MGT 302 Final

Free Trade

A situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.

Why is free trade beneficial?

Allows a country to specialize in the manufacture and export of products and services that it can produce efficiently and to import products and services that can be produced more efficiently in other countries. Also, puts limits on imports that may be beneficial to producers, but not to consumers.

Smith's Theory of Absolute Advantage

Country has absolute advantage in the production of a product when it is more efficient than any other country in producing it. Countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries.

Ricardo's Theory of Comparative Advantage

David Ricardo. Countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries. Even if this means buying goods from other countries that they could produce more efficiently at home.

Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin theory (T/F).

FALSE

A rich country improves its productivity by engaging in free trade with a poor country. This situation supports Paul Samuelson's critique (T/F).

FALSE - Paul Samuelson's critique argues that when a rich country enters into a free trade agreement with a poor country, only the poor country benefits.

Expatriate managers who have perceptual ability tend to treat foreign nationals as if they were home-country nationals (T/F).

FALSE - ability to understand why people of other countries behave the way they do; ability to empathize.

Make-or-buy decisions are decisions that concern the components to be used in a production process (T/F).

FALSE - about whether companies should perform a certain value creation activity themselves or outsource it to another entity.

Tight cross-functional integration between R&D, production and marketing maximizes the time to market (T/F).

FALSE - can help a company to ensure that time to market is minimized.

An ethnocentric approach is compatible with both global standardization and transnational strategies (T/F).

FALSE - compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global and transnational

Firms pursuing a localization strategy tend to operate with an array of formal and informal integrating mechanisms (T/F).

FALSE - firms pursuing a localization strategy do not have a high need for integrating mechanisms, either formal or informal, to knit together different national operations. The lack of interdependence implies that the level of performance ambiguity in such enterprises is low, as (by extension) are the costs of control.

Where an expatriate community exists, firms often devote lesser effort to ensuring that the new expatriate family is quickly integrated into that group (T/F).

FALSE - often devote considerable effort to ensuring the new expatriate family is quickly integrated into that group

The most attractive staffing policy is the ethnocentric approach (T/F).

FALSE - one which all key management positions are filled by parent-country nationals.

Web-based information systems play a minor role in modern materials management (T/F).

FALSE - play a crucial role.

Maintaining a high minimum efficient scale allows a firm to hedge against currency risks (T/F).

FALSE - the advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations

A firm pursing a localization strategy will have a strong incentive to centralize decision-making (T/F).

FALSE - the emphasis on local responsiveness in firms pursuing a localization strategy creates strong pressures for decentralizing operating decisions to foreign subsidiaries.

Firms can increase flexibility by producing all parts of a product in-house (T/F).

FALSE - the great advantage of buying component parts, or even an entire product, from independent suppliers is that the firm can maintain its flexibility, switching orders between suppliers as circumstances dictate.

In ethnocentric firms, the lack of managers' mobility among national operations implies that pay can and should be kept country-specific (T/F).

FALSE - the issue can be reduced to that of how much home-country expatriates should be paid. As for polycentric firms, the lack of managers' mobility among national operations implies that pay can and should be kept country-specific.

A geocentric approach tends to weaken local responsiveness (T/F).

FALSE - the multinational composition of the management team that results from geocentric staffing tends to reduce cultural myopia and to enhance local responsiveness.

The need for coordination between units is greatest in firms pursuing a localization strategy (T/F).

FALSE - the need for coordination is lowest in firms pursuing a localization strategy, is higher in international companies, higher still in global companies, and highest of all in transnational companies. Primarily concerned with local responsiveness.

Norms are abstract ideas about what a group believes to be good, right, and desirable (T/F).

FALSE - values. Norms mean the social rules and guidelines that prescribe appropriate behavior in particular situations.

When a reciprocal tax treaty is in force, the firm typically pays the expatriate's income tax in the host country (T/F).

FALSE - when a reciprocal tax treaty is not in force

The product life-cycle theory argues that the developing nations will not product a product if the product is highly standardized (T/F).

FALSE - will product a product only when the product becomes highly standardized.

