MKT Exam 1

What is the formula used to determine that the Norwegian krone was 65% overvalued against the U.S $? That the Greek euro was 27% undervalued against the U.S. $?

"burgernomics"

Total fertility rate

# of children an average women is expected to have in her lifetime (2.1)

Dependency ratio

((# of childern under 14 + adults over 65) / people between 15 and 64) * 100

Calculating under/over valuation of a foreign currency

(PPP rate -market exchange)/(market exchange) *100 negative-under valued

What were the key elements of Copenhagen Fur's Chinese marking strategy, starting in the 1990s?

- Nielsen persuading that mink was the ultimate symbol of success -full time office and design studio in Beijing -fur everywhere, motorbike helmets, iPad covers

How did certain Italian families get around the ban on usury?

- co-opt the Catholic Church to get around -funded construction activities for the church, church implicitly relaxes the constraints -moved on to bribing the church -cultural revolution --> religion became less important with certain people's behaviors

Does freer trade always translate to faster economic growth?

- does not mean faster economic growth all the time -typically with technology and slowing growth industries, but will see the impact with time

How could wineries in certain parts of Europe be affected by climate change?

- harvest season changing -soils that are no longer good -displacement of vineyards

Why was Sandoz's acquisition of Gerber a strategic failure?

- it had little experience with food -baby food did not fit with the company's future plans

Indications of potential problems with GDP

- persistent, high levels of government deficits -over leveraged households -over leveraged business sector -persistent high levels of trade deficits -unfunded government liabilities -persistent, high levels of unemployment

Demographic transition model: Key conclusions:

- populations in developed countries are aging -in some developed counties populations are beginning to shrink -populations in developing countries are still growing

Context

- resources at a nation's disposal -institutions "rules of the game" -players (CONSTRAINTS)

Why is consumption's share of GDP so low in China?

- share of labor income lower in China -Chinese households tend to save more money

What were the constraints on the emergence of modern banking on the North African side of the Mediterranean?

- spread only on the European side -North African were not Catholic-predominately Muslim -Islam- is the strictest about charging interest -ORGANIZATIONAL: characteristics of Islam, does not have centralized figure like the pope -decentralized -problem: Catholic co-opt just needed Pope's support therefore its challenging without a single figure to convince

Who are the actors in the globalization "drama"?

- stakeholders ex. governments multinational corporations firms consumers employees NGOs community banks hedge funds

What is Starbucks's major marketing challenge in the Indian market?

- there is hardly a coffee market in India

What are the issues that foreign firms are facing in making films in China?

- trying to make "co-productions" -no one has cracked the code on what will work in China and the US -tastes in China are rapidly changing -time consuming to develop a script that appeals both to Chinese censors and to the country's cinema-goers

How was the banking industry in Europe and America being de-globalized? What are the requirements being imposed on multinational banks by bank supervisors in different countries?

-"anti-Deutsche Bank rule" -overturn rules that allowed subsidiaries of well-capitalized foreign banks to operate in America without having to meet minimum capital requirements -under new proposals, foreign banks will have to ring fence their American operations into separately capitalized and regulated subsidiaries; they may also have to be separately funded

Compare Starbucks's sourcing strategy for coffee in India and the US

-100% locally sourced from India -US stores usually offer a variety of beans from several continents

What was Starbucks's entry strategy for India? Why did it choose this particular strategy?

-50-50 joint venture with India's Tata conglomerate -high real estate costs in India

What are the Waves of Global Trade?

-Pre 1800s -First Wave of Globalization (1800s-1914) -Inter War Slump -Second Wave of Globalization (1945-present)

Excessive domestic savings

-Savers might get better returns investing in other countries -Forcing savers to invest locally might result in speculative bubbles and could do damage to the economy (e. china has restrictions on how much families can invest outside of China)

What competition is the port of Singapore experiencing?

-Shanghai becoming the worlds busiest container port -China's economy is expanding

What is Singapore's response to increased competition from Chinese ports?

