WGU 211: Global Economics for Managers - Competency 1

Flashcards covering globalization perspectives, FDI, trade theories, competitive dynamics, and foreign exchange markets based on WGU 211 Competency 1 notes.

What are the two core perspectives or views on global business success and failure?

The Resource-base view, which states that firm-specific resources and capabilities lead to success, and the Institution-based view, which states that formal and informal institutions (the rules of the game) lead to success.

In the context of the three views on globalization, how is globalization described as a 'Pendulum'?

It is a process that swings from one extreme to another from time to time, meaning it is neither recent nor one-directional.

What is a Multinational enterprise ($MNE$)?

A firm that engages in Foreign Direct Investment ($FDI$) when doing business.

What is the difference between Horizontal $FDI$ and Vertical $FDI$?

Horizontal $FDI$ involves duplicating home country activities at the same value-chain stage in a host country, while Vertical $FDI$ involves upstream or downstream moves in different value-chain stages.

What does the $OLI$ acronym stand for in the context of $FDI$ advantages?

Ownership, Location, and Internalization advantages.

According to the $VRIO$ framework, what kind of assets constitute Ownership Advantages?

Assets that are Valuable, Rare, and hard to Imitate ($VRIO$) and are embedded in the multinational firm.

Which political view of $FDI$ is hostile and treats it as an instrument of imperialism and exploitation?

The Radical View.

Describe the Pragmatic Nationalism view on Foreign Direct Investment.

A view that considers $FDI$ to have both pros and cons, approving it only when the benefits outweigh the costs.

For a home country like the $USA$ in the case of $General Motors$, what is a primary cost of $FDI$?

Capital outflows and job loss.

What are the primary benefits of $FDI$ for a host country?

Capital inflow, technology spillover, advanced management know-how, and job creation.

What is Collusion?

Collective attempts between competing firms to reduce competition, which is illegal in the $U.S.$

What are the market characteristics that favor collusion?

Existence of few firms, a price leader, homogeneous products, high barriers to entry, and high market commonality.

Define 'Resource similarity' in the context of competitive dynamics.

The extent to which a given competitor possesses strategic endowments (types and amounts) comparable to those of the focal firm, such as $IBM$ and $Amazon$ in cloud computing.

Matching the four strategies of local firms facing $MNEs$, what is an 'Extender'?

A firm that leverages homegrown competencies abroad.

What is a trade deficit?

A situation where a country is importing more than it is exporting to other countries.

Which classical trade theory suggests that wealth is fixed and nations should maximize exports while minimizing imports to accumulate gold?

Mercantilism (viewed as a zero-sum game).

How does Comparative Advantage differ from Absolute Advantage?

Absolute advantage is being absolutely superior/efficient in production, while Comparative Advantage is having a relative advantage with lower opportunity cost.

What does Strategic Trade theory suggest?

That strategic intervention by the government on certain industries (e.g., $Airbus$) can enhance their odds of success.

What are the four aspects of Porter's Diamond (National competitive advantage of industries)?

$1.$ Firm strategy, structure, and rivalry; $2.$ country factor endowments; $3.$ domestic demand conditions; and $4.$ related and supporting industries.

What is Purchasing Power Parity ($PPP$)?

A theory suggesting that in the absence of transaction costs, the price for identical products in different countries should be the same when converted to a common currency.

How do changes in interest rates affect a currency's value?

If a country raises interest rates, it attracts foreign investors, increasing demand for that currency and causing it to Appreciate.

What is the difference between a Clean Float and a Dirty Float?

A Clean (Floating) rate is determined solely by supply and demand, while a Dirty (Managed) Float is mostly market-determined but involves government intervention to prevent drastic swings.

Define a 'Currency Swap'.

The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

What is the most effective way to limit foreign exchange exposure in the forward direction?

Using Forward Contracts or Currency Options.

What does 'Strategic Hedging' involve?

Diversifying physical business operations (e.g., sourcing or manufacturing in multiple locations) so a currency crash in one region does not sink the entire company.

What are the advantages and disadvantages of a First Mover?

Pros include brand loyalty and proprietary technology; cons include a high risk of failure and the cost of pioneering the market.

List the two Equity Modes of foreign market entry.

Joint Ventures and Wholly Owned Subsidiaries (Greenfield or Acquisition).