globalization's impact on management described?

It leads to increased management centralization. Signup and view all the answers

When did discussions around globalization significantly increase?

Since the 1980s Signup and view all the answers

What does globalization NOT imply?

A focus solely on local markets Signup and view all the answers

What aspect of companies does globalization primarily involve?

Management of international operations Signup and view all the answers

Which term has become more prominent in describing companies in the global market since the 1970s?

Global corporations Signup and view all the answers

How did the terminology surrounding companies operating globally change before the 1970s?

From multinational and transnational to global corporations. Signup and view all the answers

According to Dunning's Eclectic Paradigm, which element relates specifically to the firm's competitive advantages?

Ownership Signup and view all the answers

What must a firm consider when deciding to invest directly in foreign production?

Alignment with long-term organizational strategy Signup and view all the answers

What is one limitation of Dunning's Eclectic Paradigm?

It provides insufficient details on international cooperation Signup and view all the answers

Which factor is crucial in determining the attractiveness of a foreign location for production plants?

Specific provision of non-transferable factors Signup and view all the answers

The Uppsala School's model primarily focuses on which aspect of internationalization?

Dynamic process of gradual international scaling Signup and view all the answers

In the context of international business, what do 'opportunistic costs' generally refer to?

Costs associated with missed opportunities due to indecision Signup and view all the answers

What is identified as a critical consideration for the 'Mode' aspect in Dunning's Eclectic Paradigm?

Risk versus control assessment Signup and view all the answers

What characterizes Dunning's Eclectic Paradigm as a static theory?

It lacks an explanation for temporal changes in strategy Signup and view all the answers

What is a key condition for companies to successfully internationalize according to monopolistic advantage theory?

They must possess some form of exclusive competitive advantage. Signup and view all the answers

What does internalization theory primarily focus on in the context of multinational enterprises?

The management of hierarchical transactions between countries. Signup and view all the answers

According to internalization theory, what happens when the specificity of assets is high?

Companies are likely to internalize their markets. Signup and view all the answers

What is the effect of a decreased number of suppliers on a company's operational costs?

It requires companies to manage more supervision costs. Signup and view all the answers

Which aspect does monopolistic advantage theory NOT identify as a source of competitive advantage?

Access to local market knowledge. Signup and view all the answers

Why is control not needed in perfectly competitive markets according to internalization theory?

Companies can easily replace suppliers if needed. Signup and view all the answers

Which of the following correctly describes monopolistic advantage?

It arises from a company's ability to maintain exclusive competitive advantages. Signup and view all the answers

In the context of internalization theory, what does conducting a cost-benefit analysis generally entail?

Deciding between expanding internal markets or using external transactions. Signup and view all the answers

What is the first stage of the Uppsala Model of international business?

Sporadic or non-regular export activities. Signup and view all the answers

According to the Uppsala Model, what does each stage of international involvement correspond to?

A greater degree of market knowledge and resource commitment. Signup and view all the answers

What is a basic hypothesis of the Uppsala Model concerning obstacles to international operations?

Lack of knowledge about foreign markets. Signup and view all the answers

How does the Uppsala Model describe the development of market knowledge?

It develops gradually through experiences in the foreign market. Signup and view all the answers

Which of the following reflects a misunderstanding of the Uppsala Model's establishment chain?

It can occur in a single step without prior experience. Signup and view all the answers

What is represented by the first stage of sporadic export activities in the Uppsala Model?

A lack of engagement in the foreign market. Signup and view all the answers

What does the Uppsala Model suggest about the relationship between market commitment and knowledge?

Increasing knowledge leads to higher market commitment. Signup and view all the answers

Which stage in the Uppsala Model represents the highest level of resource commitment?

Establishment of productive units. Signup and view all the answers

Study Notes

Globalization

Globalization is a relatively new concept and was not widely discussed before the 1970s.
The term "globalization" is often used interchangeably with "global industries", "global competition", "global strategies", and "global corporations" but often lacks a clear understanding.
Globalization is a process that involves expanding a company's operations abroad, standardizing products for worldwide sale, and centralizing decision-making in corporate headquarters.
Leading economic blocs include the EU (European Union), NAFTA (North American Free Trade Agreement), and MERCOSUR (Mercado Común del Sur).
The rapid spread of financial or monetary crises across countries is considered a consequence of globalization.
Globalization is also associated with offshoring, the flight of jobs, potential effects on the poor and the natural environment, and changes to national culture.
Companies operating internationally in various parts of the world were previously referred to as "multinational" or "transnational" companies.

Internationalization of the Company

International business refers to the cross-border performance of trade and investment activities by firms.
International business describes enterprise-level phenomena, while international trade and investment focus on aggregate cross-border flows between nations.
International trade involves:
- The flow of products between nations, both goods and services.
- Exporting, or the sale of goods and services from a home country base to customers abroad.
- Importing or global sourcing, or the procurement of products from foreign suppliers for consumption in the home country.
International investment encompasses:
- The transfer of assets to another country, including capital, technology, managerial talent, and manufacturing infrastructure.
- International portfolio investment, which involves the passive ownership of foreign securities, such as stocks and bonds, for financial returns.
- Such investments generally do not involve active management or control over foreign assets.

Theories and Approaches of International Business

Monopolistic Advantage Theory: Companies can internationalize due to market imperfections in factors and products, allowing them to leverage exclusive competitive advantages. These advantages can stem from production, technology, organization, management style, or marketing, and grant companies the ability to compete with established foreign companies even in their own markets.
Internalization Theory: This theory highlights the transaction costs associated with international operations. When markets are perfectly competitive, transaction costs are low, and companies are motivated to act efficiently. However, as the number of suppliers decreases, transaction costs increase due to more complex negotiations and supervision needs.
Internalization Theory Continued: Companies with ownership-specific advantages are more inclined to internalize these advantages by expanding their value chain or through new activities. Companies also seek locations with lower costs and access to non-transferable factors of production.
Dunning's Eclectic Paradigm: This model integrates three perspectives: Ownership, Location, and Internalization. Firms evaluate their own characteristics, including technology, internal resources, intangibles, customer/provider relationships, and opportunity costs. Alongside this, firms consider industry and country characteristics, such as market size, entry barriers, comparative advantage, and location- specific resources. Finally, firms make strategic decisions based on internalization and weigh costs versus benefits, risks, and control preferences.
Internationalization from a Process Perspective: This approach focuses on how and why strictly national firms become international businesses and the progression of internationalization.
- Uppsala Model: Firms gradually increase their resource commitment in specific foreign markets as their experience and knowledge grow, entering the new markets in stages.
  - Stage 1: Sporadic or Non-Regular Export Activities
  - Stage 2: Exports through Independent Representatives
  - Stage 3: Establishment of a Commercial Branch in the Foreign Country
  - Stage 4: Establishment of Productive Units in the Foreign Country
Uppsala Model Continued: This model emphasizes the gradual commitment to international operations, a process driven by market knowledge and resource allocation.
Innovation Approach: This approach emphasizes the role of innovation in international business, highlighting how companies use innovation to gain a competitive advantage in foreign markets.
Vernon Product Life Cycle: This theory suggests that the stages of a product's life cycle—introduction, growth, maturity, and decline—influence a company's internationalization strategy, with companies starting in their home markets and internationalizing as the product matures and reaches global demand.

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Description

This quiz explores the concept of globalization, which emerged prominently in the 1970s. It highlights the processes involved in expanding operations abroad and the impact on economies, cultures, and environments. Learn about key economic blocs and the consequences of global competition.