International Business: Research, Teaching and ... - AIB-SE

Internat iona l Bus iness : Research , Teach ing and Prac t i c e 2011 5(2)

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INTERNATIONAL BUSINESS SURVEY CLASSES Many undergraduate business programs offer either an introductory or intermediate level international business course to facilitate the internationalization of their curriculum. These courses survey several important features of the global business environment, such as political economic forces, cultural differences, international and national institutions, and the strategic business implications of such topics. Based on conversations with IB faculty at several international business conferences and globalization seminars, a major challenge with such courses is achieving appropriate depth while covering the breadth of these topics. INTERNATIONAL BUSINESS SYLLABI Based on a sample of 29 international business syllabi from GlobalEdge.MSU.edu (globalEDGE), most professors include foreign exchange rate material in such classes. As shown in Table 1, a majority of syllabi include FX topics explicitly in the outline. For the most complete syllabi where both outlines and outcomes are listed, 58% contain FX topics in course outcomes and 100% contain FX topics in the course outline. Most of these syllabi indicate that the basics of FX and monetary systems are covered, while some courses go into considerable depth with international financial management. Even in the courses where FX is covered in only a few days, students are exposed to quantitative calculations and analytical concepts that are quite different from the rest of the class topics, such as cultural differences.

INTERNATIONAL BUSINESS TEXTBOOKS Table 2 reviews textbooks commonly used in IB survey courses. Regarding intended audience and rigor, the text books range from introductory

Dal l eTezze FX Rate Simulat ions for IB Survey Courses

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undergraduate to advanced undergraduate/graduate courses and from 424 to 793 pages of total content. The longer books offer more applications and chapters focusing on specific business practices. Books offering more in depth FX topics cover international accounting laws and specific financial management implications and tactics. Every book covers the basics of FX transactions and theoretical concepts such as the Law of One Price, Purchasing Power Parity, and the International Fisher Effect. Lastly, most of the books have less than 13% of content devoted to FX related topics. Since this content covers institutional and historic concepts, the amount of coverage for the quantitative and analytical topics is often less than 7%. Thus, professors must find a way to cover these topics in a short amount of time.


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SURVEY OF INTERNATIONAL BUSINESS STUDENTS We now offer insights from the student’s perspective. Two sections of an intermediate undergraduate IB course were surveyed in October, 2010 (the survey questions are provided in Appendix 1) from a liberal arts college in Western Pennsylvania. This sample included 54 students, 15% of whom were sophomores and the remaining 85% of whom were either juniors or seniors. The course has two prerequisites, an introductory marketing class and an introductory management course. The anonymous survey was administered at the end of class on the due date of the first FX reading assignment (Desai, 2007). Sixty one percent of the students reportedly read the assignment, while the entire sample was present in class for the first FX lecture. The survey gauges students’ perceptions about the FX content and their abilities, as well as their actual performance on basic and intermediate FX problems. Table 3 reports summary statistics on the perceptions data while Table 4 summarizes the performance data.


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Student Perceptions All of the questions in Table 3 use a 5-level response, ranging from “strongly disagree” (1) to “strongly agree” (5). Some of the questions have been reversed-coded so that a high value always indicates a perceived strength or lack of concern on behalf of the student (specifically, questions 2, 3, and 5 through 10). The data is rather convincing and reveals a very confident set of students. The lowest average value is 3.7 and at least 87% of students are either neutral or confident in their ability to perform mathematics and solve FX related problems. But, are these perceptions a false confidence? Student Performance Table 4 displays the results of three FX problems at the end of the survey. Before interpreting the results, it is important to note how that particular class is taught. The professor reviews the homework questions from the reading, performs similar problems in class, and requires students to actively solve similar problems in class (individually and in small groups). On that particular day, the class reviewed questions very similar to questions #1 and #2 in Table 4, and performed all of the necessary steps and calculations for question #3. However, the students’ ability to solve these questions was less than stellar. With the exception of the appreciation/deprecation question, the class performed poorly on these basic/intermediate FX problems.


