I. Recall that Part A of the exam will consist of multiple choice and/or truefalse questions (roughly 10-15).

Eligible readings for this assignment include

everything that has been assigned so far EXCEPT: 1) The Apple Inc. 2010
case; 2) The CEO to Employee Pay Ratios chart; 3) Justin Fox's article, ""How
Shareholders are Ruining American Business."
II. Here are the possible short answer questions for the exam. I will select 4 or 5
of them.
1) How does Thomas Friedman conceive of globalization in chapter one (The
New System) of his book, The Lexus and the Olive Tree?
--------- He says globalization has replaced the Cold war in defining
international systems. Integration = everything one country does effects
another country (internet allows communication). Integration of markets never
seen before. Free Market Capitalism- the more open you are the more youll
flourish. Americanization
he says globalization is like the 100 meter dash

Departure from Cold War international system and competition for

influence and supremacy
Breaking down previous barriers between communist East and the rest
of the World
Global interconnectivity
Internet / cellphone driven (technology)
Spread of free market capitalism

2) What are the different dimensions of Thomas Friedmans 6D lens in his

work The Lexus and the Olive Tree? What is its importance? (Be sure to
include his notion of information arbitrage in your answer).
----- 1)Politics
2) Culture
3) National Security
4) Financial Markets
5) Technology
6) Environmentalist
Importance of looking at the world through a multilens perspective. As dean
boyton said, diversify your surroundings and learn from many different
sources. Info Arbitrage- buy cheap somewhere sell for more somewhere else.
These people have a wide net of informants and info able to do that.
Politics, culture, national security, financial markets, technology,
environmentalism

Important in the increasingly globalized economy because it gives a

more full worldview
Examines different dimensions of the world
Information Arbitrage- Compiles info to give us a better understanding
and more full worldview

3) Based upon the Monday Evening class on entrepreneurship, discuss the pros
and cons of having a venture funded internally (Dashed) versus the pros and
cons of having a venture that is funded externally (Jebbit).
-----Pros Cons of Dashed: Pros= hired employees from money already made
cons= had to wait to expand because he had to make the $$
---- Pros Cons of Jebbit: Pros= have more money can expand when want to
Cons= have to sell it to the investors and more responsibility
Pros of Internal Funding (Dashed)
No startup debt
Phil owns the entire company
(no equity given out for loans)

Pros of External Funding (Jebbit)

Venture capitalists guided them
early in the startup process
Available funds to expand
quickly

Cons of Internal Funding

Started small and took time to
grow

Cons of Internal Funding

Give out equity of company (not
full owners)

4) In chapter 3 of The Lexus and the Olive Tree, Thomas Friedman argues that
one of the chief challenges in the era of globalization is for countries and
individuals to find a healthy balance between their olive tree and the Lexus.
What does he mean by this?
----- He says to survive economically you have to build the best lexus (best
economy) but not at the cost of giving/selling out your country. If you sell out,
the olive rooters will rebel and say no and a country cant move forward.
-

Olive tree represents our past, traditions and identity

Lexus represents new developments and technologies
Necessary to keep a balance in order to live well

5) According to Amartya Sen, the central ethical concern stemming from

globalization is not globalization itself, nor is it the use of the market as an
institution. What is it? What measures does Sen call for in order to address
this concern?

Concern that the poor are getting poorer

Globalization is benefitting the rich much more than the poor,
widening the gap between rich and poor

Globalization itself isnt bad as long as we keep improving the

lives of the poor as well
6) David Landes, in the chapter The Invention of Invention in his Wealth and
Poverty of Nations, discusses the mystery of why China failed to realize its
potential during the Middle Ages. What are three potential reasons that Landes
mentions, which could potentially account for Chinas failure to reach its
potential during this period?

China was culturally rooted in the olive tree and didnt try to
globalize on top of the following
1.) Government Regulations
2.) Gender Roles (women in the house, not out working)
3.) Absence of free market
-----1) Why innovate when govt gonna take it away
2) against tradition
3) agricultural influence
4) defined classes (poverty to rich)
5) gender- no women rights
6) complacency
7) David Landes, in the chapter The Invention of Invention in his Wealth and
Poverty of Nations, mentions some reasons why innovation flourished
in Europe during the Middle Ages. List three of these reasons.
----- -

1.) Respect for manual laborers

2.) Travel / trade (early globalization)
3.) Linear view of time (always improving)
4.) Subordination of nature to man (use it for our well being)
8) Describe 2 conditions where customer power is high in an industry. Use an
example of an industry to illustrate your argument.

