Competency 1 Flashcards
(37 cards)
What is global business?
Business around the globe.
What are the two views on global business?
Resource-Based View: Internal resources and capabilities determine success.
Institution-Based View: External formal (laws, rules, and regulations) /informal (cultural, norms, and ethics) institutions determine success.
What is globalization?
Close integration of countries and people worldwide.
What are the 3 views on globalization?
New Force: Sweeping through Recent times; exploiting the world through MNEs (keyword: exploiting)
Long Run Historical Evolution: since the dawn of human history (keywords: human history, One Directional)
Pendulum: Swings between extremes over time (keywords: not recent nor One Directional)
What is Foreign Direct Investment (FDI)?
Investing in, controlling, and managing value-added activities in another country.
Keyword: Controlling & Ownership
What is the types of FDI?
Horizontal FDI: Duplicating the same value-chain stage abroad (e.g., producing & selling in multiple countries).
Example: GM builds produces & sells cars/truck in the U.S. Later produces & Sells cars/trucks in Mexico.
Vertical FDI: Upstream or downstream operations in different countries (e.g., producing vs. selling).
What are the political views on FDI?
Radical View: Hostile to FDI & treats FDI as imperialism & exploitation. (Opponent of FDI)
Free Market View: Suggests FDI, unrestricted government intervention; allows countries to benefit from specialization (proponent)
Pragmatic Nationalism: FDI approved if benefits outweigh costs.
What are OLI advantages in FDI?
Ownership: Internal assets (e.g., technology)
Location: Place-based benefits (e.g., resources, markets, costs)
Internalization: Keeping operations within the firm (buying & selling technology through licensing)
What are the Home country’s benefits & Costs of FDI?
Benefits: Repatriated earnings, export increase to host country, and learning opportunities via FDI
Cost: Capital outflow and job losses
What are the Host country’s Benefits & Costs of FDI?
Benefits: Capital inflow, job creation, tech spillover, and management know-how
Costs: Loss of sovereignty, adverse effects on competition, and capital outflow
What is collusion?
Collective attempts between firms to reduce competition; are illegal in the US
What market characteristics make collusion easier?
Few firms, price leader, homogenious (similar) products, high barriers to entry, high market commonality.
What market characteristics make collusion difficult (competition likely)?
Too many firms, no price leader, heterogeneous (different) products, low barriers to entry, no mutual forbearance
How do resources affect competition?
Firms with VRIO (value, rarity, inimitability, organization) are more competitive.
What are 2 factors that makes 2 firms/rivals compete with each other?
Resource Similarity: When two firms have the same strengths and resources.
Market Commonality: Overlap between two rivals’ markets.
What happens when both resource similarity and market commonality are high?
Higher Resources Similarity leads to higher competition, higher Market Commonality leads to lower competition
What is the theory of attack and counterattack?
Firms make moves to gain a competitive advantage (attack), and rivals respond or gain back advantage (counterattack).
What is it when firms show Cooperation?
Firms choose to cooperate to reduce competitive intensity
What are 4 strategies local firms use to compete with MNEs?
- Contender: Firms learns fast and expands globally to compete w/ MNEs (Compete)
- Defender: Firms focus on local assets with weak MNEs (Protect)
- Dodger: Firm cooperate with Joint Ventures (JVs) with MNEs (Partnership)
- Extender: Firm uses homegrown competencies abroad (Expand)
What is Signaling and its 4 means to signal?
Signal: Firms resort to signaling because collusion is illegal.
4 Means to signal:
1. Firms may enter new markets, not to challenge but to seek mutual forbearance.
- Firms can send and open signal for truce.
- Firms can send a signal to rivals by enlisting the help of the government.
- Firms organize strategic alliances with rivals for cost reduction.
Why do nations trade?
Nations benefit from exporting & importing, to gain economically—both sides benefit.
What are 3 Classical (Static) International Trade Theories?
Mercantilism: Viewed ad Zero-Sum Game (exporting = winners & importing = losers).
Absolute Advantage: Adam Smith: Nations should produce what they’re most efficient at; (keywords: productive and efficient)
Comparative Advantage: David Ricardo: Nations specialize in lower opportunity cost (keywords, lower opportunity cost)
What are the Modern (Dynamic) International Trade Theories?
Product Life Cycle: Trade patterns change over time as products go from new → mature → standardized.
Strategic Trade: Strategic Government intervention to help industries (high cost) succeed (i.e., Airbus).
National Competitive Advantage of Industries (Diamond Theory): Certain Industries competitive advantage depends on the 4 aspects that form “Diamond:”
1. Strategy, structure & rivalry
2. Factor endowments
3. Demand conditions
4. Relating & Supporting industries
What is a Trade Deficit, Trade Surplus, & Balance of Trade?
Trade Deficit: Importing more than Exporting.
Trade Surplus: Exporting more than Importing.
Balance of Trade: Aggregation of importing and exporting (country-level trade surplus or deficit)
