4SA3 WEEK 1 (CHAPTER 1) EXAM QUESTIONS WITH VERIFIED ANSWERS LATEST UPDATE 2026

4SA3 WEEK 1 (CHAPTER 1) EXAM QUESTIONS WITH VERIFIED ANSWERS LATEST UPDATE 2026 Globalization - Answers trend away from distinct national economic units and toward one huge global market it is the shift toward a more integrated and interdependent world economy Two facets of globalization - Answers 1) Globalization of Markets 2) Globalization of Production Globalization of Production - Answers trend by individual firms to disperse part of their productive processes to different locations around the globe to take advantage of differences in cost and quality of factors of production Factors of production - Answers Inputs into the productive process of a firm, including labour, management, land, capital, and technological know-how Why do companies globalize production? - Answers Companies hope to increase their productivity, or improve the quality and functionality of their product offering, thereby allowing them to compete more effectively To lower their overall cost structure Why does Boeing outsource so much production to foreign suppliers? - Answers These suppliers are the best in the world at their particular activity - a global web of suppliers yields a better final product, which enhances the chances of Boeing winning a greater share of total orders for aircraft than its global rival, Airbus To increase the chance that it will win significant orders from airlines based in each of these countries Early outsourcing efforts were primarily confined to: - Answers Manufacturing activities (e.g., those undertaken by Boeing and Apple) Increasingly, companies are taking advantage of modern communications technology over the Internet to outsource: - Answers Service activities (to low-cost producers in other nations) e.g., the Internet has allowed hospitals to outsource some radiology work to India, where images from MRI scans and the like are read at night while U.S. physicians sleep; the results are ready for them in the morning Consequence of the trend of globalization of production - Answers In many cases, it is becoming irrelevant to talk about U.S. products, Japanese products, German products or Korean products Increasingly, the outsourcing of productive activities to different suppliers results in the creation of products that are global in nature - that is, "global products." Globalization of Markets - Answers Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture, and toward a system in which national markets are merging into one global market Merging of historically distinct and separate national markets into one huge global marketplace What changes have helped to create a global market? - Answers Falling barriers to cross-border trade and investment have made it easier to sell internationally The tastes and preferences of consumers in different nations are beginning to converge on some global norm Firms offering the same basic product worldwide Prototypical examples of globalization of markets - Answers Consumer products such as Coca-Cola soft drinks, Sony video games, McDonald's hamburgers, Starbucks coffee, IKEA furniture, and Apple iPhones Who can benefit from the globalization of markets? - Answers Multinational giants and small- and medium-sized firms e.g., in the U.S., more than 300,000 small- and medium-sized firms with fewer than 500 employees account for 98% of the companies that export; exports from small- and medium-sized companies account for 33% of the value of U.S. exports of manufactured goods (B&S Aircraft Alloys in New York) Why should we not push too far the view that national markets are giving way to the global market? - Answers Significant differences still exist among national markets along many relevant dimensions, including consumer tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal regulations (e.g., Uber needs to refine its strategy in many foreign cities to take differences in the regulatory regime into account) Such differences frequently require companies to customize marketing strategies, product features, and operating practices to best match conditions in a particular country The most global markets are for: - Answers industrial goods and materials that serve universal needs the world over e.g., markets for commodities such as aluminum, oil and wheat; for industrial products such as microprocessors, DRAMS (computer memory chips), and commercial jet aircraft; for computer software; and for financial assets, from U.S. treasury bills to Eurobonds, and futures on the Nikkei index or the euro In many global markets, the same firms... - Answers frequently confront each other as competitors in nation after nation (e.g., Coca-Cola and PepsiCo, Volkswagen and Toyota, Boeing and Airbus; Caterpillar and Komatsu, etc) If a firm moves into a nation not currently served by its rivals, many of those rivals are sure to follow to prevent their competitor from gaining an advantage As firms follow each other around the world, they bring with them... - Answers many of the assets that served them well in other national markets - their products, operating strategies, marketing strategies, and brand names - creating some homogeneity across markets Talk of the "German market," "the U.S. market," "the Brazilian market," or "the Japanese market" is no longer meaningful; for many firms, only the global market exists Two macros factors underlying the trend toward greater globalization - Answers 1) Declining Trade and Investment Barriers (decline in barriers to the free flow of goods, services, and capital that has occurred in recent decades) 2) Technological Change (dramatic developments in communication, information processing, and transportation technologies) International Trade - Answers a firm exports goods or services to consumers in another country Foreign Direct Investment (FDI) - Answers direct investment in business operations in a foreign country Formidable barriers to international trade and foreign direct investment in the 1920s and 1930s - Answers Took the form of high tariffs on imports of manufactured goods - the typical aim of such tariffs was to protect domestic industries from foreign competition Consequence: retaliatory trade policies, with countries progressively raising trade barriers against each other, depressed world demand and contributed to the Great Depression of the 1930s Reducing barriers post World War II - Answers Advanced