Theory of National Competitive Advantage

Factor endowments, demand conditions, related and supporting industries, firm strategy, structure, and rivalry - promote or impede the creation of competitive advantage.

Samuelson Critique

Paul Samuelson - the dynamic gains from trade may not always be beneficial, free trade may ultimately result in lower wages in the rich country trading with a poor country.

Trade Theory

Shows why its beneficial for a country to engage in international trade even for products it is able to produce for itself.

A country has an absolute advantage in the production of a product when it is more efficient that any other country in producing it (T/F).

TRUE

A firm with an ethnocentric staffing policy will fill all key management positions with parent-country nationals (T/F).

TRUE

A manager might be sent on several foreign postings over a number of years to build his/her cross-cultural sensitivity and experience as part of a management development program (T/F).

TRUE

A manger receives a bonus because the national operating subsidiary, that she is in charge of, exceeds its performance target. This is an example of an incentive.(T/F).

TRUE

According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product (T/F).

TRUE

Adam Smith argued that countries should specialize in the production of goods for which they have absolute advantage (T/F).

TRUE

Beyond the initial functional division of the organization, further horizontal differentiation may be required if the firm significantly diversifies its product offering, which takes the firm into different business areas (T/F).

TRUE

Centralization gives top-level managers the power and authority to be able to bring about needed major organizational changes (T/F).

TRUE

Cultural myopia refers to a firm's failure to understand host-country cultural differences that require different approaches to marketing and management (T/F)

TRUE

English is considered the language of world business (T/F)

TRUE

Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital (T/F).

TRUE

Firms pursing a transnational strategy increasingly are using management development as a strategic tool (T/F).

TRUE

Firms pursuing a global standardization strategy must cope with a higher level of performance ambiguity, and this raises their costs of control (T/F).

TRUE

Flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups (T/f).

TRUE

For product development team to function effectively and meet all its development milestones, the team should be composed of at least one member from each key function (T/F).

TRUE

Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country (T/F).

TRUE

From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can limit the choices of an international business (T/F).

TRUE

Heckscher-Ohlin theory supports the case for unrestricted free trade between nations (T/F).

TRUE

If a firm is serious about building an international cadre, it may have to pay its international executives the same basic salary irrespective of their country of origin or assignment (T/F).

TRUE

In a classic matrix structure, individual mangers belong to two hierarchies (a divisional hierarchy and an area hierarchy) and have two bosses (a divisional boss and an area boss) (T/F).

TRUE

In a worldwide product divisional structure, each division is a self-contained, largely autonomous entity with full responsibility for its own value creation activities (T/F).

TRUE

Lean production covers a range of manufacturing technologies designed to reduce setup times for complex equipment (T/F).

TRUE

Most expatriates believe that more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal (T/F).

TRUE

New trade theory stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms (T/F).

TRUE

One way to reduce risks associated with a JIT global supply chain is to source inputs from several suppliers located in different countries (T/F).

TRUE

To design the product so that it can be manufactured in a cost-effective manner, the firm needs to build close links between R&D, marketing and manufacturing (T/F).

TRUE

Trade unions around the world employ the same union structure (T/F).

TRUE

Union influence in the auto industry is increasing in part due to Japanese carmakers building autos in the US (T/F).

TRUE

Worldwide product divisional sructure

allows for worldwide coordination of value creation activities of each product division helps realize location and experience curve economies facilitates the transfer of core competencies does not allow for local responsiveness

Product Life-Cycle Theory

as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.

Expatriate managers

citizens of one country working abroad

Heckscher-Ohlin Theory

comparative advantage arises from differences in national factor endowments - the extent to which a country is endowed with resources like land, labor and capital. The more abundant a factor, the lower its cost. Export goods that make intensive use of locally abundant factors. Import goods that make intensive use of factors that are locally scarce.

Staffing policy

concerned with the selection of employees who have the skills required to perform a particular job

Six Sigma

direct descendant of total quality management (TQM) - aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the company. Improved quality reduced costs.

Worldwide are structure

divides the world into autonomous geographic areas decentralizes operational authority facilitates local responsiveness can result in a fragmentation of the organization is consistent with a localization strategy

Just-in-time (JIT)

economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process.

