TOTAL EXAM REVISION. Total Exam Revision BSB119 (Global Business) Abstract. BSB119 Global Business

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1 Total Exam Revision BSB119 (Global Business) Abstract This is total exam revision for BSB119 Focus is mostly on lectures 5, 6, 7, 9 & 10 BSB119 Global Business

2 CONTENTS 1 Lecture 1 Globalisation & production Globalisation Nature and factors Environmental factors facilitating globalization Challenges for International business globalization prosperity or impoverishment Summary of main themes of Lecture Lecture 2 Global theories New trade theory, economies of scale and first mover advantage Foreign Direct Investment (FDI) New Trade Theory (Late 1970s and 1980s) Collection of economic models Economies of scale First mover advantages Porter s Diamond of Competitive Advantage OLI Synthesis (Dunning) (FDI) The eclectic paradigm: John Dunning - Foreign Direct Investment (FDI) Stage Models of Internationalisation Johanson & Valhne (1977) Internationalisation Model (U-model) The Innovation Models (I-Models) Lecture 3 Socio economic concepts... Error! Bookmark not defined. 3.1 Analysing the Economic Environment... Error! Bookmark not defined Important to consider:... Error! Bookmark not defined. 3.2 Adjusting to the Economic Environment:... Error! Bookmark not defined. 3.3 Market Economy... Error! Bookmark not defined. 3.4 Centrally Planned Economies... Error! Bookmark not defined. 3.5 Mixed economy... Error! Bookmark not defined Selecting the Target Country... Error! Bookmark not defined Governments have four stabilisation goals:... Error! Bookmark not defined Market Potential Indicators for Emerging Markets.. Error! Bookmark not defined. 4 Lecture 4 Culture and cultural understanding... Error! Bookmark not defined. 4.1 Comparing Cultures... Error! Bookmark not defined. 4.2 What Is Culture?... Error! Bookmark not defined. 4.3 Country Profile - Elements of Culture... Error! Bookmark not defined. 5 Lecture 5 Trade and Investment... Error! Bookmark not defined. 5.1 The benefits of free trade:... Error! Bookmark not defined. 5.2 Motives for government intervention... Error! Bookmark not defined Political motives:... Error! Bookmark not defined. 1

3 5.2.2 Economic motives:... Error! Bookmark not defined. 5.3 Instruments of intervention... Error! Bookmark not defined. 5.4 Definitions/Key concepts... Error! Bookmark not defined. 6 Lecture 6 Political Risk... Error! Bookmark not defined. 6.1 The Political Environment... Error! Bookmark not defined. 6.2 Political Risk... Error! Bookmark not defined. 6.3 Policy Impacts on IB and FDI... Error! Bookmark not defined Host Nation Responses... Error! Bookmark not defined. 6.4 Assessing and Forecasting Political Risk... Error! Bookmark not defined. 6.5 Managing Political Risk... Error! Bookmark not defined. 6.6 Definitions... Error! Bookmark not defined. 7 Lecture 7 Types of Entry... Error! Bookmark not defined. 7.1 IB expansion strategies... Error! Bookmark not defined Analyzing Global Strategies... Error! Bookmark not defined Global Expansion Benefits... Error! Bookmark not defined International Strategy (IS)... Error! Bookmark not defined Global Strategy (GS)... Error! Bookmark not defined Multi-domestic Strategy (MD)... Error! Bookmark not defined Transnational Strategy (TN)... Error! Bookmark not defined. 7.2 Methods of Going International... Error! Bookmark not defined Timing of Entry... Error! Bookmark not defined Scale of Entry... Error! Bookmark not defined External or arms-length Modes of Entry... Error! Bookmark not defined Internal Modes of Entry... Error! Bookmark not defined. 7.3 Definitions... Error! Bookmark not defined. 8 Lecture 9 Global Production... Error! Bookmark not defined. 8.1 Introduction to Global Production... Error! Bookmark not defined Key Concepts... Error! Bookmark not defined Strategic objectives in global operations management. Error! Bookmark not defined. 8.2 Location of Production... Error! Bookmark not defined Manufacturing Location Factors... Error! Bookmark not defined. 8.3 Concentrated vs. Decentralised Production... Error! Bookmark not defined. 8.4 Sourcing and Acquiring Resources... Error! Bookmark not defined Vertical integration: the firm controls a number of the stages along the production chain Error! Bookmark not defined. 8.5 Logistics and Material Management... Error! Bookmark not defined Just-in-Time (JIT) Inventory System... Error! Bookmark not defined. 2

4 8.5.2 Transport Modes and Logistics... Error! Bookmark not defined Reverse Logistics and the WEEE... Error! Bookmark not defined. 8.6 Summary... Error! Bookmark not defined. 9 Lecture 10 Forward vs Spot Exchange (pros and cons)... Error! Bookmark not defined. 3

