C211 (Global Economics for Managers)
COMPETENCY STUDY GUIDE QUESTIONS
AND ANSWERS WESTERN GOVERNORS
UNIVERSITY.
, C211 Study Guide Questions
Competency 1: Business Decision-Making in the Global Environment
Globalization (Peng Chapters 1, 5, 6, 11)
1. What determines the success and failure of firms around the globe? Two perspectives on this,
one is the resource-based view, and the second is the institution-based view.
2. List and briefly explain the two views (core perspectives) for global business. The resource-based
view puts all the controls and blames on the firm. It indicates or states that the success and
failure of the firms depend on themselves. On the other hand, the institution-based view
believes the success and the failure of the firm lie in formal and informal institutions. Formal
institutions like government regulations, laws, rules, and informal institutions are customs,
traditions, and culture.
3. What is globalization? The close integration of countries and people of the world.
Explain the three views on globalization. The three views on globalization are a new force, a
long-run historical evolution, and a pendulum. The new force view believes that globalization is
something new that started in the second half of the twentieth century with western countries
and was enabled by technological advances, and it’s a way to exploit other developing countries.
The long-run historical evolution view believes that globalization has been with humans ever
since human history began and has been just growing with the population. However, the reality
is the pendulum view which believes that globalization is not new, is not one way, but swings
from one extreme to another.
4. What is a trade deficit, trade surplus, and balance of trade? A trade deficit is when a nation
imports more than it exports. A trade surplus is when a nation exports more than it imports. The
balance of trade is whether a country has a trade surplus or deficit.
5. What are the theories of international trade? The theories of international trade are the classical
and modern international trade theories.
6. What is FDI? Identify and define the key terms associated with FDI. Foreign direct investment
(FDI) is investing in, controlling, and managing value-added activities in other countries. There is
also foreign portfolio investment which is an investment in stocks and bonds in foreign
countries but without a controlling interest. Remember FDI controls, but foreign portfolio
, investment does not; that is the difference. Moreover, a multinational enterprise (MNE) engages
in FDI, but a non-multinational enterprise (non-MNE) does not engage in FDI.
7. What is the OLI advantage? (Explain) Why FDI? What is in it for the firms that they would engage
in FDI and go through so much trouble? The answer is the OLI advantage. O stands for
ownership, and it gives you control. L stands for location, and it gives you some features unique
to that place. Lastly, I stands for internalization, internalizing, and that will be a replacement of
exporting and importing.
8. What are the political views on FDI? (Explain) The political views on FDI are the radical view, the
free market view, and the pragmatic nationalism view. The radical view is very hostile to FDI,
they don’t like FDI, and they think that’s a way of exploitation. The free market view on the other
hand is the opposite; they like FDI, and they want less government intervention. But the reality is
the pragmatic nationalism view, which states that each government will weigh the costs and the
benefits of FDI and if the benefits outweigh the costs, then the government will allow it. So,
what are some of those benefits? The benefits would be capital inflow, job creation, and some
technological or management know-how that we can learn from the foreign firms when they
come to the United States. And the costs are the loss of sovereignty and competition and capital
outflow.
9. What are the costs and benefits of FDI to the host country? (Explain) Cost: Loss of sovereignty,
competition, capital outflow. Benefits: Capital inflow, technology, management, job creation.
10. What are the costs and benefits of FDI to the home country? (Explain) Cost: Capital outflow, job
loss. Benefits: Earnings, exports, learning from abroad.
11. How do resources and capabilities influence the competitive dynamics of a business? (Give an
example) Resource similarity and market commonality can yield a powerful framework for
competitor analysis. A number of resource-based imperatives, informed by the VRIO framework
(Value, Rarity, Imitability, and Organization), drive decisions and actions associated with
competitive dynamics. The Institution-Based View (i.e., Domestic competition
[competition/antitrust policy] and International competition [trade/antidumping policy]) and the
Resource-Based View (i.e., Value, Rarity, Imitability, and Organization) both drive Competitive
Dynamics (i.e., Attack/Counterattack/Cooperation). Firm resources must create value when
engaging rivals. The ability to respond rapidly to challenges also adds value.
12. What is resource similarity, and how does this impact competitive dynamics? (Give an example)
Resource similarity is defined as “the extent to which a given competitor possesses strategic
endowment comparable, in terms of both type and amount, to those of the focal firm. Firms
with a high degree of resource similarity are likely to have similar competitive actions. For
instance, in the 1990s Apple and IBM used to have a lot of resource similarity in personal
computers, so they fought a lot. Why did they not fight recently? One reason is that their level of
