MGMT 4660 Exam 1

What is the concept that needs to be understood to truly use sociocultural forces as a strategic advantage?

Our way is not the only way or even the best way

How do most anthropologists view culture?

The sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations

What are the four things most anthropologists agree on regarding culture?

Culture is learned, not something we’re born with

Various aspects of culture are interrelated

Culture is shared, patterned, and mutually constructed through social interaction

Culture defines boundaries of different groups

How does culture manifest itself?

In the character of the social world in which it exists

What is ethnocentricity?

Considering your culture superior to others

What are the two ways to adapt to other cultures?

Spending a lifetime in a culture

Undergoing an extensive training program that covers the main characteristics of culture

What two things should a learning program include?

Factual knowledge about other cultures and training to be sensitive to nuances of cultural differences

What are the three big areas for costly marketing mistakes?

Product design, advertising, and pricing

What are the two questions critically relevant to HR practices that are embedded in cultural values?

Is manager patron/authoritarian figure or first among equals?

Is annual review a way to credit employees’ work and help them grow or means of extracting higher labor outputs from workers?

What is the example of plant layout being influenced by culture?

Assembly lines work in US where the task is the focus not social relationships

Uddevalla approach is used in some Volvo plants in Sweden. They have autonomous teams work in a circle to assemble an entire car in several hours

How do contracts work with Brazilian companies? Why?

They require flexibility in interpretation and enforcement because of changing labor and tariff laws and other conditions

What are accounting principles based on in the EU and the US?

EU - processes deduced from principles

US - collection of rules

Who is international experience valuable to and why?

New hires and mid career individuals who want higher positions and more responsibility

Topics important to early career positions are

• International strategy and competitiveness

• International legal and political issues

• International negotiation

• Foreign language

Do companies without international operations need global perspective? Why or why not?

Yes to help them be alert for opportunities in foreign markets and watch for new foreign competitors wanting to invade their domestic market

What is international business?

business that is carried out across national borders

What is foreign business?

the operation of a company outside its home or domestic market

What is an international company?

a company with operations in multiple nations

What three kinds of environments do international businesses deal with?

Domestic, foreign, and international

What is an environment?

all forces influencing the life and development of the firm

What are uncontrollable forces?

External forces management has no direct control over, although it can exert influence over the company

What are the eleven external forces?

• Competitive – kinds and numbers of competitors, their locations, and their activities

• Distributive – national and international agencies that distribute goods and services

• Economic – variables that influence a firm’s ability to do business such as gross national income (GNI), unit labor cost, and personal consumption expenditure

• Financial – variables such as interest rates, inflation rates, and taxation

• Socioeconomic – characteristics and distribution of the human population

• Labor – composition, skills, and attitudes of workers

• Sociocultural – elements of culture important to international managers like attitudes, beliefs, and opinions

• Political – elements of nations’ political climates such as nationalism, forms of government, and international organizations

• Legal – the many foreign and domestic laws governing how international firms must operate

• Technological – the technical skills and equipment that affect how resources are converted to products

• Physical – elements of nature, such as topography, climate, and natural resources

What is the competitive external force?

Kinds and numbers of competitors, their locations, and their activities

What is the distributive external force?

National and international agencies that distribute goods and services

What is the economic external force?

Variables that influence a firm’s ability to do business (EX: gross national income, unit labor cost, personal consumption expenditure)

What is the financial external force?

Variables like interest rates, inflation rates, and taxation

What is the socioeconomic external force?

Characteristics and distribution of the human population

What is the labor external force?

Composition, skills, and attitudes of workers

What is the sociocultural external force?

Elements of culture important to international managers like attitudes, beliefs, and opinons

What is the political external force?

Elements of nations’ political climates such as nationalism, forms of government, and international organizations

What is legal external force?

The many foreign and domestic laws governing how international firms must operate

What is the technological external forces?

The technical skills and equipment that affect how resources are converted to products

What is the physical external force?

Elements of nature (topography, climate, and natural resources)

What are controllable forces?

Internal forces over which management does have some control and can manage in response to changes in uncontrollable forces

What are five examples of controllable forces?

• Human resources

• Finance

• Production

• Organizational structures and processes

• Marketing

What is a foreign affiliate?

A company controlled by another company that is located in a foreign land, and control may be exercised by variety of means, both those involving stock ownership and those involving non-ownership mechanisms

What is domestic environment?