-Singapore is the world's biggest petrol station -grab a share of the new Asian trade, and build an extension on reclaimed land -investing in the soft power of maritime supremacy as much as the hard power of metal boxes -center of maritime architecture and green maritime technology to complement its lead in terms of the legal and financial aspects of maritime technology

If the climate were to change as predicted in the article, who could be the losers/beneficiaries?

-UK good for now, might turn into raisin fields -France wine regions could be devastated

What business strategies do certain dairy farmers use to overcome these constraints?

-Wisconsin Department of Agriculture has no power to regulate it within state boundaries -"herd shares" farmer sells stakes in cows that he tends, gives raw milk to shareholders and charges a maintenance fee

Positives of governments and multinationals

-access to new technologies and products -access to capital -knowledge transfer -jobs creation

Real interest rate

-adjusted for inflation

What is an externality?

-an unintended consequence -is what happens when a company makes a business decision that has positive or negative consequences for the broader world

How is a loan made by a sharia-compliant bank different from one made by a Western bank?

-argued to be more stable -speculation is forbidden because charging interest is prohibited under SHARIA law, returns are based on profit-sharing

What are the arguments for free trade?

-based on the theory of comparative advantage -specialization will increase world output -increases competition, reducing/eliminating monopolies -not limited by the size of their country, can sell to bigger markets -freer trade can mean faster economic growth -expands learning and research and development

Why is less than 10% of U.S. car production exported?

-because American plants tend to make more expensive vehicles that car buyers in emerging markets cannot afford

What is an optimal trade policy? When is it a better option for a country than free trade?

-better option when countries are big enough to exert influence on the world prices of goods -raising tariffs, they can significantly reduce world demand, cutting the world price of the good and tilting the terms of trade in their favor

What are the factor(s) led Gerber to go global?

-birth rates were declining in America

What is the essence of the business of modern banking?

-borrow money from one entity at a certain rate of interest -lend money to another entity at a higher rate of interest -generate revenue from the "spread" -Started in Italy 1400s

What are the trade offs faced by companies like Walmart and Gap in dealing with externalities?

-both chose not to go along with the legally binding pact among retailers -have fiduciary duty to its shareholders to maximize its returns -avoid knowing about some of these issues -hire outside auditing firm to inspect the factories

Demographic dividend

-bulge in working age population -->can the country support the workers?

What are the arguments against free trade?

-can use tariffs to control the market -called optimal tariffs

Compared to the U.S. what are the sources of Mexico's cost advantages as a location for manufacturing cars?

-cheaper labor -trade agreements, making the global car market tariff free

What is the impact of choices made by various players?

-choices made by various players and the interaction among these determine various outcomes- economic, political, social, technological -outcomes can be one of two types: 1. accruing to the players 2. externalities

How was GNI's product development strategy different from that of other Western pharmaceutical multinationals?

-chose a NICHE to help Asia with common diseases that have been largely ignored by western pharmaceutical companies -goal is to help half of humanity

Implications for MNCs

-competition to become more efficient -improvements in economies of scale -accelerated experience effects -increased investment in R&D -more product variety for customers -globalize various business activities

formal constraints

-constitution -laws at various levels -contractual arrangements that are legally enforceable

In a scenario with no trade between counties, "autarky" what determines the production quantities of bread and wine in each country?

-consumer preferences

How does it affect the development of Pakistan's electricity industry? How does it affect the nation's economic performance?

-country's stock of energy-industry debt was $9.1 billion -without being paid by consumers the distribution companies cannot pay the private electricity generators, who in turn cannot pay their fuel bills, forcing them to shut down or run at low capacity -blackouts -subsidies to make electricity affordable

informal constraints

-culture (norms) -sub-culture -community -family

what are the factors in the global business environment, not economic and non-economic that are causing global car sales to slow)?

-cutting costs by cutting employees -need to make investments in electric cars, car sharing and ride hailing

What specifically does the Raisin Administrative Committee do? How are raisin farmers and customers affected?

-decides each year how many raisins the domestic market can bear for an "orderly market" -domestic raisin prices are higher than international ones, so consumers are victims too

Do we focus on government deficit or surplus?

