chapter 9 and 10 ib
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What factors led to the growth in
outsourcing of manufacturing from the United States to the developing countries?
Cost was one of the main factors for the growth of manufacturing outsourcing from the United States to the developing countries. The opening up of China with its cheap labor and its abundance of natural resources gave it a strong competitive advantage.
What is the difference between FDI made by the United States to Europe and that made to developing countries?
the FDI by U.S. companies to Europe was the result of increased demand for their products. It became economical to open plants in Europe and satisfy local demand than to export from the United States.
Distinguish between manufacturing and service off-shoring. Provide some examples.
Outsourcing of manufacturing refers to the production of all kinds of consumer goods such as cars, tractors, and toys in another country. Outsourcing of services refers to “white collar” work such as computer programming, translation of documents, and accounting jobs that are performed in another country, replacing labor in the home country.
Why did India become a favorite destination for U.S. companies to outsource IT services offshore?
a large pool of English-speaking programmers who had worked on the Y2K project that became available for a variety of computer related jobs that could be outsourced by companies in the United States.
Distinguish between the off-shoring of IT services and business processing off shoring (BPO).
Off-shoring IT refers to jobs that are related to a company’s computer department such as programming or creating web-based applications. Off-shoring Business Process Outsourcing (BPO) services relates to a variety of work that are usually core activities such as data entry, payroll and HR
What is the impact of services off-shoring to the domestic economy?
still unclear. Although it may lead to an immediate loss of jobs, it usually makes the company more cost-efficient that in the long run generates more jobs to the economy.
Distinguish off-shoring, in-shoring, and near-shoring. What are some of the characteristics of off-shoring and in-shoring?
Off-shoring, in modern parlance, refers to jobs that are sent to other countries. In-shoring refers to jobs that are sent back to the country that originally sent jobs overseas. Near-sourcing refers to jobs that are sent to foreign countries that are near to the home country.
What reasons are offered for the growth in near-shoring?
lower logistics or transportation costs, lower inventory costs, advantages of being in the same time zone, parallel movements in exchange rates and the establishment of free-trade zones.
What was the Y2K problem and how did it spur the off-shoring of IT services overseas?
hypothesis that many computer programs worldwide would fail because the two-number programming code for the year variable may read 2000 as 1900 and cause equipment to malfunction.
Define business process outsourcing, or BPO. Provide some examples of back-office services that are sent offshore by U.S. companies.
BPO services relate to a number of peripheral works that includes services such as call centers, data entry, copying drawings to electronic format and payroll services.
Explain the front-office services provided by BPO firms. How are they different from back-office services?
The back-office functions that are outsourced overseas includes work such as paperwork for financial institutions, transcribing medical recordings of patient analysis by doctors, and updating insurance claims and payments. The front-office work involves telemarketing services, help desks for computer companies, customer service call centers and market research analyses.
Has the front-office BPO services to India been successful
initially not successful as there were a lot of complaints by clients but eventually the problems of heavy accents and quality of personnel was resolved
What factors need to be considered in deciding whether to send any business processes offshore to an overseas affiliate or vendor?
1. the process of outsourcing has to be consistent with the company’s overall strategic mission. 2. it has to ensure the domestic organization is ready to handle communication flows from the overseas vendors. 3. the work received from overseas has to seamlessly integrate into the domestic workflow process.
What changes need to be made to the
internal organizational structure if a firm decides to send work offshore?
The firm has to create and assign the appropriate staff to manage each of the outsourced project. A performance review has to be made periodically to determine if the outsourcing of projects is adding value to the company.
What are the different structures that can be set up for off-shoring projects overseas?
Companies can set up captive units which are their own offices overseas, set up joint ventures with local companies, or completely outsource to indirect or direct third-party vendors.
What are the pros and cons for each
own office overseas: PRO: the ability to control all job functions internally CON: costs are usually much higher. joint venture: PRO: reduces the risk of investments CON: means sharing decision making that sometimes may result in conflict. outsource: PRO: requires much less investment CON: requires careful selection of the vendors in order to ensure high quality.
what are some of the reasons for companies to send services offshore? What are some of the reasons for not off-shoring services?
Share off-shore for 1) the lower cost, (2) access to talent, and (3) the flexibility provided to businesses. Not off-shore (1) cost savings are not that high, (2) lack of experience and talent overseas, and (3) a preference by companies to value in-house employees.
Define three (3) main categories of foreign exchange risk
transaction-The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. Translation-The impact of currency exchange rate changes on the reported financial statements of a company. Economic Exposure-The extent to which a firm’s future international earnings power is affected by changes in exchange rates.
If the direct quote for the Norwegian krone in New York is US$0.1550/NK1, what is the indirect quote?
1/0.1550 = NK6.4516/$1
If the exchange rate of the dollar to the euro changes from US$1.55/€1 to US$1.65/€1, did the dollar appreciate or depreciate? Is that good or bad for U.S. exports, US tourists, US investors?
the dollar depreciated against the pound. That is good news for U.S. exporters as foreigners will find it cheaper to buy U.S. goods.
What are some of the reasons that
gold and silver became the accepted choice of coins to serve as a medium of exchange?
durability, scarcity, divisibility, transportability and consistency.
Who are the major users of foreign exchange?
commercial and noncommercial banks, corporation and individuals, central banks and market makers and brokers.
What are some of the major factors affecting the price of a currency?
inflation rates, interest rates and the level of exports and imports of a country. If domestic inflation rate increases relative to a foreign country, the currency of the domestic country will depreciate
Contrast fixed and floating exchange rate regimes? What is managed float?
fixed exchange rate system: governments fix the price of foreign currencies and maintain these prices by purchasing or selling foreign currencies to keep the rates stable. floating exchange rate system: the market determines the prices of currencies based on demand and supply. managed float: when a country allows the currency to float and let demand and supply determine its price. However, the government will intervene to stabilize and manage the float when pressured.
Explain how an invoicing center can help reduce costs to a multinational.
if a multinational company has several subsidiaries, it may be sending and receiving payments in a variety of currencies. By setting up an invoicing center the parent company and its subsidiaries can send and receive goods and payments via the invoicing center in their local currency. This helps eliminate the number of transactions between all the units.
the spot exchange rate
the rate at which a foreign exchange dealer converts one currency into another currency on a particular day
forward exchange rate
The exchange rates governing forward exchange transactions, which are; when two parties agree to exchange currency and execute a deal at some specific date in the future
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy.
List and define three types of convertibility (L)
Freely Convertible-government allows residents and nonresidents to purchase unlimited amounts of a foreign currency with it. Externally Convertible-When only nonresidents may convert it into a foreign currency without any limitations. Nonconvertible-When neither residents nor nonresidents are allowed to convert it into a foreign currency.
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