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The results presented in Tables 3 and 4 demonstrate that students are challenged by FX material, though perhaps are unaware of these challenges. The active learning literature suggests a clear solution: provide an environment in which students actively attempt such problems, learn their mistakes, and take corrective action with the support of the professor and classmates. However, the active learning techniques employed by the professors in these two sections were clearly not sufficient. Whether it was lack of time or weak incentives for students, there is room for improvement.

INTERNATIONAL BUSINESS SIMULATIONS INTERNATIONAL BUSINESS SIMULATION REVIEW Simulations were used 5000 years ago, and have been used significantly in business education since the 1950s (Jenkins, 1998). Proposed benefits include encouragement of thoughtful decision making, integration of functional expertise, appreciation of the international context, a more stimulating pedagogical tool, and an opportunity to manage complexity (Farrell, 2005). Recently, there has been a shift to multimedia in the classroom in general, and the digitization of simulations particularly (Gossman, Stewart, Jaspers& Chapman, 2007; Sinkovicsa, Haghirianb & Yu, 2009). The evidence on the pedagogical effectiveness is less than perfect (Engle, 2007), but given the rapid adoption and use of digital simulations by businesses (Bridgeland & Zahavi, 2008; McGowan, 2008,), there are many benefits for today’s business students. Currently, there is an abundant supply of IB simulations (Association Global View Capstone Course; Global Supply Chain Management Simulation; Interpretive Simulations – Country Manager; Lamont, Volkov & Shoptenko, 2005; McGuinness, 2004). While these simulations do offer significant IB learning experiences, most are intended to be used over several weeks if not months. This length is required as the simulations are rather comprehensive. Manuela and Tangedahl (2009) offer a focused international finance simulation in Excel; however, it is too advanced for business students without significant accounting and finance backgrounds. CREATING A SIMPLE FOREIGN EXCHANGE SIMULATION

The Foreign Exchange Model

To provide students with a tool to improve the understanding of FX implications in IB survey courses, the following conditions need to be met: i. The relationship between a firm’s geographic context and FX rates needs to be clear.


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ii. A simple metric to assess the impact of a currency fluctuation for the company. iii. Be able to experiment with a business strategy to manage the aforementioned impact. iv. Time to learn and run the simulation must be minimal (less than 30 minutes). To meet objectives i through iii, we designed a simple scenario in which a firm’s production of widgets is in the United States, its sales are in India, and the student has control over the price of widgets in Indian Rupees. Production is determined by a constant average and marginal cost equation, demand is a time-invariant linear equation, and the stochastic exchange rate is determined by a linear trend, one lagged dependent variable, and a random shock (see Appendix 2 for specific equations). All of these equations were entered into an Excel spreadsheet where each row was a variable and each column represented a time period. We created two spreadsheets entitled “practice” and “real” that contained the same sets of equations (this step is useful for creating a practice scenario for students where they can manipulate the exchange rate and a real scenario where they only have control over the price). Lastly, the constant parameters of the equations, for example fixed average cost, were stored in a separate sheet in the same Excel file entitled “parameters” to facilitate future modifications of assumptions. THE ONLINE SIMULATION At this point, we could have added comments and graphs to the excel file and then shared the file with the students for them to explore the FX issues. However, in light of objective iv, a web-based application with a user-friendly environment would better meet the needs of our students and allow them to focus on the learning outcomes. To this end, we utilized free modeling software at Forio.com (Forio Business Simulations). There are two basic steps in creating a web-based simulation at Forio.com: create the model; and then create the user interface. Having already created the model in an Excel file, we merely uploaded the Excel file to Forio.com and the software automatically recognized the underlying equations. (The only requirements are that the rows contain variables and the columns refer to different time periods. If there are multiple sheets, Forio.com prefixes the name of the sheet to each variable, for example real.profit refers to the profit variable from the “real” sheet.) To verify that the model is uploaded correctly, you may use the “Explore Model” feature which displays the equations in a dynamic diagram or simply inspect the equations in the “Model” tab. Second, we constructed the user


