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Business 187 - Global Dimensions of Business

Business 187 - Global Dimensions of Business. Slides for preparation and review for second midterm Prof. Robert Chapman WOOD. The midterm …. 25-28 multiple-choice questions A choice of one of two essays (handed out ahead of time) Bring Scantron (Form 882-E – the small style)

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Business 187 - Global Dimensions of Business

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  1. Business 187 - Global Dimensions of Business Slides for preparation and review for second midterm Prof. Robert Chapman WOOD

  2. The midterm … • 25-28 multiple-choice questions • A choice of one of two essays (handed out ahead of time) • Bring • Scantron(Form 882-E – the small style) • Blue book(small is OK)

  3. Multiple choice questions will cover … • Assigned reading in • Chapters 5,7, 10, 11, 12, 14, 15, 16 • Also p. 355 of Ch. 10 • Note that assignments for Chs. 11, 15 are small parts of those chapters • From the first third of the course, only Ch. 5 (trade theory) will be included • Understanding trade theory is essential for understanding Chapters 7, 8, 10, 11, and 12 • Also, thePorter article “The Competitive Advantage of Nations” • Chapters 8 and 17 will not be on this test

  4. Use these slides and the class review discussion as guides • Study… • the text • your notes • the original slides available on the class web page • Memorizing stuff from the slides is not enough! Make sure you understand each concept on the slides • Have slides, your notes, and text open all at once • All midterm topics are mentioned on slides, but the slides themselves cannot provide full detail

  5. Essays graded on whether you practicecritical thinking • Show you understand the concepts • In this case – • Gains from trade • Comparative advantage • Possibly ideas like infant industries, etc. • Your argument (whether you agree with what’s in the text or not) is based on and follows logically from facts and plausible existing theories.

  6. Key issues in Ch. 5: International Trade Theory • Mercantilism • Free trade – definition • No barriers limiting trade • Economists think you should have the same incentives when you consider a product from abroadas from your home country. See special slides on the web site explaining what free trade is and why most economists support it

  7. Arguments for gains from trade • Absolute advantagetheory – Adam Smith • Comparative advantage theory - Ricardo • Gains from trade when one country is better at everything • Extensions of comparative advantage theory • Immobile resources will mean not all resources shift to new uses • Diminishing returns to specialization • Free trade further increases efficiency over time

  8. Your company has comparative advantage in the product or service where the ratio Cost in your country . Cost in the other countryis lowest

  9. Product life-cycle theory (and limitations) • “New” trade theory – specialization leads to just a few winners in each industry • Should government try to pick and promote the winners of the future?

  10. Key issues in Chap. 7: Foreign Direct Investment (FDI) • Definition of foreign direct investment • Difference between indirect and direct investments (See Chapter 7-8 slides) • Why firms do foreign direct investment • Be able to think about under what circumstances a firm would produce abroad • Why not just license your tech to a local firm? • Acquisitions vs. build-it-yourself

  11. Recent trends • Rapid growth over 20 years • Recent decline in direct investments from one developed country to another • Growth in direct investment in developing countries • especially East, South, and Southeast Asia

  12. Key issues in Chap 10: Foreign exchange • Note: Parts of the text of Chs. 10 and 11 are confusing and difficult. Download the slides • What are • money? • foreign exchange? • exchange rate? • How to find out a currency’s value • (on line or in newspaper) • Dollar as most widely used/traded • London as site of most trade • Fixed vs. “floating” exchange rates

  13. Trading terms: bid, offer, spread • Fully convertible (hard) currency vs. “soft” currencies • Key issues of “fundamental analysis” in predicting change in a currency’s value • See p. 355 in text (not in original assignment)

  14. Key issues of Chap. 11: The International Monetary System • Fixed exchange rates from 1945-1971 (“The Bretton Woods system”) • The floating exchange rate regime

  15. Key Issues of Chap. 12: Global Corporate Strategy • What goes into the big decisions? • The core of strategy: value creation • Strategic positioning: Need to be explicit about choice of strategic emphasis • Reasons a firm that expands abroad may be more successful

  16. Basic strategic choices • The problem: pressures on international businesses • Pressures for cost reductions • Pressures for local responsiveness • Possible responses • “International” strategy • Localization (or “Multidomestic”) strategy • Global standardization strategy • Transnational strategy

  17. Porter’s Competitive Advantage of Nations • Understand what Porter means by the competitive advantage of an industry • Understand the four determinants • Factor conditions (specialized factors) • Demand conditions • Related and supporting industries • Firm strategy, structure, and rivalry • Understand what Porter means by each • Importance of pressure on firms

  18. Key issues in Chap. 14 Entry Strategy and Alliances • Choosing which foreign markets • Know some key criteria for choosing countries • Size • Growth rate • Stability • Spillovers • Know problems of deciding when to enter • Scale of entry

  19. Entry modes • Exporting • Turnkey projects • Licensing • Franchising • Joint Ventures • Selecting mode to match competences • Strategic alliances • Dangers • Methods that can reduce the dangers • How location decisions should be influenced by Porter’s theories

  20. Essential points from Chap. 15: Exporting and Importing • Information sources – U.S., local trade commissions • Lack of trust in exporting/importing • Getting paid • Open account – the seller just sends a bill (often very dangerous) • Letter of credit – document that obligates buyer’s bank to pay when goods shipped (usually very reliable) • Key export documents • Draft – an order instructing someone to pay at a specified time • Bill of lading – receipt for goods from the carrier (airline, shipping line) 17-11

  21. Key Points of Ch. 16: Global Production, Outsourcing, Logistics • Definitiions • Production • Includes both service and manufacturing activities • Logistics • Outsourcing • Goals – include responsiveness • To local demands • To shifts in customer demand • Centralized vs. decentralized

  22. Benefits of making yourself • Benefits of buying from others (outsourcing) • Just-in-time inventory in the global supply chain • Electronic data interchange

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