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MNI3701 - Exam Questions and Solutions - 2020
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GLOBAL BUSINESS: MNI3701POSSIBLE EXAM QUESTIONS AND SOLUTIONS
Chapters 1 – 3
Discuss the drivers of globalisation. (pgs. 7 -11)
Globalisation is the growing interdependence of countries worldwide through the increasing
volume and variety of cross border transactions in goods and services, as well as international
capital flows.
• Changes in political environments
-Can be credited with two developments namely: Creation of global economic/trade regulatory
bodies and the collapse of communism
-Creation of economic/trade regulatory bodies included General Agreement on Tariffs and
Trade (GATT) in 1947-served as a medium through which international trade negotiations and
arrangements were conducted and the World Trade Organization (WTO) in 1995- aids
international trade and safeguards the rights and privileges of entrepreneurship, innovation
and invention
-Collapse of communism allowed the spread of capitalism and the trade liberalization across the
globe
• Changes in the technology environment
-email and videoconferencing have made its easier for multinational enterprises to
communicate, transmit and share large information and allows for discussion in a virtual
environment
-The Internet and the World Wide Web (WWW) provide enterprises the opportunity to monitor
and respond to competition and provide consumers with products at reduced prices.
-Company intranets and extranets enable for fast distribution of large volume of information
throughout the organization
• Changes in the transportation, innovations
-air and speed rail are some of the modern advances in the field of transportation.
Fully discuss the various international trade theories. (pgs18 - 22)
• Mercantilism
-this theory is premised on export promotion at the expense of importation.
-It describes the use of the state’s power and resources to build up industry, to increase the
surplus stocks of exports over imports, and to accumulate stocks of precious metals.
(16th and 18th, France, Europe)
,-aim of the strategy was to ensure the state’s security and prosperity
• Absolute advantage
-This is premised on Adams Smiths publication; “The Wealth of Nations” (1776). --Smith argued
that for countries to have absolute advantage they had have division of labour -Meaning each
country should specialize in the production of one product for which it is uniquely suited.
-countries could produce more products in total and trade in the goods that were cheaper than
those produced locally
-India vs Philippines, India has AA because of labour
• Comparative advantage
-This is premised on David Ricardo’s publication: “Principles of Political Economy” (1817). He
advanced the argument that a country should specialize in the production of those goods that
it produces most efficiently but import those goods it produces least efficiently.
- This theory suggests that consumers in all nations can consume more if there are no trade
restrictions (promotes free trade)
-India has CA in IT sector and Philippines in call centre because of easier communication with
American
• Heckscher-Ohlin factor proportions theory
-the theory builds on Comparative advantage; it concludes that a country should export
products that use its relatively abundant (and cheap) factors intensively and import products
that use its relatively scarce factors intensively
-
• Leantief paradox (1954)
-this theory maintains that a country like the USA should be an exporter of capital-intensive
goods because of its abundance in capital. However, it was found that USA’s exports were less
capital intensive than the country’s imports. This contradiction
(contradicting Heckscher-Ohlin theory) became known as the Leontief Paradox.
• Product life cycle theory
-large proportion of the world’s new products have been developed and sold in the USA -
Demand for USA products grow over time, so USA multinationals will establish operations and
facilities in those countries with most demand.
-as market in the USA and other advanced countries matures and price becomes the main
competitor, it will enable foreign producers to export their products to the USA
• New trade theory
-suggests that economies of scale in production may not always be attained within a country’s
borders, but that it could be attained across borders.
,-the theory questions the law of diminishing marginal returns to specialization -emphasizes that
the competitive manufacture and sale of certain goods, for economies of scale ar e not
achievable, can only be realized if government support-in the form subsidies is forthcoming
• National competitive advantage
-This theory was developed and advanced by Michael Porter through his publication
“The Competitive Advantage of Nations”
-He maintains that there are four attributes of a nation that shape the competitiveness of the
environment in which organizations do business
-These are 1)-Factor conditions (relates to a nations’ position regarding production factors such
as skilled labour and developed infrastructure that enable firms to compete in an industry)
-2- Demand conditions- relate to the degree of healthy competition the firm must face in its
local market, these conditions promote innovation, product development and competitiveness
in domestic and international markets.
-3-Related and supporting industries-refer to the presence or absence of supplier and related
industries that are locally and globally competitive (supply chain network) -4- Firm’s strategy,
structure and rivalry- relates to the conditions in the home industry that either hinder or aid
the firm’s ability to create, organize and manage the nature of domestic and international
rivalry (a firms’ strategic management)
-He further adds the role the governments and chance events as factors that could affect
nation competitive advantage (trade policies)
-South Africa we have Competitive Advantage because of our natural resource’s minerals,
grape to make wine, fruit to make fruit juice
Suppose South African Breweries (SAB) decides to take advantage of trading relationships
between South Africa and Iran and plans to expand its business to Iran. As an international
strategist, how would you advise SAB, using the PESTEL model, to successfully penetrate the
Iranian market? (pgs28 - 43)
Political- there are different political systems in different countries therefore a MNE must
monitor the political climate of the countries in which it conducts its business. They must be
concerned with the political constraints which could either encourage or discourage foreign
investment and trade.
-Political risk entails the impact of undesirable political changes on an MNEs foreign operations
and decision-making process
-There are two extremes of Political ideologies: Democracy (direct involvement of nation’s
citizens in the political decision-making process affecting the country, practiced on a
representative basis) and Totalitarianism (the monopolization of political power by one party,
group or individual)
-The degree of State intervention is important to foreign investors as the State determines the
nature of the economic system operative in a country, which has implications for economic
development, production, distribution consumption of goods and services
, Economic environment-A healthy, growing economy is a prerequisite for successful business.
-Factors include economic growth, interest rates, the exchange rate and the inflation rate
Social-relates to the demand and tastes related to broad socio-cultural characteristics of the
population.
-Factors include population growth, age distribution and attitudes towards work, religion and
language
Technological – Technology is a specific kind of knowledge about how to create and use
material objects therefore the technology environment and the knowledge economy are
inextricably linked.
-Knowledge and technology confer a national competitive advantage, by driving economies of
scale and for greater utilization of capital equipment
-Types of technology include: Hard technology (machinery, equipment), soft technology
(management know-how, finance) and High technology (capital intensive)
-The transfer of technology is essential for attaining a high level of industrial capacity and
competitiveness, due to MNEs investing abroad to expand production, marketing and research
activities
Environmental- Sustainable development refers to progress that meets the needs of the
present without compromising the ability of future generations to meet their own needs.
-Concerns regarding climate change have led to an increasing array of laws and incentive
structures that affect the way in which companies operate
Legal- the legal system of a country refers to the rules and laws that regulate behaviour, along
with the process by which the laws are enforced and through which redress for grievances is
obtained.
-Domestic law governs commercial activities in a specific country
-International law defines the set of laws governing relationships between countries or
internationally based legal persons, through sources like treaties and conventions, customs and
controlling of seas
-Different legal system include: Common Law (past practices), English law (courts),
Islamic Law (), European Law, Indigenous legal Law (chieftaincy)
-Legal contract’s purpose is to stipulate the respective rights and obligations of the parties to
the agreement in order to reduce possible disputes arising between parties. (e.g., exporting
agreements)
List and discuss the types, effects and benefits of economic integration (pgs. 58 - 60)
Economic integration is the grouping countries by agreement or treaty on regional basis to form
a trade block.
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