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interface. Fortunately, this requires zero programming experience as we merely dragged and dropped features into the browser and entered text directly into text boxes. Features include line plots, bar charts, various input dials such as sliders, and tables. For more information, there is an instructional video at: http://forio.com/simulate.htm . On November 2, 2010, one of the surveyed sections from the aforementioned IB class accessed this simulation during class from each individual’s laptop computer. To provide incentives for participation, those students who emailed the professor a screen shot of their performance would earn extra credit towards their course grade. After about 20 minutes and several questions, every student had completed the simulation several times and submitted at least one screen shot. A second survey was then administered to gain feedback from the 27 students (questions are provided in Appendix 3). Tables 5 and 6 summarize this data.

Table 5 displays the students’ feedback on the simulation. A higher score indicates that the simulation would improve if the change was made. Surprisingly, students did not see a great potential for improvement by using real products and companies. One student submitted that “I liked the fact that we used generic widgets because it kept it simple and easy to understand while learning the basics of the simulation.” This evidence reinforces the need for simulations and exercises that focus on FX issues. The largest weakness of the simulation was the lack of clear instructions. Part of the confusion was how their performance would correlate into extra credit points. Given that the exchange rates differ across simulation runs, a consistent method for assessing performance is currently lacking.


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Before discussing Table 6, we first offer more details about the simulation. During the practice round of the simulation, students are able to choose various values of FX rates and are then encouraged to find the price in Rupees that maximizes profits. (A short video describing this simulation is provided here: https://sites.google.com/site/jeremydalletezze/research/online_fx_sims .) As students proceed through the simulation, they adjust the price of their widgets based on past and anticipated FX rates. After 10 rounds of decision making, students receive feedback on the simulation and learn about the concept of pass-through pricing in the context of FX transaction exposure. Ideally, students learn that pass-through pricing can mitigate the amount of FX exposure; however, its effectiveness is limited by the ability of a company to predict future FX rates. Table 6 reports the results from students’ answers to “What are the advantages and limitations of "pass through" pricing?” after completing the simulation. The weak (strong) students are defined as those who answered question #3 from Table 4 incorrectly (correctly). When strong students outperform weak students in simulations, it validates the exercise (Faria & Wellington, 2005). Clearly, the stronger students are better able to grasp how their decisions in this simulation manage FX fluctuations.

DISCUSSION

Teaching International Business survey courses demands a delicate balance between the breadth and depth of covered topics. Foreign exchange rate material is a particularly difficult topic in these courses as its quantitative and analytical nature is quite different from the rest of the course, and often catches students “off guard.” Short and focused simulations offer promise in aiding students through this learning context. However, there is currently a lack of such simulations on the market. In this paper we discussed the nature and construction of one web-based FX simulation using Excel spread sheets and software at Forio.com. Advantages


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of this approach from the faculty’s perspective include relatively short production time, control of specifications, and zero required programming skills. Faculty can use this approach to share spreadsheet models that are simple or very complex. For students, the end product is accessible on the web, easy to navigate, and fun. Ideally, such simulations spur students' curiosity and provide basic insights into complex phenomena. Afterwards, a complete pedagodgy should provide instruction on and opportunities to work through the mathematics of similar scenarios to further the learning outcomes. Future research in this area can provide more empirical evidence on the impact of simulations and improve upon this article’s methods. First, two rounds (pre and post simulation) of similar questions should be given to a control group and an experimental group that have completed the simulation. To ensure that students have appropriate and consistent incentives, credit should be provided for both rounds of questions. Second, instead of solely focusing on the performance of weak versus strong students to validate simulations, comparisons should be made across the control and experiment groups. A successfully constructed and run simulation should improve the learning of both weak and strong students. Lastly, with a continuing focus on outcomes in academics, faculty should be able to tie simulations to specific course outcomes to identify the impact on the goals of the course.


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APPENDIX 2. Model equations


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International Business: Research, Teaching and ... - AIB-SE