49. How does a country’s gross domestic product (GDP) change after adjusting for purchasing power parity (PPP)?
ANSWER: Purchasing power parity (PPP) calculation is a conversion that determines the equivalent amount of goods and services different currencies can purchase. For example, one dollar spent in Mexico can buy a lot more than one dollar spent in the United States.
Gross domestic product (GDP) is the sum of value added by resident firms, households, and government operating in an economy. To compare two countries’ GDP, a conversion based on PPP is necessary.
The PPP between two countries is the rate at which the currency of one country needs to be converted into that of a second country to ensure that a given amount of the first country’s currency will purchase the same volume of goods and services in the second country. Without adjusting for PPP, emerging economies contribute about 26 percent of the global GDP. But after adjusting for PPP, emerging economies contribute about 50 percent of the global GDP.
50. Explain the correlation between the success and failure of global firms and the institution- and resource-based views.
ANSWER: Global firms can gain success in today’s competitive global market by focusing on the institution- and resource-based perspectives. The first factor from an institutional perspective focuses on how companies can earn greater success by understanding the external business environments in international business. MNEs quick to acquaint themselves with an understanding of the external environment, such as host country market rules, cultural norms, and policies, will increase their international success. The resource-based view focuses on MNEs’ internal resources, which are firm-specific resources and capabilities. Competitors in the same environment do not share these internal capabilities; therefore, a company possessing unique firm-specific capabilities develops a competitive advantage in marketing their products or in the value creation process. Global companies that best utilize their internal strengths will increase their opportunities for business success.
51. Explain how the pendulum view attempts to describe globalization as a cyclical phenomenon with many difficulties.
ANSWER: The pendulum view presents the events in the present timeframe as a long-term model to help an individual gain greater understanding of and perspective on globalization’s challenges.
The current era of globalization originated after World War II with the major Western nations committing to globalization. From the 1950s through the 1970s, political unrest in the communist countries formed a different view of globalization. Noncommunist countries, such as Argentina and Brazil, focused on protecting their domestic industries. In contrast, the Four Tigers-specifically, the developing economies of Hong Kong, Singapore, South Korea, and Taiwan-participated in the global economy.
Both emerging and developed markets benefit greatly from globalization. However, seen in a historical context, globalization never continues in one upward or positive direction, hence the view of it as a pendulum. In the 1990s, globalization was on the fast track. However, globalization proponents witnessed significant backlashes and setbacks. This rapid growth in globalization led to an inaccurate view that globalization was new, which created many negative perceptions. This new view of globalization created fear, and competition posed a direct threat to countries’ culture and values.
More recently, globalization has once again come to be considered a positive, offering contributions to worldwide economic growth. Globalization changes over time, with both a rosy and dark side. In some areas, it has resulted in job creation with tremendous outcomes, while in other areas, it has resulted in job losses and hardship.