All the uncontrollable forces originating in the home country that surround and influence the life and development of the firm

Can domestic forces affect foreign operations?

Yes

What is a foreign environment?

All the uncontrollable forces originating outside the home country that surround and influence the firm

Which two foreign forces can be difficult to assess?

Legal and political forces

What is international environment?

The interactions between the domestic environmental forces and the foreign environmental forces, and interactions between foreign environmental forces of two countries

What are international organizations?

Organizations whose actions affect the international environment

What are the three types of international organizations? Given at least one example of each.

Worldwide bodies (World Bank)

Regional economic groupings of nations (US-Mexico-Canada Agreement, EU, Mercosur)

Organizations bound by industry agreements (Organization of Petroleum Exporting Countries)

What is the biggest cause of international business problems?

Self-reference criterion

What is self-reference criterion?

Unconscious reference to your own cultural values when judging behaviors of others in a new and different environment

What are the three choices managers have about employing techniques used in domestic operations?

Transfer it in tact

Adapt it to local conditions

Don’t use it overseas

What is a multinational enterprise (MNE)?

A company made up of entities in more than one nation, operating under a decision making system that allows a common strategy and coherent policies

What is foreign direct investment?

Direct investments in equipment, structures, and organizations in a foreign country at a level sufficient to obtain significant management control

What are the five major drivers of the internationalization of business?

Technological, market, cost, political, and competitive

How have advances in technology influenced the internationalization of business?

Increased flow of ideas and info across borders, so people can learn about foreign goods

How can internationalizing business lower cost of goods sold?

Can choose inducements from different governments

Cost of generating and transmitting info is lower because of telecom advances and decline in transportation

Can make models that appeal globally and sell to more countries

What two trends are political drivers?

Unification and socialization of global community

What is economic globalization?

The tendency toward an international integration and interdependency of goods, technology, information, labor, capital, or the process of making this integration happen

What are four primary concerns of those against globalization?

Globalization has produced uneven results across nations and people

Globalization has had deleterious effects on labor and labor standards

Globalization has contributed to a decline in environmental and health conditions

Globalization threatens to reduce national sovereignty

What are the two major arguments supporting globalization?

Free trade enhances socioeconomic development

Free trade promotes more and better jobs

What did Adam Smith argue in The Wealth of Nations?

Wealth comes from a world in which each part of the world can help to meet the needs and wants of other parts of the world

How evenly is international trade distributed across countries and regions?

Unevenly distributed; the 10 largest exporters and importers amount for over half the world’s exports and imports

Who do exports from developing nations go to?

Majority go to developed countries, but developing nations are trading with each other more

What is regionalization of trade? How is it reinforced?

When countries trade with those around them

Regional trade associations and agreements

What are the seven advantages of knowing your nation’s major trade partners?

The business climate in exporting nations are relatively favorable

Export and import regulations aren’t insurmountable

There’s no strong cultural objections to buying that nation’s goods

Satisfactory transportation facilities are already established

Import channel members are experienced in handling import shipments from exporter’s area

Currency from foreign country is available to pay for exports

Government of trading partner may be applying pressure on importers to buy from countries that are good customers for nation’s exports

What is a trade surplus?

The amount by which the value of a nation’s exports exceeds its imports

What is a trade deficit?

The amount by which the value of imports into the nation exceeds the value of its exports

What is mercantilism?

an economic philosophy based on the belief that a nation’s wealth depends on accumulated treasure and to increase wealth government policies should promote exports and discourage imports

What is absolute advantage?

when a nation can produce more of a good or service than another country for the same or lower costs of inputs

What is perfect competition?

a market situation in which there is a sufficiently large number of well informed buyers and sellers of a homogenous product, such that no individual participant has enough power to determine the price of the product, resulting a marketplace that is efficient in production and allocation of products

What happens in theory of absolute advantage?

Each nation decides to use its resources to produce only the product in which it has an absolute advantage, so total production is greater but the countries have to trade

What is comparative advantage?

When one nation is less efficient than another nation in the production of each of two goods, the less efficient nation has a comparative advantage in the production of that good for which its absolute disadvantage is less

What happens in the theory of comparative advantage?

Each nation makes the good they can produce more efficiently, they settle on an exchange rate, then they trade products and services

What is the one limitation of the theory of comparative advantage?