-deficit

How was E bay tailoring its business/marketing strategy for the Russian market?

-do not use google as much, needed to adapt to a different search engine -payment on the delivery method

What is the "domestic success story" that Asahi Group is ignoring?

-domestic sales dropped

Why did Malaysia emerge as a global leader in the Islamic finance?

-dominates for Islamic bonds -home of the Islamic Financial Services Board -Muslim heritage, outward-looking nature and links with financial hubs like Britain and Singapore made the place a natural candidate to bridge the worlds of religion and capitalism -central bank of Bank Negara Malaysia & International Center for Education in Islamic Finance (INCEIF)

Drivers of transition for fertility rates:

-economic development -education

Principle of comparative advantage

-even if one country is more efficient than the other at producing both commodities X and Y, both countries will typically still benefit from specialization and trade

How does local brands respond to the threat from fakes? How does this, in turn, affect their marketing strategy?

-fight to distinguish themselves from the fakes -improving their quality of footwear -extra costs -fakes inhibit innovation and investment

What is the Brenton Woods System?

-fixed exchange rate system between European currency and US dollar -US dollar gold convertibility was maintained (exchange for gold) -created of IMF -conference where rich countries got together and set up the system. US currency is backed by gold. Other currencies have a fixed exchange rate to the US dollar

How would Starbucks likely be positioned in Indian market?

-for the newly minted urban Indian bourgeoisie -symbol

What impact do buyers of genuine luxury products have on other consumers?

-forces other social climbers to spend more to stay ahead

What is "subsidization"? What is its likely impact on the capital-markets businesses of multinational banks?

-forcing banks to subsidize makes sense for regulators, particularly in the case of retail banks that are essentially local anyway -capital-market businesses: may lead to higher funding costs, trapped pools of capital and a loss of diversification if banks cannot shift capital from healthy businesses to troubled ones

What are the dynamic gains from free trade?

-freer trade can mean faster economic growth

What is Asahi Group's strategy?

-global shopping spree -global ambitions

Strategy

-goals -policies -trying to incentive the other stakeholders to act in different ways

What are the institutions that affect the business activity of raisin farmers?

-government -consumers -farmers

GDP vs. GNP

-gross national product (GNP) measures the total income earned by domestically owed factors of production (people or capital) within a given period -EX. if a Japanese lawyer worked in Los Angeles for the U.S. branch of a Japanese firm, his services would be included in the US GDP (transaction occurred in the US) but not US GNP (services were not provided by a US national)

On average why poorer countries are able to grow rapidly compared to rich ones?

-growth tends to slow when GDP per head reaches a certain threshold

How are consumers likely to be affected by the actions taken by retailers to address worker safety?

-higher costs for clothing

Marketing Manager is thinking about entering a foreign market. What would they ask?

-how many additional customers? -how much can they afford to buy? -Growth rate of the customer base? -Growth of customer buying power? -Export or produce locally? -Funding the market entry?

How does the availability of counterfeit luxury products affect buyers of genuine products?

-imposes a cost on people who want the real thing -makes the brands less exclusive -or more expensive -externality on owners of the genuine article

What is a strategic trade policy? When is it a better option for a country than free trade?

-in an industry with economies of scale, the imposition of a tariff, by reserving the home market for a domestic firm, allowed the firm to cut its costs and, with luck, to undercut foreign rivals in overseas markets -works with civil aircraft, semiconductors and cars

When did the Brenton Woods System collapse?

-in the 1970's because of the oil hike -this caused other currencies to "float against one another

Incentives for firms to globalize

-increases the customer base -limited growth prospects in home country market -insignificant domestic market for a product -following their customers abroad (B2B) -differences in competitive environments between home country and foreign markets -globalization is key element to firm's strategy

In what area is Mexico's cost higher compared to the U.S.?

-infrastructure/transportation ....lags with highway and rail network

How does this explain differences in the development trajectories of countries?

