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39 Cards in this Set
- Front
- Back
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CAGE Analysis
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(Cultural, Administrative, Geographic, Economic) The greater different between nations and the great the value difference, the bigger the opportunity for arbitrage
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PROs of Globalization
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o Lower prices (lids price inflation locally), variety of goods, increases jobs, interdependence reduces likelihood of war, reduces likelihood of war, improved technology diffusion, tolerance/understanding, truly competitive companies emerge, connectivity, improves future, helps women (more service jobs intro more women to work force), improves human rights (access to ideas), improved productivity (specialization)
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CONs of Globalization
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Job loss, competition for scares resources, exploitation of labor, environment, widen gab between dev and emerging econos and poor/wealthy people, predatory behavior, volatility, civil strife, brain drain, political power, overspecialization, spread of new issues (e.g. diseases), increase dependence on other economies, loss cultural identity, contagions, increased prices (dumping), Inequality Race to the Bottom
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Differences between two waves of globalization
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The first wave of globalization was driven by falling transportation costs and came to an end due to war and increasingly protectionist trade policies. By contrast, the second wave of globalization has been driven by a reversal of trade policies and increasing trade liberalization.
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Gravity model approach to trade
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• Countries that are physically near to other countries with large markets will have lower transport costs and so will do more trade than isolated countries assuming the same tariff policy. Using geographical proximity to large overseas markets to predict trade flows
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Organization of Economic Cooperation Development (OECD)
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is the institution that focuses mainly on the economic agenda of the richer nations. OECD does not dispense money but instead combines a monitoring and advisory role for its 30 member countries. As the OECD has no legislative role, it focuses on data collection, research, and analysis to help guide the policy of its members
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Foreign direct investment (FDI)
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FDI as % of GDP did better during interwar years but didn’t take off in immediate postwar years.
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Law of One price
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is achieved when two (or more) markets are yoked together and prices equalize across them à zero-arbitrage profits principle. Focus is on price, not quantity,
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Disney - Lessons
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• Goal of a firm is to maximize ROI (Net Income/Investments). Every time a company expands, it increases its investments, which means that Net Income has to increase at a greater than or equal rate to the increase in investments in order to grow ROI.
• Looking at Eisner’s numbers, what created extra money were the theme parks (open for another day or raise ticket prices -> Net Income goes up) and home entertainment (release video titles year-round -> NI goes up) BUT these are one-time-only moves that will only increase NI once • As a business expands, it’s harder to get 20% gains (because of above equation.) Eisner overpromised • Disney spent a lot of time on horizontal diversification and vertical integration, but did not focus much on taking its core business of animation to international consumers o Ex. – it did not go to China and make a Chinese film out of a Chinese folktale FOR the Chinese market (and elsewhere) |
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Fundamental paradox of Information
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purchases cannot know the value until the information is revealed, at which point he has in effort acquired it without cost.
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Growth imperative
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You saturated your own market so you need new market (think Grupo Bimbo, and B L Hardey – had taken the Austrailian market)
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Efficiency Imperative
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if you go global and your costs go down because you add more scale
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Knowledge Imperative
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company going abroad to learn new market. Company should go to most difficult market first so they can bring additional efficiency to the next.
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4. Globalization of customers
5. Globalization of competitors |
If you customer is moving abroad, then you should follow them, If your competition is going global, then you should go there to stay competitive
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Winning against competitors
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a. Acquire a local dominant competitor
b. Acquire a local weak competitor c. Enter a defended niche d. Engage in frontal attach with the dominant |
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Adaptation
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Adapt to the new market and tailoring the product.
Internal Norms and processes of the country. Sometime it is just about deciding that you will target a particular segment of the customers with your already defined refined product. Heavy investment in advertising |
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Aggregation
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Finding similarities in target markets and producing a standardized product for all these markets.
Scale economy can be reached then this will be helpful. R&D focus suggest aggregation for its economies of scale |
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Arbitrage
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Take advantage of location specific differences.
Arbitrage labor cost difference – by setting up production in lower labor country. Early entrants might be able to take most of the advantage. Not limited to labor : R&D, production, human resources, IT and marketing activities. Large labor expenses hints at arbitrage |
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Factor Price Equalization Theorem
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as trade occurs, relative factor prices in each country eventually converge. (Wages and cost of capital will adjust until they are in the same ratio across all countries)
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Stolper-Samuelson Theorem
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trade increases the real income of owners of the abundant factor of production and decreases the real income of owners of the scarce factor.