The less efficient nation can’t be equally less efficient in the production of both goods

What is an exchange rate?

the price of one currency stated in the terms of another

What is the purpose of exchange rates?

To determine whether it’s better to buy locally or import

What are resource endowments?

The land, labor, capital, and related production factors a nation possesses

What is relationship of developed and developing countries with regard to resource endowments?

Developed countries trade with developing countries that have dissimilar resource endowments

What is theory of overlapping demand?

Goods produced for domestic consumption will be exported to countries with similar levels of income and therefore demand

How does theory of overlapping demand differ from theory of comparative advantage?

Overlapping demand theory doesn’t specify which direction a given good should go

What does international product life cycle (IPLC) explain?

Why a product that begins as a nation’s export eventually comes its import

What are the four steps of international product life cycle (IPLC)?

Innovation - develop innovative products that meet rising demand in a specific market

Foreign production begins - foreign production supplies various markets and home nation still exports to markets without production

Foreign competition appears in export markets - home nation’s export sales decline, innovating firms develop new version and reduce production of original

Import competition appears in US - home market is served by imports, innovating companies get pressured to make new product and cycle starts again

What are born globals?

Companies that internationalized their operations either at startup or very early in their life cycle, may not internationalize operations and products in the classic manner of IPLC

What is economies of scale?

The predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases

What is an experience curve?

The rising scale on which efficiency improves as a result of cumulative experience and learning

What two things allow a nation’s industries to become low cost producers without an abundance of resources used as inputs?

Economies of scale and experience curve

What is national competitiveness?

A nation’s relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources

What four kinds of variables influence a firm's ability to use resources to gain advantage according to Michael Porter?

Demand conditions - nature matters rather than just size

Factor conditions - lack of natural endowments has caused nations to invest in creating advanced factors and communication systems to compete globally

Related and supporting industries - firms cluster to provide a network of suppliers and subcontractors and a commercial infrastructure

Firm, strategy, and rivalry - companies subject to heavy competition are constantly striving to improve efficiency and innovativeness

What are the two components of foreign investment?

Portfolio investment and direct investment

What is portfolio investment?

The purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested

What is a direct investment?

investors may influence the management of the firm in addition to receiving a return on their money

What are four reasons for investing in foreign markets to get existing companies?

Corporate restructuring caused management to offer for sale businesses or other assets that didn’t meet profit standards or were seen as unrelated to company’s main business

Foreign companies wanted to gain rapid access to US advanced tech

Management of foreign firms felt entry into large and prosperous US market could be more successful if they acquired known brand names instead of promoting new, unknown brands

Increased international competitive pressures have led to restructuring and consolidation

How do cultural differences impact foreign direct investment stock?

Have a significant and negative effect on the level of FDI stock between US and its partner countries

What is greenfield investment?

The establishment of new facilities from the ground up

What is cross border acquisition?

The purchase of existing businesses in another nation

What is the type of motive for investing abroad?

Strategic motives

What is monopolistic advantage theory?

Theory that foreign direct investment is made by firms in industries with relatively few competitors, due to their possession of technical and other advantages over indigenous firms

What are the three advantages of monopolistic advantage theory?

Economies of scale, superior technology, and superior knowledge in marketing, management, or finance

What is strategic behavior theory?

Suggests strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other’s international investments in order to keep competitor from gaining an advantage

What is internationalization theory?

To obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary that it controls, rather than sell it in the open market

What is dynamic capability theory?

For a firm to successfully invest overseas, it must have ownership of unique knowledge or resources and the ability to dynamically create, sustain, and exploit those capabilities overtime as technology, markets, and competition evolve

What are the three types of advantages for a firm to invest in facilities overseas according to the eclectic theory of international production?

Ownership specific advantage - the extent to which a firm has or can develop a firm specific advantage through ownership of tangible or intangible assets that aren’t available to other firms and can be transferred abroad

Location specific advantage - foreign market must have specific economic, social, or political characteristics that permit firm to profitably exploit firm specific advantages by locating to that market instead of exporting to it

Internationalization advantage - various alternatives to entering markets that exploit ownership specific advantages through internalization options by retaining ownership and control

What do all theories about foreign investment have in common?

All motives are linked to desire to increase or protect profits, sales, and markets

What three things do differences in definition of culture depend on?

Scientists’ approach to the field

Level of analysis

Whether they’re looking at a whole population or individuals

How do most anthropologists view culture?

The sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations