Question 1:

Forces Driving Globalization:

- Falling Barriers to Trade and Investment ( GATT, WTO, NAFTA, World Bank, IMF, Other
regional Trade Agreements)
- Technological Innovation
• Emails & video conferencing
• The Internet, Company intranets & extranet
• Transportation Technologies
- Increasing competition
List pros and cons of globalization
- Pros:
• Increases Wealth & Efficiency in All Nations
• Generates Labor Market Flexibility in Developed Nations
• Advances the Economies of Developing Nations
- Cons:
• Eliminates Jobs in Developed Nations
• Lowers Wages in Developed Nations
• Exploits Workers in Developing Nations
Question 2:
- Increasing earning protentials
- Increasing sales, higher profits and sustainable long-term growth
- Expanding knowledge and resources, accessing to Global Talent
- Decreasing unemployment rate
- Gaining a competitive advantages
- Reducing reliance on a single market, decreasing and spreading risks
- Boost innovation
Example: Red Bull energy drink originated in Austria in 1984 and becoming a global brand in
more than 150 countries.
Question 3:
Economic development includes economic improvements in people’s lives as well as progress
on physical health, safety, life expectancy, education and literacy, poverty, critical infrastructure,
environmental sustainability, and so forth.
- National Production
Popular Indicators of Economic Development
• Gross domestic product (GDP) is the value of the finished domestic goods and services
produced within a nation's borders.
 • Gross national product (GNP) is the value of all finished goods and services owned by a
country's citizens, whether or not those goods are produced in that country.
- Human Development
United Nations’ Human Development Index (HDI)
• Long and Healthy Life
• Education
• Decent Standard of Living
Question 4:
Although GDP and GNP are the most popular indicators of economic development, they have
several important drawbacks.
• Uncounted Transactions: For a variety of reasons, many of a nation’s transactions do not
get counted in either GDP or GNP. Some activities not included are: volunteer work, unpaid
household work, illegal activities such as gambling and black market (underground)
transactions, and unreported transactions conducted in cash. In some cases, the unreported
(shadow) economy is so large and prosperous that official statistics such as GDP per capita are
almost meaningless
• Question of Growth: Gross product figures do not tell us whether a nation’s economy is
growing or shrinking—they are simply a snapshot of one year’s economic output.
• Problem of Averages: Recall that per capita numbers give an average figure for an entire
country. These numbers are helpful in estimating national quality of life, but averages do not
give us a very detailed picture of development.
• Pitfalls of Comparison: Country comparisons using gross product figures can be misleading.
When comparing gross product per capita, the currency of each nation being compared must
be translated into another currency unit (usually the dollar) at official exchange rates. But
official exchange rates only tell us how many units of one currency it takes to buy one unit of
another. They do not tell us what that currency can buy in its home country. Therefore, to
understand the true value of a currency in its home country, we apply the concept of purchasing
power parity
Question 5:
Political Risk: Likelihood that a society will undergo political change that negatively affects local
business activity
• Main sources of political risk include:
- Conflict and violence
- Terrorism and kidnapping
- Property seizure: confiscation, expropriation, or nationalization
- Policy changes
 - Local content requirements
Managing Political Risks
Method
- Adaptation means incorporating risk into business strategies, often with the help of local
officials. Companies can incorporate risk in four ways.
• First, partnerships help companies leverage expansion plans. They can be informal
arrangements or include joint ventures, strategic alliances, and cross-holdings of company
stock.
• Second, localization entails modifying operations, the product mix, or some other business
element—even the company name—to suit local tastes and culture.
• Third, development assistance allows an international business to assist the host country or
region in improving the quality of life for locals.
• Fourth, insurance against political risk can be essential to companies entering risky
business environments
- Information Gathering: International firms attempt to gather information that will help
them predict and manage political risk.
- Political Influence: Lobbying is the policy of hiring people to represent a company’s views
on political matters. Lobbyists meet with a local public official to influence his or her
position on issues relevant to the company. Bribes often represent attempts to gain political
influence. But the Foreign Corrupt Practices Act forbids U.S. companies from bribing
government officials or political candidates in other nations (except when a person’s life is
in danger).
Question 6:
- Control: companies investing abroad often wish to control activities in the local market,
but even 100 percent ownership may not guarantee control
- Purchase-or-Build Decision
• Acquisition of an existing business is preferred when it has updated equipment, good
relations with workers, and a suitable location
• A company might need to undertake a greenfield investment when adequate facilities are
unavailiable in the local market
- Production Costs
• Rationalized production – a system of production in which each of a product’s components
is produced where the cost of producing that component is lowest
• Cost of Research and Development
- Customer Knowledge
• Following Clients
• Following Rivals
Question 7: Explain why governments intervene in FDI
 - Host nations receive a balance-of-payments boost from initial FDI and from any exports
the FDI generates, but they see a decrease in balance of payments when a company sends
profits to the home country.
- FDI in technology brings in people with management skills who can train the locals and
increase a nation’s productivity and competitiveness.
- Home countries can restrict a FDI ouflow because it lowers the balance of payments, but
profits earned on assets abroad and sent home increase the balance of payments.