Many similar products that give customer a choice lead

to high customer / buyer power
Stronger buyer power makes an industry less attractive
PC Industry- all products are extremely similar, customer can
interchangeably choose any laptop, etc. and get the same
performance out of the product (besides CPU and processor)

----- Customer Power is high: few buyers, large-volume buyers, products are
undifferentiated, few switching costs for buyers
Ex. 1) telecommunications equipment, offshore drilling, and bulk chemicals
have large volume buyers and high fixed costs therefore they are powerful.
9) Describe 2 conditions where the threat of substitute products is high in an
industry. Use an example of an industry to illustrate your argument.

Substitutes perform the same function in different ways

The higher the threat of substitutes, the less attractive an
industry is and the less likely it is to make profits
Products not differentiated besides the price
PC Industry- all products are extremely similar, customer can
interchangeably choose any laptop, etc. and get the same
performance out of the product (besides CPU and processor)
------- Substitute threat is high: lower prices for same performance, cost of
switching is low
Ex. 1)Long distance phone calls vs. Vonage/Skype
2) Video rentals vs. Netflix and other streaming
10) Describe 2 conditions where supplier power is high in an industry. Use an
example of an industry to illustrate your argument.

Supplier power high when there are few suppliers but many
buyers
Switching costs are high for the buyer
Product being sold is differentiated
PC Industry- CPU and processor made by Windows and
Intel: concentration of power in these companies because all PCs
need a CPU and processor
------- Supplier power is high when: more concentrated than the industry it sells
to, suppliers dont depend on industry for $$$, offer differentiated products.
Switching costs in switching suppliers, no substitute, suppliers might enter
market
Ex. 1) Microsoft near monopoly in operating systems (PC assemblers)
2) Pharmaceutical companies with different PATENTED drugs..
3) airplanes need pilots, no substitute for a good pilot
11) Describe 2 conditions where a rivalry among existing competitors is
intense. Use an example of an industry to illustrate your argument.

Rivalry considered intense when competitors are roughly

equal in size and power
NFL has regulations to ensure the rivalry remains intense
between all 32 teams including: salary cap, draft, revenue sharing
program
High exit barriers and high fixed costs (stadium and salaries)
also contribute to existing rivalry remaining intense
NFL is intense rivalry for these reasons
------ Rivalry is high when: there are many competitiors, industry growth is
slow, exit barriers are high
For example,
1)____________________________________________________________
12) According to Michael Porter, why does the threat of new entrants put a
cap on the profit potential of an industry?

Threat of entry depends on entry barriers

New entrants increase product numbers in the market
Increase in supply decreases the prices of the items
New entrants to market would potentially cause the supplier
power to decrease and buyer power to increase
Shift in power and decrease in price leads to less profit for
suppliers
---- When the threat of entry is high, incumbents must hold down their prices or
boost investment to hinder new competitors
13) Why do emerging market companies emphasize volume and frequent
upgrades, according to the Economist article The World Turned Upside
Down?

Companies go for volume because so many consumers are

poor
Because of piracy, the companies have to continuously
upgrade their products
------ because consumers are so poor = volume
because piracy is so commonplace= update products
14) What are two specific ways companies operating in emerging markets are
reducing costs, according to the Economist article The World Turned Upside
Down?

Disruptive innovation- disrupts market (usually by introducing

a new technology) and lowers prices
Reverse M&A- less concerned with directly cutting costs, but
rather place importance on acquiring skills, brands, and distribution
channels that will inevitably lead to lower costs
------ contracting out more work than they were before,
-- they are reinventing systems of production and distribution and they are
experimenting with entirely new business models
15) According to the Economist article, The World Turned Upside Down,
why are the emerging markets among the toughest in the world yet also
afford extraordinary opportunities?

