D080 FVC1, Version 2 Study Guide Answers PDF

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D080/ FVC1, Version 2 Study Guide Unit 2 Globalization Module 1: Political, Economic, and Legal Systems (Lesson 1-6) 1.

What is globalization? Is the process of interdependence of economic and cultural activities among nations around the globe. In other words, globalization is the process of promoting trade, investment, information technology, along with cultural and political integration across countries. The intended result is economic growth, increased standards of living as well as geopolitical integration and interdependence among nations of the world.

2.

What business opportunities are presented by globalization? Business opportunities unsaturated demand for new products, lower labor costs, less expensive natural resources, and other inputs to products. Businesses choose to operate internationally because they can achieve either higher levels of revenue along with a lower cost structure within their operations. Specifically, MNCs look for opportunities to realize economies of scale by massproducing goods in markets that have substantially cheaper costs for labor or other inputs, or they may look for economies of scope. If successful, both strategies lead to business growth and larger revenues. In areas with strong economic growth, local populations can now afford goods and services that were previously not obtainable, including many products produced in industrialized countries.

3.

What are the economic, political, and cultural effects of globalization? a) Economic globalization refers to the widespread, international movement of goods, capital, services, technology, and information. It is the increasing economic integration and interdependence of national, regional, and local economies across the world characterized by the cross-border movement of goods, services, technologies, and capital. Economic globalization primarily comprises the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labor. b) Political globalization—appears to reduce the importance of nation-states. Supranational institutions, such as the European Union, the World Trade Organization (WTO), the Group of Eight (G8), and the International Criminal Court, serve to replace or extend national functions to facilitate international agreements such as the Kyoto Accord and the Paris Agreement. The trend is nongovernmental organizations (NGOs) have been influencing public policy across national boundaries, including humanitarian aid and developmental efforts. c) Cultural globalization has increased cross-cultural contacts, which has decreased the uniqueness of once-isolated communities. On the other hand, the internet,

in addition to providing a homogenizing force of spreading English across the globe, enables speakers of various, less prominent languages to connect and build shared content. Critics refer to cultural globalization is a process of homogenization and, more specifically, a process marked by the global domination of American culture at the expense and elimination of other cultures. Various antiglobalization movements have emerged out of people's concern for losing smaller cultures, as they protest globalization and give new momentum to the defense of local uniqueness, individuality, and identity. 4.

What are the arguments for and against globalization? d) Pros: i) an increased pace of development, ii) an increased awareness of an international community, iii) the potential to sell to broader markets and increase wealth, iv) higher degrees of political and economic freedom, v) creates jobs, make companies more competitive and lower prices for consumers. vi) Increased access to information may lead to increased tolerance and encourage openness to the ideas of others. e) Cons: i) benefits the rich at the expense of the poor, ii) some countries gain price advantage through currency manipulation, iii) created a culture of fear in middle-class workers in developed countries, iv) Gini coefficient (measures inequality) and Happy Planet Index (measures how well nation achieve long, happy, sustainable lives) -point to social disintegration, environmental damage and increasing poverty. v) Large international financial and industrial companies can use their power to influence governments at the expense of the local populations.

5.

What are the different forms of international business? Explain each form. a) Businesses (for-profit organizations)— person or organization engaged in commerce to achieve a profit, which is measured in financial and economic terms. However, some level of sustained financial and economic profits is needed for a business to achieve other outcomes that are measured as social or environmental performance. For example, many companies that are for-profit businesses also have social and environmental missions. b) Governmental bodies also have different international forms. Most national governments, for instance, maintain embassies and consulates in foreign countries. National governments also participate in international treaties related to issues such as trade, the environment, or child labor. For example, the NAFTA is an agreement signed by the governments of the United States, Canada, and Mexico to create a trade bloc in North America to reduce or eliminate tariffs among the member countries and to thus facilitate trade. The Kyoto Protocol is an agreement aimed at combating global warming among participating countries. In some cases, such as with the European Community

(EC), agreements span trade, the environment, labor, and many other subjects related to business, social, and environmental issues. c) National NGOs include any nonprofit, voluntary citizens' groups that are organized on a local, national, or international level. Globalization fostered the development of NGOs because many problems could not be solved in a single nation. In addition, international treaties and organizations, such as the WTO, were perceived by human rights activists as being too centered on the interests of business. In an attempt to counterbalance this trend, some activists argued that NGOs were formed to emphasize humanitarian issues, developmental aid, and sustainable development. A prominent example of this is the World Social Forum—a rival convention to the World Economic Forum held every January in Davos, Switzerland. 6

