Exam 3 - CH10 Flashcards
(28 cards)
What is globalization?
a process of closer integration and exchange between different countries and peoples
worldwide
Globalization is made possible by:
- Falling trade and investment barriers
- Advanced telecommunications
- Reduced transportation costs
What is a Multinational Enterprise (MNE)?
A company that deploys resources and capabilities in the procurement,
production, and distribution of goods and services in at least two countries
What is Foreign Direct Investment (FDI)?
By making investments in value chain activities abroad, MNEs engage in foreign direct investment
What are the advantages of going global?
- Gain access to larger market
- Gain access to low-cost input factors
- Develop new competencies (communities of learning, location economies)
What are the disadvantages of going global?
- Liability of foreignness
- Loss of reputation
- Loss of intellectual property
What is the CAGE distance framework?
A decision framework based on the relative distance, between home and a foreign target country. It helps guide MNEs on which countries to enter.
What types of distances does the CAGE framework include?
- Cultural distance
- Administrative and political distance
- Geographic distance
- Economic distance
Cultural Distance is the disparity between…
a firm’s home country and its targeted host country
Cultural Distance is made up of:
- Power distance
- Individualism
- Masculinity–femininity
- Uncertainty avoidance
- Long-term orientation
- Indulgence
Administrative and Political Distance is captured in factors such as:
- Shared monetary or political associations
- Political hostilities
- Weak or strong legal and financial institutions
Political and administrative barriers include:
- Tariffs
- Trade quotas
- FDI restrictions
Geographic Distance includes:
- Physical size (Canada versus Singapore)
- Within-country distances to its borders
- The country’s topography
- Time zones
- Whether the countries are contiguous to one another
- Access to waterways and the ocean
Economic Distance is:
Wealth and per capita income of consumers
___ countries tend to engage in more cross-border trade
Wealthy
Wealthy countries trade with other wealthy countries to benefit from:
Economies of experience, scale, scope, and standardization
Wealthy countries trade with poor countries to benefit from:
Access to low-cost input factors
Multinational Enterprises enter foreign markets through:
- Contract based (less investment and control)
- Strategic Alliances including long-term contracts (more investment and control)
- Subsidiaries like acquisitions and greenfield (most investment and control)
What does the integration-responsiveness framework deal with?
the pressures a Multinational Enterprise faces for cost reduction and local responsiveness
What is local responsiveness?
the need to tailor product and service offerings to fit local consumer preferences
What are the four different strategies of the integration-responsiveness framework?
- International strategy:
low pressure for cost reduction and local responsiveness - Multidomestic strategy:
low pressure for cost reduction and high pressure for local responsiveness - Global-standardization strategy: high pressure for cost reduction and low pressure for local responsiveness
- Transnational strategy:
high pressure for cost reduction and local responsiveness
International Strategy includes:
- Leveraging home-based core competencies
- Selling the same products or services in both domestic and foreign markets
- Limited local responsiveness
- Ex: Harley-Davidson in China
Multidomestic Strategy includes:
- Maximize local responsiveness
- Consumers will perceive them to be domestic companies.
- Can be costly and inefficient - duplication of business functions across countries
- Ex: Nestlé’s customized product offerings
Global-Standardization Strategy includes:
- Economies of scale and location economies
- Pursuing a global division of labor based on best of class capabilities reside at the lowest cost
- Price becomes the main competitive weapon
- Ex: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China