- FDI ouflows may replace jobs at home that were based on exports to the host country, and
may damage a home nation’s balance of payments if they reduce prior exports.
Question 8: Describe the policy instruments governments use to promote and restrict FDI
1. Host countries
- Promotion
• Financial incentives
• Infrastructure improvements
- Restriction
• Ownership restrictions
• Performance demands
2. Home country
- Promotion
• Insurance on assets abroad
• Loans and loan guarantees
• Special tax treaties
• Tax breaks on profits earned abroad
• Persuade other nations to accept FDI
- Restriction
• Higher taxes on foreign income
• Sanctions that prohibit investing in certain nations
Question 9:
Multinational (Multi-domestic) Strategy: Adapting products and their marketing strategies in
each national market to suit local preferences
The main benefit of a multinational strategy is that it allows companies to monitor buyer
preferences closely in each local market and to respond quickly and effectively to emerging buyer
preferences. Companies hope that customers will perceive a tailored product as delivering greater
value than do competitors’ products. A multinational strategy, then, should allow a company to
charge higher prices and/or gain market share.
The main drawback of a multinational strategy is that companies cannot exploit scale economies
in product development, manufacturing, or marketing. The multinational strategy typically
increases the cost structure for international companies and forces them to charge higher prices to
recover such costs. As such, a multinational strategy is usually poorly suited to industries in which
price competitiveness is a key success factor. The high degree of independence with which each
unit operates also may reduce opportunities to share knowledge among units within a company.
Global Strategy: Offering the same products using the same marketing strategy in all national
markets
The main benefit of a global strategy is cost savings due to product and marketing standardization.
These cost savings can then be passed on to consumers to help the company gain market share in
its market segment. A global strategy also allows managers to share lessons learned in one market
with managers at other locations.
The main problem with a global strategy is it can cause a company to overlook important
differences in buyer preferences from one market to another. A global strategy does not allow a
company to modify its products except for the most superficial features, such as the color of paint
applied to a finished product or a small add-on feature. This can present a competitor with an
opportunity to step in and satisfy any unmet needs of local buyers, thereby creating a niche market.
Question 10:
1. Indentify a protential market: Discover whether sufficient demand exists
2. Match needs to abilities: A frank assessment of a company’s ability
3. Initiate meetings: Potential distributors, buyers, & others to build trust, cooperation
4. Commit resources: Define the export program’s objectives for at least 3-5 years
Question 11:
1. Licensing: Practice by which one company owning intangible property (the licensor) grants
another firm (the licensee) the right to use that property for a specified period of time
- Advantages
• Finance expansion
• Reduce risks
• Reduce counterfeits
• Upgrade technologies
- Disadvantages
• Restrict licensor’s activities
• Reduce global consistency
• Lend strategic property
Example: Microsoft office, Walt Disney, Spotify…
2. Franchising: Practice by which one company (the franchiser) supplies another (the
franchisee) with intangible property and other assistance over an extended period
• Companies based in the United States dominate the world of international franchising
- Advantages
• Low cost and low risk
• Rapid expansion
• Local knowledge
 - Disadvantages
• Cumbersome
• Lost flexibility
Example: McDonald’s, Subway, Dunkin Donuts,…
3. Management Contract: Practice by which one company supplies another with managerial
expertise for a specific period of time
- Advantages
• Few assets risked
• Nations finance projects
• Develops local workforce
- Disadvantages
• Personnel at risk
• Create competitor
Example:
- Walmart signed a new two-year agreement with Rubicon Technologies on November 2,
2022 to ensure proper waste management.
- San Diego County, in 2022, announced that it entered into an emergency management
contract with Genasys Inc.
4. Turnkey projects: Practice by which one company designs, constructs, and tests a
production facility for a client firm
- Advantages
• Firms specialize in competency
• Nations obtain infrastructure
- disadvantages
• Firms specialize in competency
• Nations obtain infrastructure
Example: BOT or BOOT
Question 12:
1. Wholly Owned Subsidiary: Facility entirely owned and controlled by a single parent
company
- Advantages
• Day-to-day control
• Coordinate subsidiaries
- Disadvantages
• Expensive
• High risk
Example: Marvel Entertainment is a wholly-owned subsidiary of Walt Disney. KFC is a wholly
owned subsidiary of PepsiCo Inc.
 2. Joint Venture: Separate company that is created and jointly owned by two or more
independent entities to achieve a common business objective
- Advantages
• Reduce risk level
• Penetrate markets
• Access channels
- Disadvantages
• Partner conflict
• Lose control
• Example: Caradigm (Microsoft Corporation + General Electric), Fiat Chrysler + Google,
Samsung + Spotify, Ford + Toyota
3. Strategic Alliance: Relationship whereby two or more entities cooperate (but do not form
a separate company) to achieve the strategic goals of each
- Advantages
• Share project cost
• Tap competitors’ strengths
• Gain channel access
- Disadvantages
• Partner conflict
• Create competitor
Example: Uber and Spotify, Starbucks and Target, Disney and Chevrolet, Red Bull and GoPro…