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Overview of the Class

• The discussion began with a quiz check-in; all students were able to participate successfully.

• An announcement was made about volunteer opportunities for South by Southwest (SXSW) in Austin, highlighting the rarity and value of this experience for students.

Chapter 1: Key Definitions and Concepts

Multinational Enterprises (MNE)

• Definition: A firm that engages in foreign direct investment (FDI).

• Commonly referred to as Multinational Company (MNC).

Foreign Direct Investment (FDI)

• Definition: Direct investment in a foreign country through establishing physical facilities or branches.

• Importance: Essential for companies to access resources, lower labor costs, and gain competitive advantages.

• Differentiated from foreign portfolio investment, which involves buying stocks or bonds.

Reasons for Foreign Direct Investment

• Access to Skilled Labor: Countries may have concentration of specialized workers, e.g., India for IT.

• Cost Reduction: Labor and operational costs may be lower in other nations.

• Tax Structures: Varying tax environments may be beneficial.

Global Business and Competition

• Necessary for success; companies must interact globally to reduce costs and compete effectively.

• Historical Example: Levi's closure of the last U.S. manufacturing plant due to competition from overseas production.

Global Mindset

• Definition: Ability to understand and connect with global business practices.

• Importance for managers: to recognize global opportunities and challenges affecting competitiveness.

Expatriate Managers (Expat)

• Managers who relocate to a foreign country to oversee operations.

• Typically receive compensation premiums for their flexibility and facing relocation challenges.

Unified Framework for Global Business (Mike Peng)

• The textbook introduces a framework involving:

  • Institutional View

    • Formal Institutions: Legal systems, government regulations.

    • Informal Institutions: Cultural norms, societal behaviors.

  • Resource-Based View: Focuses on internal resources that give competitive advantages through resources defined by the VRIO model (Valuable, Rare, Inimitable, Organizationally necessary).

Stakeholders

• Definition: Any individual or group affected by or affecting a company's operations.

  • Includes employees, shareholders, managers, and the local community.

Liability of Foreignness

• Definition: Challenges faced by foreign firms in new environments due to unfamiliarity with local culture, laws, and norms.

• Importance: Understanding this liability is critical for foreign firms to succeed in new markets.

Globalization and Economic Views

• Globalization: Increasing interconnectedness of economies; viewed through three perspectives:

  • Historically continuous process.

  • A relatively new phenomenon.

  • A cyclical trend depending on political climates.

• Example: Historical trade practices and modern technology facilitating interactions.

Emerging Economies

• Definition: Countries with growing economies but presenting higher risks for foreign investment due to unstable regulations or governance.

• Example: China is considered an emerging economy despite being one of the largest globally due to regulations imposed on foreign firms.

Base of the Pyramid Countries

• Definition: Economies where individuals live on less than $2,000 per year, often focusing on barter and non-monetary exchanges rather than cash.

• Purchasing Power Parity (PPP): A measure to assess economic value across countries considering local costs of living rather than just currency exchange rates.

Reverse Innovation

• Definition: When innovations developed for lower-income markets are adapted for higher-income markets.

• Example: Solar panel applications emerging from low-income regions gaining traction in developed markets.

Risk Management

• Definition: The process of identifying, analyzing, and responding to risks. It involves balancing potential rewards against risks.

• Scenario Planning: Preparing for potential future scenarios and formulating response strategies.

• Black Swan Events: Unpredictable events with significant consequences; managing these is often not feasible due to their unpredictable nature.

Organizational Slack

• Definition: Excess resources available for unexpected demands or opportunities.

• Contemporary view: Companies aim to minimize slack to reduce costs and increase efficiency in competitive environments.

Conclusion

• The lecture emphasized the necessity of understanding global business dynamics, including operational practices, cultural awareness, legislative differences, risk management, and competitive strategies to operate successfully across borders.