-institutions are not necessarily socially efficient -even if formal constraints can be altered rapidly, informal constraints tend to persist and change relatively slowly -culture can impede economic development ex. not allowing women in the workforce

Insufficient domestic savings

-investments in the domestic economy have to be financed from abroad -Governments may need to borrow (from citizens & abroad) to fiance their own expenditures

Country analysis framework: why is it of interest to marketers?

-it is a comprehensive, conceptually rigorous analytical framework for understanding/predicting the evolution of a country's business environment -can also be used for analysis at other levels

What is the most important reason auto parts are cheaper in Mexico?

-less labor, even if transportation costs are higher because of trade agreements and cheaper parts -because they are free trade, and imported tariff-free from countries in Europe and Asia -they also invest in Mexico instead of the US

How do these differences affect the relative economic performance of these countries?

-loss of competitiveness in the region's trouble spots -Greece specifically has to cut wages or leave the euro

What is the explanation for the unusual distribution of firm sizes (by number of employees) in France?

-lots of rules kick in once firms employ 50 workers

Negatives to governments and multinationals

-may threaten governments ability to formulate/implement various policies -"profit sharing" -export of jobs to low-wage countries

What are some of the key barriers to small firm growth in Greece?

-most regulated economies -rigid job rules, licensing set-up, approval for business plan

What four freedoms does the European Union have?

-movements of goods -services -people -capital

What drives the increase of trade in goods and services?

-moves by country governments to liberalize trade -falling transportation costs -falling communication costs -world economy has become less transport intensive

What are the formal constraints on selling milk in Wisconsin?

-need to pasteurize the milk first

What aspects of Russian consumer behavior and the business environment presented marketing challenges to E bay?

-needed mobile application (not all people there have laptops because they are more expensive) -partnerships with local companies -shipping time, documentation, theft and fraud are common; consumers typically pay with cash upon delivery instead of purchasing with a credit card ahead of time -local competition Ozon.ru

Implications for nations and national governments on the principle of comparative advantage

-one-off increases in output/consumption ("static gains") -makes the economic case for dismantling trade barriers -open markets to foreign suppliers increases competition -"dynamic gains" trade can increase the rate of economic growth -gain access to new technologies, products ect. -problem of displaced workers

According to the author, what would be the most effective approach to address the problem of worker safety?

-only a years-long willingness to change our consumption habits will force a real change in corporate behavior

Performance

-player outcomes -externalities

What is the potential overall impact on patterns of Chinese consumer spending in urban area? in rural areas?

-poorest households spend 30% of their budgets on gifts and festivals

Medicare Modernization Act of 2003

-prescription drug benefits to older Americans, without putting cost-control measures in place

What are the strategic responses of various auto manufacturers to the sales slowdown ?

-pressure for alliance -full mergers

What are the economic motivations underlying these institutions?

-raisin farmers have been obliged to make over a portion of their crop to a government agency -they are not paid for the raisins, but given whatever profit remains -some farmers forfeit a substantial share of their crop

What are the prospects for continued rapid economic growth in China? What are the factors that may ADVERSELY affect China's ability to keep growing rapidly?

-rapid development could shift inland -millions would move into manufacturing

What are the static gains from free trade?

-re-allocating resources to produce one-off improvements

In trying to achieve their goals, players face various types of constraints:

-resource constraints -formal constraints -informal constraints

What constraints created the incentives to create the business of banking?

-resource constraints : availability of capital

What impact might deglobalization have on multinational banks? How would these, in turn, affect the globalization process?

-rules could trim returns on equity for international banks by 2-3% -banks could then lead to cut back cross-border activities, reducing the ability of the banking system to shift money from countries with a glut of savings to those that need it -DECONSTRUCTED global inter mediation

Why was E bay making a significant push into emerging markets?

-seeking to win loyalty in burgeoning regions where online sales may top 195 billion -untapped opportunity -competing with Amazon

What types of motives drive consumers to buy luxury goods? What is the primary (incentive) for Chinese consumers to buy luxury brands? How does this lead many to KNOWINGLY buy counterfeit luxury products?