What are the 5 stages of entering a global market? Explain each stage d) First stage (market entry), companies enter new countries using business models similar to the ones deployed in their home markets. To gain access to local customers, however, companies often need to establish a production presence, either because of the nature of their businesses, such as in-service industries like food retail or banking, or because of local countries' regulatory restrictions, such as in the auto industry. e) Second stage (product specialization), companies transfer the full production process of a particular product to a single, low-cost location and export the goods to various consumer markets. In this scenario, different locations begin to specialize in different products or components and trade in finished goods. f) Third stage (value chain disaggregation) represents the next step in the company's globalization of the supply chain infrastructure. In this stage, companies disaggregate the production process and focus on completing each activity in the most advantageous location. Individual components of a single product might be manufactured in several different places and assembled into final products elsewhere. Examples include the PC industry market and the decision by companies to offshore some of their business processes and information technology services. g) Fourth stage (value chain reengineering), companies seek to further increase their cost savings by reengineering their processes to suit local market conditions by substituting lower cost labor for capital. General Electric's (GE) medical equipment division, for example, has tailored its manufacturing processes abroad to take advantage of low labor costs. Not only does it use more labor-intensive production processes, but it also designs and builds the capital equipment for its local plants. h) Fifth stage (creation of new markets), the focus is on market expansion. The third and fourth stages together have the potential to reduce costs by more than 50 percent in many industries. This allows companies to substantially lower their sticker prices in both old and new markets and to expand demand. Significantly, the value of new revenues

generated in this last stage is often greater than the value of cost savings in the other stages. 7.

What are the 4 drivers of globalization? Explain Four drivers of globalization i) Market – Products and marketing are becoming more standardized due to the convergence of needs, which comes as a result of cultural convergence. ii) Cost – Economies of scale and scope. Economies of scale are realized when the average cost per unit of production decreases as the operation is scaled up. Economies of scope are efficiencies realized through variety rather than volume (root technologies or root raw material used in multiple products). Specialization and standardization lead to economies of scale. iii) Competition – Seeking new markets, high levels of trade, competitive diversity and interdependence increase the potential for industry globalization. iv) Government – trade policies (barriers to trade), technical standards, policies and regulations and state operated or subsidized competitors or customers. Favorable policies and support for MNCs are important factors.

8.

What is the difference between the world is flat view and the CAGE analysis?

a) Friedman’s world is flat view differentiates Globalization 1.0, 2.0 and 3.0 which references the development of globalization based on transportation, communication and technology. Globalization 1.0 was controlled by nations dominating the global expansion. Globalization 2.0 was the increased development of multi-national companies which pushed global expansion. Globalization 3.0 is where the world is today, it includes the development of software/ technology, communication and transportation. This stage of global development increases the interaction among people globally, creating unlimited potential with many different talents, without geographical boundaries, language or time zones all to create opportunity for billions. b)

CAGE analysis view focuses “barriers to cross-border economic activity”.

i. “C” is for culture differences between two countries that reduce their economic exchange. These differences refer to language, norms, national or ethnic identity, levels of trust, tolerance, respect for entrepreneurship and social networks, or other country-specific qualities. ii. “A” is for administration and refers to countries with similar laws, regulations, institutions and policies tend to trade with one another versus those that are different. It can also mean that government differences can contribute to a decrease in trade in relation to those that are similar.

iii. “G” is for geography, whereas the closer the country is to another, the more likely they are to trade with. Transportation costs is a major contributor to this portion of the analysis. A geography distance includes time zones, ports to entry, shared borders and climate. iv. “E” is for economic distance which is the differences in economic and socioeconomic conditions. The GDP is a measure of this function as well as per capita income. This is the most likely the biggest obstacle to cross-border economic activity. 9.

What are the benefits and costs of global expansion from MNCs’ perspective? a) Benefits—achieve either higher levels of revenue or a lower cost structure within their operations

b)

i)

Unsaturated demand for new products

ii)

lower labor costs

iii)

less expensive natural resources, and other inputs to products

iv) realize economies of scale by mass-producing goods in markets that have substantially cheaper costs for labor or other inputs, or they may look for economies of scope. Costs i) Ethical business practices: Arguably the most substantial of the challenges faced by MNCs—ethical business practices in areas such as labor, product safety, environmental stewardship, corruption, and regulatory compliance—has historically played a dramatic role in the success or failure of global players. For example, Nike's brand image was hugely damaged by reports that it used sweatshops and low-wage workers in developing countries. ii) Organizational structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions into the value chain and corporate structure. In many cases, international expansion requires enormous capital investments, along with the development of a specific strategic business unit (SBU) to manage these accounts and operations. iii) Public relations: Public image and branding are critical components of most businesses. iv) Leadership: It can be difficult for businesses to find an effective organizational leadership having the appropriate knowledge and skills to approach a given geographic market successfully. For every geography, unique sets of strategies and approaches apply to language, culture, business networks, management style, etc. Attracting talented managers with high intercultural competence is a critical step in developing an effective global strategy. v) Legal and regulatory structure: Every nation has unique laws and regulations that govern business. MNCs need access to legal expertise that