Emerging markets are tough because they dont want the

same products as other markets in the world
Poor infrastructure
Great opportunities because someone can give them the
products they want
low brand loyalty
rapid economic growth
competitive education
cheap brain power
-------Toughest: Disrtibution systems can be hopeless, income streams are
unpredictable, pollution, governments being difficult, pirating and poverty.
Extraordinary: 1) huge potential market and growing fast, economies are set to
grow, 2) few companies have legacy systems. Brainpower is cheap &
abundant.
16) Based upon your reading of the article "PepsiCo's Brand New Bag,"
describe how reverse innovation was at play in PepsiCo's strategy to launch the
Aliva brand in India.

Reverse innovation- taking the needs/demands of consumers

or countries and working backwards to create the products they
need/want (local conditions, essential parts of products)
Local Indian people contributed to the creation of Aliva
Taste-tested by Indians (savory, sweet, textured)

Used rice-oil rather than sunflower-oil, also used lentils

(cheaper products native to India)
Bag and chip production and manufacturing required new
processes that were developed in India
Its not perfect, but its ours.
1. Innovate locally using global capabilities
2. Strike the right balance between local autonomy and global
authority
3. Take local innovations across geographies
4. Establish systems and processes to enable items 1-3
-Aliva was marketed solely to India. Pepsico created a cheap bag using new
technology that appealed to the Indian market. India was in need of these snack
chips because as women were working more and tea time was still part of
tradition, home made chips were consuming more time to make than they were
worth. Therefore, Pepsico branded this bag to stand up straight and appealed to
their need for healthy snacking.
17) Milton Friedman, in his article The Social Responsibility of Business is to
Increase Its Profits, disapproves of a particular type of social responsibility.
What does he mean by this term? List two reasons why it is immoral for the
corporate executive to exercise social responsibility in this sense.
-------- 1) Businesses dont have social responsibility people do
2) CEOs arent experts in philanthropy, dont know who to give back to
(Giving to one group they see in need may not be truly beneficial in the big
picture).
18) John Mackey writes, The business model that Whole Foods has embraced
could represent a new form of capitalism, one that more consciously works for
the common good instead of depending solely on the invisible hand to
generate positive results for society. What are the key features of this business
model?
--------Entrepreneurs, not the current investors, have the right and responsibility
to define the purpose of the company. It is the entrepreneurs who create a
company, who bring all the factors of production together and coordinate it into
viable business. It is the entrepreneurs who set the company strategy and who
negotiate the terms of trade with all of the voluntarily cooperating stakeholders-including the investors. At Whole Foods they "hired" their original investors.
Whole Foods gives money to our communities because we care about them and
feel a responsibility to help them flourish as well as possible.
19) In her work "The Divine Right of Capital," what criticisms does Marjorie
Kelly levy against the notions that corporations ought to maximize returns to
shareholders, and that shareholders are the owners of a corporations?

---------- 1) Stockholders do NOT fund major public corporations.

Equity investments reach a public corporation only when new common stock is
sold Shareholders own corporations yet they contribute little (and take a
lot). Stockholders create the idea that employees are not part of the corporation.
One group gets what another (employees) earn. The problem is not the free
market, but the design of the corporation. Shareholder primacy is a form of
entitlement. And entitlement has no place in a free market.
1. Increasing size.
2. The shrinking of ownership functions..
3. The rise of the knowledge economy.
4. The increasing damage to our ecosystem.
The problem is not the free market, but the design of the corporation.
III. Part C of the exam will be a long essay.
Long Essay: The assigned video and articles on the mobile rewards platform,
JANA, touch upon several themes that have been explored in Portico so far.
Please make explicit, persuasive connections between the content of Nathan
Eagles presentation on JANA (and any other information that you have
gathered about the company via other resources) and the following five themes:
globalization, innovation, the emerging markets, entrepreneurship, the IDEA
Hunter.
Please watch the following video carefully (it might be helpful to pause the
video when the informative slides pop up, as they are not on the screen for very
long):
http://www.youtube.com/watch?v=w3Esvea4qBU&list=PLfw4jU2qxKNzdLld
cN7aPS_VxfTUQOlpk&index=6
Two relevant resources:
1) http://www.jana.com
2) http://qz.com/5178/the-largest-payment-platform-on-earth-has-2-billioncustomers-so-why-havent-you-heard-of-it