-self expression -social emulation...wearing the brand as the people they aspire to be (cc) -status seeking consumers are more likely to buy counterfeits -prestige>quality

What types of capital flows can be changed overnight?

-shares/bonds &loans -means that the multinationals starting business operations in another country is hard to reverse and is a long term commitment

How did many of the world's largest retailers react to the deaths of over 1,100 garment workers in Bangladesh? What was Walmart's response?

-signed a legally binding agreement to underwrite the cost of bringing other factories up to an acceptable workplace standard and to oversee the repairs and monitor working conditions on an ongoing basis

What can developing countries do to maintain continued economic growth, even after they reach middle income status?

-structural reforms -openness to trade

How does this explain the process of changes in the business environment?

-the "play of the game" may lead some players to perceive that an alteration of some of the rules may result in better outcomes -cultural changes over time lead to disappearance of some norms, modifications of others, appearance of new norms (culture changes are SLOWER)

If President Trump were to impose tariffs on imports of European cars, what is the likely impact?

-the American market shrink by 12% next year -declining sales of diesel-powered vehicles

What makes the Chinese film market attractive to foreign firms and Hollywood?

-the film market is ROCKETING -grew on an annual rate of more than 40% on average

What are the sources of Denmark's comparative advantage in the global fur business?

-they have 1,500 mink farmers--about 1/5 of the world's supply -Danish design firms drive fur fashions -quality of their animals -agricultural superpower

What do institutions, their enforcement characteristics, and resource constraints do?

-they may create various types of transaction costs (costs of conducting exchanges) -internal and external (search costs, information, bargaining, monitoring, enforcement) -institutions impose constraints on player behavior and exchange interactions -along with resource constraints and transaction costs, institutions determine the incentive structures (matrix) of a society/nation -influence choices made by various players -choices also influenced by mental models

How is the (Indian) Tata conglomerate hoping to benefit from Starbucks's Indian market entry?

-to use future Starbucks locations to push new brands such as Tata Tazo tea and some of their less popular brands such as Himalaya water

Do market exchange rates reflect true purchasing power?

-typically NO

Issues faced by firms in the globalization process

-unfamiliar business environments -economic differences -political risk -cultural differences -consumer -organizational

Sources of comparative advantage

-variations in factor endowments (land, labor, natural resources, financial capital, human capital, industry specific competencies)

"Out of Africa" theory

-we all originated from Africa -large-scale migrations

Who are some of the players in modern banking? What are their goals?

-wealthy families -surplus financial resources they need to deploy into some business

What is the article's assessment of Asahi Group strategy?

-women working market is large...target them with cider -improving the diversity of the workforce would help their profits

According to the article, what is beer consumption correlated with?

-working age population

Globalization process...is it reversible?

-yes, but not easy to reverse because countries become more interdependent -ex. China and the US...economically impossible to disengage from one another

Gini Index Scandinavian countries vs. US

0 perfect equality 100 perfect inequality Scandinavian/ European more higher up then US because od beliefs US believes hard work = reward

How does the Chinese government regulate the entry of foreign firms into this market?

1. 34 big foreign productions a year are let in via a quota system 2. Chinese firms are also allowed to acquire the rights to 30 to 40 smaller foreign films a year for a fixed fee

Basic building blocks of the frame work?

1. CONTEXT 2. STRATEGY 3.PERFORMANCE

Demographic transition

1. death rates start to fall -->population growth rate increases -safe drinking water -public health -sewage systems -medicine 2. birth rate starts falling 3. death rate levels off 4. birth rate levels off 5. birth rate falls below the death rate (ex. Japan and Russia)

Why did GNI globalize its activities right from the start?