5 1 LECTURE 1 GLOBALISATION & PRODUCTION What is Globalisation? - Globalisation refers to the shift towards a more integrated and interdependent world economy What is International Business? - Business undertaken across international borders - Business transactions between parties from more than one country 1.1 GLOBALISATION NATURE AND FACTORS The nature of globalisation: national economies are increasingly integrated and interdependent but diversity remains! Is the local business immune? Businesses respond to and are the engine of globalisation the multinational enterprise (MNE) Globalisation of production, markets and emergence of global institutions The globalisation of the markets Many industries historically distinct and separate national markets are merging into one huge global marketplace Implications: Tastes and preferences of consumers in different nations are beginning to converge Today's firm operates in an environment that offers more opportunities, but is also more complex and competitive than that faced a generation ago The globalization of production There is a tendency among many firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production, thereby allowing them to compete more effectively against their rivals Implications: Improvements in transportation technology, including jet transport, temperature controlled containerized shipping, and coordinated ship-rail-truck systems have made firms better able to respond to international customer demands Globalisation of production Sourcing goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production, thereby allowing them to compete more effectively against their rivals Examples of globalisation of production: Boeing s 777 and 787 commercial aircrafts Lenovo s ThinkPad laptop 1.2 ENVIRONMENTAL FACTORS FACILITATING GLOBALIZATION Liberalisation - Reduction in the barriers to trade and foreign investment (cooperation among nations: GATT, WTO and regional trade agreements) Political environment Changing ideologies, privatisation and the emerging market economies Rising disposable incomes Economic development and demand for greater variety of products 4

6 Technological change Transportation, communication, information processing and the Internet Virtual organisation - Virtual workforce (global outsourcing) 1.3 CHALLENGES FOR INTERNATIONAL BUSINESS Geographic Cultural Technological (Digital) Economic Political Regulatory 1.4 GLOBALIZATION PROSPERITY OR IMPOVERISHMENT Impact of trade liberalisation and FDI barrier removal on: Jobs and incomes Do jobs move from wealthy, advanced economies in search of lower wage rates? On labour policies and the environment Do manufacturing facilities move to developing countries with weaker labour laws and environmental protection? On national sovereignty 1.5 SUMMARY OF MAIN THEMES OF LECTURE Lecture 1 sets the scene for the rest of the semester. It shows how the world economy is becoming more global and reviews the main drivers of globalisation, arguing that they seem to be thrusting nation-states towards a more tightly integrated global economy We highlighted the unique business environment in Australia a highly urbanised, continent size country with a small domestic market, however abundant in natural resources located in the fastest growing region We looked at how the nature of international business is changing in response to the changing global economy; we discussed some concerns raised by rapid globalisation; and we reviewed implications of rapid globalisation for individual managers We looked at some of the opportunities and challenges associated with globalisation We identified the impact of the internet and Electronic Business as enabling technologies facilitating IB 5

7 2 LECTURE 2 GLOBAL THEORIES NEW TRADE THEORY, ECONOMIES OF SCALE AND FIRST MOVER ADVANTAGE 2.1 FOREIGN DIRECT INVESTMENT (FDI) Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country. Once a firm undertakes FDI it becomes a multinational enterprise. When market imperfections are making transactions less efficient a company may undertake FDI. Market imperfections include trade barriers and the protection of specialised knowledge. 2.2 NEW TRADE THEORY (LATE 1970S AND 1980S) COLLECTION OF ECONOMIC MODELS The new trade theory suggests that because of economies of scale (unit cost reductions associated with a large scale of output) and increasing returns to specialisation, in some industries there are likely to be only a few profitable firms. 2.3 ECONOMIES OF SCALE Economies of scale (unit cost reductions associated with a large scale of output) are increasing returns to specialisation, in some industries there are likely to be only a few profitable firms (Car industry, aircraft manufacturing). A nation may be able to specialise in producing a narrower range of products than it would in the absence of trade, yet by buying goods that it does not make from other countries, each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods Through economies of scale, trade increases the variety of goods to consumers and lowers the overall cost. 2.4 FIRST MOVER ADVANTAGES Firms with first mover advantages (the economic and strategic advantages that accrue too many entrants into an industry) will develop economies of scale and create barriers to entry for other firms. Global markets can only support a small numbers of firms, dominated by firms with first mover advantages. 2.5 PORTER S DIAMOND OF COMPETITIVE ADVANTAGE Government policy and chance work as a reinforcing system of competitive advantage for businesses. There are at least three main implications for international businesses: Location Implications First Mover Advantages 6

8 Government policies 2.6 OLI SYNTHESIS (DUNNING) (FDI) Choose FDI when three conditions exist: (O) Possesses ownership advantages: owns a valuable asset to provide an international competitive advantage (e.g. technology, trademark, political connections) (L) Location advantages: specific to the location where the O advantages can be complemented, created, acquired or exploited Internalisation advantages: high transaction costs of control - internalise and control its O advantages The eclectic paradigm: John Dunning - Foreign Direct Investment (FDI) Internalisation theory (transaction cost theories) The internalisation theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. 2.7 STAGE MODELS OF INTERNATIONALISATION Johanson & Valhne (1977) Internationalisation Model (U-model) This model was developed to explain the dynamic nature of internationalisation. The model describes: Resource commitment to the foreign markets Market commitment Foreign market knowledge & operation o The Change aspects: Decisions to commit resources 7

9 Performance of current business activities BSB119 Global Business The U-model follows as sequence of 4 stages that can be used to implement Foreign Direct Investment (FDI): Stage 1: No regular export activity. Stage 2: Export via independent representatives (agents). Stage 3: Establishment of an overseas sales subsidiary. Stage 4: Overseas production/manufacturing units. Psychic distance also plays a role. This is defined as 3 different main factors. These factors are: 1. Cultural factors: Societal norms, level of individualism or collectivism, values and customs. 2. Economic situation: Existing trading links, infrastructure, local conditions, competition and investor confidence. 3. Political and legal system: Government stability and risk of instability, import tariffs, legal protection and taxation levels The Innovation Models (I-Models) The body of research referred to as I-Models encompasses a number of studies. Innovation-related models differ from the U-Models in that they view exporting as an innovation for the firm. The internationalisation process is a series of innovations for the firm. The focus of these models is primarily on the export development process of small- to medium-sized enterprises (SMEs). 8

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