industrial nations of the West committed themselves to progressively reducing barriers to the free flow of goods, services, and capital among nations (this goal was enshrined in GATT) How did GATT impact trade and investment barriers - Answers The most recent negotiations to be completed, known as the Uruguay Round, were finalized in 1993 Further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the WTO to police the international trading system Average tariff rates have fallen significantly since 1950 The fact that the volume of world trade has been growing faster than world GDP for several decades implies: - Answers 1) More firms have been dispersing their production process to different locations around the globe to drive down production costs and increase product quality 2) The economies of the world's nation-states have become ever more intertwined. Nations have become increasingly dependent on each other for important goods and services 3) The world has become significantly wealthier in the last four decades 4) The inference is that rising trade is the engine that has helped pull the global economy along The globalization of markets and production - and the resulting growth of world trade, foreign direct investment, and imports - all imply that firms are finding... - Answers their home markets under attack from foreign competitors (e.g., in China, where U.S. companies such as Apple, General Motors, and Starbucks have expanded their presence) The growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a range of manufacturing and service industries What could slow the rate of globalization of both markets and production? - Answers 1) Demands for "protection" from foreign competitors are still often heard in countries around the world, including the United States (if trade barriers decline no further, or continue to rise, this may slow the rate) 2) Adverse events such as future pandemics, war, terrorism, trade disputes, and the like (have significant impacts on global supply chains, forcing many companies to rethink their globalization strategy - some companies are reportedly considering moving production closer to home on the theory that local production is less likely to be disrupted by adverse events Internet of Things (IoT) - Answers refers to the fact that microprocessor and communications chips are now found in a vast array of devices, from computers to vehicles, machinery, and phones - all of which are linked by persistent wired and wireless connection to the vast network of computer server farms commonly referred to as "the cloud" Moore's law - Answers the power of a microprocessor technology doubles and its costs of production fall in half every 18 months Viewed globally, the Internet has emerged as an... - Answers equalizer It rolls back some of the constraints of location, scale, and time zones; makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever the size; allows businesses, both small and large, to expand their global presence at a lower cost than ever before; enables enterprises to coordinate and control a globally dispersed production system, in a way that was not possible 30 years ago Three most important innovations in transportation technology since the 1950s - Answers 1) Development of commercial jet aircraft (reducing the time needed to get from one location to another - effectively shrunk the globe) 2) Development of super freighters 3) Introduction of containerization (simplifies transshipment from one mode of transport to another) Effects of containerization - Answers Revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances Before the advent of containerization, moving goods from one mode of transport to another was very labour-intensive, lengthy, and costly - it could take days and several hundred longshore workers to unload a ship and reload goods onto trucks and trains With the advent of widespread containerization in the 1970s and 1980s, the whole process can now be executed by a handful of longshore workers in a couple of days As a result of the efficiency gains associated with containerization, transportation costs have plummeted, making it much more economical to ship goods around the globe, thereby helping drive the globalization of markets and production Implications for the Globalization of Production from Technological Change - Answers As transportation costs associated with the globalization of production have declined, dispersal of production to geographically separate locations has become more economical As a result of technological innovations, the real cost of information processing and communication have fallen dramatically in the past two decades These developments make it possible for a firm to create and then manage a globally dispersed production system, further facilitating the globalization of production A worldwide communications network has become essential for many international businesses Implications for the Globalization of Markets from Technological Change - Answers Low-cost global communications networks, including those built on top of the Internet, are helping create global marketplaces Low-cost transportation has made it more economical to ship products around the world, thereby helping create more global markets Low-cost jet travel has resulted in the mass movement of people between countries - reduced the cultural distance between countries, and is bringing about some convergence of consumer tastes and preferences Global communications networks and global media are creating a worldwide culture. The media are primary conveyors of culture; as global media develop, we must expect the evolution of something akin to a global culture (a logical result of this evolution is the emergence of global markets for consumer products ) Why must we be careful not to overemphasize globalization trends - Answers While modern communications and transportation technologies are ushering in the "global village," significant national differences remain in culture, consumer preferences, and business practices Why do we need Global Institutions? - Answers To help manage, regulate, and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system Important global institutions created over the past 75 years - Answers General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO) International Monetary Fund (IMF) and its sister institution, the World Bank United Nations (UN) Group of Twenty (G20)