PA - Business Decision Making in the Global Environment Flashcards
(15 cards)
Weaknesses of Mercantilism
Mercantilism leads to inefficient resource allocation and reduces a nation’s long-term wealth. Example: A country hoards gold and restricts imports, resulting in poor domestic production efficiency and stagnant growth.
Bandwagon Effect
The tendency of investors to follow others in the same direction at the same time. Example: A stock gains popularity and surges in price as more investors buy in without independent analysis.
Effect of Decreased Inflation on Exchange Rate
A decrease in inflation typically strengthens a country’s currency, increasing its exchange rate. Example: Lower inflation in the U.S. increases demand for dollars, raising its value relative to other currencies.
Spot Transactions
One of the primary types of foreign exchange transactions involving immediate exchange of currencies. Example: A business converts USD to Euros for payment due the same day.
Largest Participants in Foreign Exchange Market
Large international banks are the primary and largest participants in forex markets. Example: Banks like JPMorgan or Citibank conduct currency exchanges for global clients.
Natural Resource-Seeking Strategy
A strategy where companies seek locations rich in natural resources like oil or minerals. Example: An oil company sets up operations in Saudi Arabia due to its petroleum reserves.
First-Mover Advantage
An entrant who establishes significant barriers for later entrants by entering a market first. Example: Amazon’s early entry into e-commerce gave it a dominant market position.
Advantage of Direct Exports
Firms capitalize on home-country production economies of scale. Example: A U.S. furniture manufacturer exports directly to Europe, maintaining cost efficiency.
Equity Modes of Entry
Includes strategic alliances, greenfields, and acquisitions where a firm invests capital to enter foreign markets. Example: A company acquires a local firm in Brazil to establish a presence there.
Long-Run Historical View of Globalization
The belief that globalization has existed in some form throughout human civilization. Example: Ancient Silk Road trade routes connecting Asia and Europe.
First-Mover Advantage (Global Markets)
Firms that enter new markets early gain advantages over competitors. Example: Coca-Cola entering emerging markets before other soft drink companies.
Opportunity Cost
The value of the best alternative forgone when making a decision. Example: Choosing to study for an exam instead of going out with friends.
Internalization Advantage (OLI Framework)
The benefit firms gain by controlling operations internally rather than outsourcing or licensing. Example: A tech firm opening its own office overseas to protect its proprietary software.
Dodger Strategy
Used when industry pressure to globalize is high and competitive assets are home-based. Example: A local company licenses its brand to a multinational instead of competing globally.
Industries Primed for Collusion
Industries with a small number of rivals, a price leader, and homogeneous products are more prone to collusion. Example: Airlines agreeing on ticket prices where few players and identical services exist.