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will help them understand in-country laws and comply with applicable regulations. vi) Infrastructure: Infrastructure includes the basic physical and organizational structures needed for a society to operate and for an economy to function. It can be generally defined as the set of interconnected structural elements that provide a framework supporting an entire developmental construction, such as roads, bridges, water supply, sewers, electrical grids, and telecommunications. vii) Technology: The level of technological development of a nation affects the attractiveness of doing business there and the type of operations that are possible. Companies may encounter a variety of technological challenges doing business in foreign countries. These challenges include training workers on unfamiliar equipment; inadequate transportation systems that increase production and distribution costs; poor communication facilities and infrastructure; challenges with technology literacy; and a lack of reliable access to broadband internet and related technologies that facilitate business planning, implementation, and control. List different political systems and differentiate them. c) Anarchy – the absence of organized government (Somalia) d) Absolute monarchy—the monarch has absolute power, characterized by oppressive and unfair policies based on the unchecked ideas or political agenda of that leader. Examples include Saudi Arabia, Oman. e) Constitutional monarchy—feature elected prime ministers whose leadership role is more involved and significant than the monarch’s. The monarch is seen as a figure head in such governments, as theirs is a purely ceremonial role. Great Britain is an example. f) Oligarchy—power is held by a small elite group, usually via military might, economic power. Russia, today, is an example. g) Dictatorship—power is held by one person who wields complete and absolute authority over a population. Absolute monarchies are a type of dictatorship. Dictators use economic and military might, along with intimidation and brutality to rule. North Kore is an example of a non-monarchy dictatorship. h) Democracy—is a form of government that strives to provide all citizens an equal voice, or vote, in determining state policy, regardless of socioeconomic status. Citizens can organize political parties and hold elections. Leaders, once elected, must abide by the terms of the nation's constitution, and they are limited in the powers they can exercise, as well as in the length of the duration of their terms. Most democratic societies also encourage freedom of individual speech, the press, and assembly, and they prohibit unlawful imprisonment. Even in a democratic society, the government constrains citizens' total freedom to act however they wish by passing laws and writing regulations that, at least ideally, reflect the will of the majority of its people. 11. List different economic systems and differentiate.

a)

Traditional Economy— i)

Centered around a family or tribe and guided by tradition

ii) Found in hunt-gatherer and nomadic societies; everyone consumes and produces the same goods.

b)

iii)

Relies on bartering

iv)

Members produce what they need with no surplus

v) vi)

Eventually, the economy evolves to some form of currency Examples include Hati and Bhutan

Command Economy— i) Collective or state ownership of capital—The state owns capital resources such as money, property, and other physical assets. There is no (or very little) private ownership. ii) The state determines inputs and outputs—It has an elaborate planning mechanism in place that determines the level and proportions of inputs that are to be devoted to producing goods and services. Local planning authorities are handed one-year, five-year, ten-year, or, in the case of China, up to twenty-five–year plans. The local authorities then implement these plans by meeting with state-owned enterprises, where further plans are developed specific to the business. Inputs are allocated according to the plans, and output targets are set. iii) Labor is allocated according to state plans—In a command planning economy, there is no choice of profession. When a child is in primary school, a streaming system allocates people into designated industries. iv) Private ownership is not possible—Under a command planning system, an individual cannot own shares, real estate, or any other form of physical or nonphysical asset. The state allocates people's residences. v) Prices and paying for goods and services—Prices are regulated entirely by the state with little regard for the actual costs of production. Often, a currency does not exist in a command planning economy. When it does, its primary purpose is for accounting. Instead of paying for goods and services when you need to buy them, you are allocated goods and services. This allocation process is often called rationing.

c)

Market Economy—

d)

i) It is standard for all goods and services to be privately owned. The owners have the right to buy, sell, or lease their property and make a profit off of their assets. ii) People are free to choose to produce, sell, and purchase goods at the price set with the capital they possess. iii) Every seller seeks to maximize profits. iv) Competition keeps prices low. Pricing follows the laws of supply and demand. Although, monopolies also exist in market economies. v) Market economy relies on an efficient market in which all buyers and sellers have equal access to the same information. vi) Government interference is at the minimum that is necessary to ensure the markets are functioning correctly. Governments will regulate monopolies in most cases. Mixed Economies—most economies are mixed to some degree on a spectrum. i) A mixed economy borrows the following characteristics from a market economy: It protects private property, the laws of supply and demand determine prices in a free market, and it is driven by self-interest. A mixed economy, like a command economy, uses the federal government to protect the people and the market as well as oversee the military and international trade and national transportation. ii) The advantages of the mixed economy mirror those of the market economy in ...