Balance sheet approach

equalizes purchasing power across countries so employees have the same living standard in their foreign posting as at home, adds financial incentive to take the position

Foreign service premium

extra pay the expatriate receives for working outside his country of orgin

Centralized decision making

facilitates coordination ensures decisions are consistent with the organization's objectives gives managers the means to bring about organizational change avoids duplication of activities

Ethnocentric approach to staffing

fill key management positions with parent-country nationals

Lessard-Lorange Model

firms can deal with the problems of exchange rates and control in 3 ways: initial rate, projected rate, ending rate

Mercantilist philosophy

government involvement in promoting exports and limiting imports

Main reasons for US expatriate failure

inability of spouse to adapt manager's inability to adapt other family-related reasons manager's personal or emotional maturity manager's inability to cope with larger overseas responsibilities

Financial management:

investment decisions, financing decisions, money management decisions.

Mercantilism

it is in a country's best interest to maintain a trade surplus - to export more than it imports. Advocated government intervention to achieve a surplus. Views trade as a zero-sum game - one in which a gain by one country results in a loss by another

New Trade Theory and Porter's Theory

justify limited and selective government intervention to support the development of certain export-oriented industries

International accounting standards board (IASB)

major proponent of standardization of accounting standards.

Diminishing returns to specialization

more units of resources are required to produce each additional unit.

Knowledge netowrk

networks for transmitting information within an organization that is base on informal contracts between managers and on distributed information systems

Personal controls

personal contact with subordinates

Expatriate failure

premature return of an expatriate manager to the home country

Firms should locate production so that

production and logistics can be locally responsive. production and logistics can respond quickly to shifts in customer demand

Smith, Ricardo, and Heckscher-Ohlin

promote unrestricted free trade

Polycentric approach to staffing

recruit host-country nationals to manage subsidiaries in their own country, and parent-country nationals for positions at headquarters

Decentralized decision making

relieves the burden of centralized decision making has been shown to motivate individuals permits greater flexibility can result in better decisions can increase control.

Accounting standards:

rules for preparing financial statements - they define useful accounting information

Geocentric approach to ataffing

seek the best people, regardless of nationality, for key jobs

Auditing standards

specify the rules for performing an audit, the technical process by which an independent person gathers evidence for determining if financial accounts conform to required accounting standards and if they are also reliable

Initial rate

spot exchange rate when budget is adopted

Bureaucratic controls

system of rules and procedures that directs the actions of subunits ex: budgets and capital spending rules

New Trade Theory

the ability of firms to gain economies of scale (unit cost reductions associated with a large scale of output) can have important implications for international trade. Countries may specialize in the production and export of particular products because in certain industries, the world market can only support a limited number of firms.

Human resource management (HRM)

the activities an organization carries out to utilize its human resources effectively. determining human resource strategy staffing performance evaluation management development compensation labor relations Can help the firm reduce the costs of value creation and add value by better serving customer needs.

Performance ambiguity

the causes of a subunit's poor performance are not clear

Organizational structure

the formal division of the organization into sub-units, the location of decision making responsibilities withing that structure, the establishment of integrating mechanisms to coordinate the activities of sub-units including cross-functional teams or pan-regional committees.

Horizontal differentiation

the formal division of the organization into subunits

Vertical differentiation

the location of decision making responsibilities within a structure

Integrating mechanisms

the mechanisms for coordinating subunits

Control systems

the metrics used to measure performance of subunits

Corporate culture

the organization's norms and value system. strong corporate culture can help the firm implement its strategy

Organizational culture

the values and norms that employees are encouraged to follow

Leontief Paradox

theorized that since the US was relatively abundant in capital compared to other nations, the US would be an exporter of capital intensive goods and an importer of labor-intensive goods. However, he found that US exports were less capital intensive than imports.

Organizational architecture

totality of a firm's organization including: formal organization structure, control systems and incentives, processes, organizational culture and people

Global matrix structure

tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure

Constant returns to specialization

units of resourced required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier (PPF).