MGCR 382 ULTIMATE Final Exam Review
Questions and Correct Answers.
C.A.G.E. distance framework (Pankaj Ghemawat)
Cultural distance - things having to do with differences in values, beliefs, norms, tastes; differences in
language, religion, ethnicity, trust, social networks
Administrative distance - things having to do with differences in laws, regulations politics, legal systems,
trading blocs or membership in international organizations, level of protectionism, historical ties &
conflicts
Geographic distance - things having to do with differences in physical distance, common borders, time
zones, natural physical environment, physical infrastructure, communications, climate, population
density
Economic distance - things having to do with differences in income, economic institution, natural
resources, financial resources, Human Resources, information/knowledge, innovation systems, savings,
investment, consumption, level of economic development
Myth that globalization is pervasive - Ghemawat - % of investments, phone calls international;
exports/gdp; foreign-born population
Globalization is new
Globalization is extensive - For many types of transactions, international share is total is low: 3-25%
investment, phone calls, foreign-born share of domestic population, ratio of exports/GDP
Globalization is unavoidable
Globalization erases geographical distance
,Globalization erases economic distance
Key questions in international business
...
Why do firms internationalize?
Seek markets - large size and economies of scale, lower input costs due to large size, scale economies in
shipment, distribution and promotion, access to low cost financing
Seek resources - ability to access raw materials overseas, ability to shift production overseas
Reduce risk - financial flexibility, ability to shift production overseas
Learn - information advantages, managerial experience and expertise
Why do MNCs exist?
Theory of FDI = "direct investment flows from countries where profitability is low to countries where
profitability is high"
MNC's must have or develop differential or competitive advantage based on global efficiencies
(standardization, scale economies, locational advantage along value chain etc) or multi-national
responsiveness/flexibility (or differentiation based on brand, reputation, technology, quality) or
leveraging competencies/learning worldwide.
,Advantages of MNC's:
Superior technical know-how (e.g. technology, marketing, resource extraction)
Ability to leverage existing reputation, brand image, goodwill
Large size & scale economies (Increases bargaining power, scale helps cover high fixed costs in capital
intensive industries, lower input costs due to scale, logistics, distribution & promotion scale economies,
lower financing costs and lower credit risk)
How can MNCs overcome liability of foreignness to compete with domestic firms?
"Liability of foreignness" - domestic firms have advantage of lower distance (geographic, economic,
cultural and administrative) and superior knowledge of local market
MNC Advantages:
Superior technical know-how (technology, marketing, resource extraction)
Ability to leverage existing reputation, brand image, goodwill
Large size & scale economies
Are there stages of internationalization? Learning model vs "born global" firms
Learning Model (stages theory of internationalization) - gradual experiential learning or developing
capabilities
, Initially no regular exports
Exports via third parties (agents or distributors)
Establishment of own foreign production facilities
Born global - why/how do some new ventures leapfrog traditional stages and quickly become
international?
Entrepreneurial vision
Mobile knowledge-intensive resources
Network platform (Facebook, Spotify, SoundCloud)
What are the modes of international entry?
Non-equity modes:
Exports
Licensing
Franchising
Management contract
Contract manufacturing
Questions and Correct Answers.
C.A.G.E. distance framework (Pankaj Ghemawat)
Cultural distance - things having to do with differences in values, beliefs, norms, tastes; differences in
language, religion, ethnicity, trust, social networks
Administrative distance - things having to do with differences in laws, regulations politics, legal systems,
trading blocs or membership in international organizations, level of protectionism, historical ties &
conflicts
Geographic distance - things having to do with differences in physical distance, common borders, time
zones, natural physical environment, physical infrastructure, communications, climate, population
density
Economic distance - things having to do with differences in income, economic institution, natural
resources, financial resources, Human Resources, information/knowledge, innovation systems, savings,
investment, consumption, level of economic development
Myth that globalization is pervasive - Ghemawat - % of investments, phone calls international;
exports/gdp; foreign-born population
Globalization is new
Globalization is extensive - For many types of transactions, international share is total is low: 3-25%
investment, phone calls, foreign-born share of domestic population, ratio of exports/GDP
Globalization is unavoidable
Globalization erases geographical distance
,Globalization erases economic distance
Key questions in international business
...
Why do firms internationalize?
Seek markets - large size and economies of scale, lower input costs due to large size, scale economies in
shipment, distribution and promotion, access to low cost financing
Seek resources - ability to access raw materials overseas, ability to shift production overseas
Reduce risk - financial flexibility, ability to shift production overseas
Learn - information advantages, managerial experience and expertise
Why do MNCs exist?
Theory of FDI = "direct investment flows from countries where profitability is low to countries where
profitability is high"
MNC's must have or develop differential or competitive advantage based on global efficiencies
(standardization, scale economies, locational advantage along value chain etc) or multi-national
responsiveness/flexibility (or differentiation based on brand, reputation, technology, quality) or
leveraging competencies/learning worldwide.
,Advantages of MNC's:
Superior technical know-how (e.g. technology, marketing, resource extraction)
Ability to leverage existing reputation, brand image, goodwill
Large size & scale economies (Increases bargaining power, scale helps cover high fixed costs in capital
intensive industries, lower input costs due to scale, logistics, distribution & promotion scale economies,
lower financing costs and lower credit risk)
How can MNCs overcome liability of foreignness to compete with domestic firms?
"Liability of foreignness" - domestic firms have advantage of lower distance (geographic, economic,
cultural and administrative) and superior knowledge of local market
MNC Advantages:
Superior technical know-how (technology, marketing, resource extraction)
Ability to leverage existing reputation, brand image, goodwill
Large size & scale economies
Are there stages of internationalization? Learning model vs "born global" firms
Learning Model (stages theory of internationalization) - gradual experiential learning or developing
capabilities
, Initially no regular exports
Exports via third parties (agents or distributors)
Establishment of own foreign production facilities
Born global - why/how do some new ventures leapfrog traditional stages and quickly become
international?
Entrepreneurial vision
Mobile knowledge-intensive resources
Network platform (Facebook, Spotify, SoundCloud)
What are the modes of international entry?
Non-equity modes:
Exports
Licensing
Franchising
Management contract
Contract manufacturing