1. no longer takes much scale to be multinational 2. take the best of what is available in each country and out them together 3. can exploite national differences in regulation, cost and expertise

GDP components

C + G + I + (X-M) consumption + government + investments + exports

GDP =

C + I + G + (X-M)

US Evaluation of Economic Environment Demographic: Economic:

Demographic: -aging but growing population -fertility rate is relatively high -immigration --> liberal policy will continue growth of population Economic: -persistent government deficits -underfunded government liabilities ex. medicare, Medicaid, social security

China: Evaluation of Economic Environment Demographic: Economic:

Demographic: -rapidly aging population (1st) -getting out before getting rich - 1 child policy relaxed...will things change? Economic: -cannot afford to have more than one child -spend larger percent of income on children then the US

What kind of countries were involved with the second wave of globalization?

Emerging Countries

GDP= Y= Y=

GDP= C + G + I +(X-M) Y= C+S+(ta - tr) Y= GDP

What happened when globalization started jumping on the graph?

Industrial Revolution. After WWI it went down because of the Great Depression, and it went back up after WWII

What were the countries involved with GNI?

Japan China UK US New Zealand

In general, what are the productivity differences between the manufacturing and service sectors?

M: -labor productivity soars S: -cheap labor dries up -productivity levels more difficult to achieve

How does Starbucks's pricing in China compare with its pricing in the US?

PPP-purchasing power parity -Chinese customers pay far more than Americans, in terms of PPP, if American Starbucks charged as much as Chinese Starbucks it would be $10-15 for a coffee

What's the start of global trade?

People were able to make a surplus of their product (crops, ec) and that is when they started trading

I =

S + (TA - G - TR) + (M-X)

What is the key difference between the ports of Shanghai and Singapore?

Shanghai: -"through port", where raw materials come in to be assembled or manufactured and then leave as tvs or rubber ducks Singapore: -trans-shipment port, where containers arrive to be transferred to other vessels to continue their onward voyage

With respect to the manufacturing sector, what are the key differences between countries in southern Europe and northern Europe?

Southern Europe: small firms Northern Europe: larger firms

True or False: Marketing exchange does not capture the purchasing power

True

True or False: When compared to foreign currency market exchange rate can provide a reasonable indication of whether a foreign currency is over/under valued

True

What specific comparative advantages of each country prompted GNI to locate specific activities in each country?

UK- research Japan- supercomputers & cash China- patients & clinical trials US- education (original head quarters)

What are the key differences in the business models of Hollywood firms and their Chinese competitors?

US - far ahead from story telling nous to animated wizardry China -integration of the internet into film business -investing in new technologies, improving creative capabilities and attracting more financial backing -developing new online revenue streams to enhance fan engagement on social media -internet has become an important distribution channel

What kind of countries were involved with the first wave of globalization?

Western Countries

Equations for disposable income

Y + Tr - Ta = C+S (income + transfers - taxes) = (consumption + savings)

globalization

a continuing process of increasing integration of national economies through enhanced cross-border flows of goods, services, financial capital, and labor

Externality

cost or benefit accruing to a stakeholder who is NOT a party to a particular transaction

Higher production = what kinds of costs?

lower costs, more efficient

market analysis vs. environmental analysis

market analysis: -size and attractiveness -competitive structure -existing vs. potential markets environmental analysis: -trends affecting market size/opportunity -political -economic -sociocultural -technological -legal/regulatory

Formal definition of GDP

market value of all the final goods and services produced during a given time period within a country

Resource constraints

natural resources human resources technology capital

Calculations of PPP, under-, and over-valuation of currencies

ppp- purchasing power parity -in the long run exchange rates should adjust so that the price of an identical basked of goods and services is the same across borders -comparing emerging market prices with rich world ones is problematic, however, because labor costs are lower in poorer countries UNDER- china OVER- euro, "Finnish euro"

Countries should specialize in those products in which they have a _______ advantage.

relative (comparative, competitive, or absolute)

Ratio of trade to output shows what?

what percent of countries output is trade

When does the principle of comparative advantage not work?

when the ratios are the same, then one will not be better than the other therefore the framework does not support trade

Gross Domestic Product - GDP

which measures aggregate national output 1. only final goods and services and not intermediate products 2. only currently produced goods and services, it excludes the purchase or sale of goods that already exists 3. measures only goods and services that are exchanged in a market transaction