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Macroeconomics
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studies the economy as a whole
◦ It looks at the aggregate outcomes of all the decisions that consumers, firms, and the government make in an economy |
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Differences between Macro and Microeconomics
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Macroeconomics relates to aggregation
◦ Analyzes the backdrop of economic conditions against which firms and consumers make decisions •Microeconomics focuses on a small group of agents ◦ Makes assumptions about what consumers want or how much they have to spend ◦ Result is a detailed analysis of the way particular firms or consumers should behave in a given situation |
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Gross Domestic Product (GDP)
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The most commonly use measure of the output of an economy
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Nominal valuation
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the value of output based on the current price in each year
◦ To find GDP, multiply the output of each good by its current price in each year ◦ This GDP calculation changes every year because output changes and because prices attached to each output adjusts |
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Real output
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the value of output measured by the same constant prices
◦ Because this eliminates fluctuations in value, it measures output across different industries and thus is the preference of measuring GDP |
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Chain weights
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instead of constant prices, use a measure that allows prices to gradually evolve over time, thus reducing the substitution effect
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Human Development Index (HDI)
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▪ Considers whether individuals have the resources (or capabilities) to participate in society and fulfill their potential
▪ The amount of goods a country can potentially consume is not the sole measure of the standard of living ▪ Blends together information on GDP, health and education, but also assumes that as countries get richer, increases in income per capita become less important |
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GDP is produced by three factors
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capital, labor, and Total Factor Productivity (TFP) – a catchall term that reflects any factor which influences the efficiency with which capital and labor are combined to produce output
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Cobb-Douglas Production Function
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Cobb-Douglas production function. The underlying equation has the general form
Y = F(K,L) = A Ka Lb Y = Income K = Capital L = Labour A = Technology F denotes a function a and b are positive parameters |
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Tyson - Lessons
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• OUTCOME: Jim chose to put metal in the ground in China and lead with Chicken production. In hindsight, Jim says he would have chosen beef. Due to the export/import ban on beef, there was a huge black market for the product and the brand that was being smuggled in was Tyson which made the brand the largest beef provider in spite of the ban.
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Bimbo - Lessons
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Bimbo is a multi-domestic company with an adaptation strategy.
• Significant cultural differences between countries concerning bread • Bimbo has a competitive advantage in the manufacturing of bread but it is not sustainable long term. • Going into new markets applying the tenants that made them successful in Mexico. In some cases they are neglecting obvious cultural (and other C.A.G.E.) differences. |
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Global Strategy
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Headquarters dispenses a message --> segments respond
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Transnational
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Headquarters --> Segments --> Headquarters (Open lines of communication)
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Triple A examples
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Adaption --> Local responsiveness (rate of development of local products), pricing relative to local competitors, percentage of locals in management positions
Aggregation --> Share of global accounts, Cross-selling to global accounts, Timing rollouts of key products in specific industries, Cross-borders by centers of excellence Arbitrage --> Exploit differences between markets instead of trying to adapt to them |
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Income per Capita
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A measure of the amount of money that is being earned per person in a certain area. Income per capita can apply to the average per-person income for a city, region or country and is used as a means of evaluating the living conditions and quality of life in different areas.
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Economies of Scope
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An economic theory stating that the average total cost of production decreases as a result of increasing the number of different goods produced.
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WBMH
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Why go global
What can the firm bring What will it meet when it goes global ( How will the firm |
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Terms of Trade
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Value of a countries imports relative to exports
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Porter's Diamond
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• Context for firm strategy and rivalry
◦ Vigorous local competition – openness to foreign and local competition ◦ Local rules and incentives that encourage investment and productivity • Demand conditions ◦ Demanding and sophisticated local customers and needs – changing quality, safety, and environmental standards • Factor conditions ◦ High quality, efficient, and specialized inputs to business ▪ Natural endowments ▪ Human resources ▪ Capital availability ▪ Physical/Administrative/Information/Scientific and technological infrastructure • Related and supporting industries ◦ Capable, locally based supplies and supporting industries ◦ Presence of clusters instead of isolated firms National prosperity (measured by GDP per capita, adjusted for PPP) • Endowments |
