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International Management > MNC, FDI, Int Strat > Flashcards

MNC, FDI, Int Strat Flashcards

1
Q

Why do nations collaborate?

A
  1. political benefits:
    peace
    more political weight
  2. economic benefits:
    more trade
    income growth
    access to resources
    consistent rules for trade
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2
Q

what economic integration groups do you reckon?

A
  1. Free trade area: removal of intragroup tariffs
  2. Customs union: removal of intragroup tarifs and common external tariff
  3. Common market: removal of intragroup tariffs, common external tariff, and free movement of goods, people, and capital
  4. Economic union: removal of intragroup tariffs, common external tariff, free movement of good/people/capital, and common economic policies
  5. Political union: removal of intragroup tariffs, common external tariff, free movement of goods/people/capital, common economic policies, and integration of political and economic affairs (policymaking regulations etc)
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3
Q

What are the disadvantages of economic integration?

A
  1. Political
    discrimination against firms outside a region undermine global integration
  2. Economic
    chance of loss of sovereignty and increased dependency on other countries
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4
Q

How would you define economic integration?

A

Efforts to reduce trade and investment barriers within one region / around the globe

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5
Q

What is the GATT?

A

Multilateral agreement covering international trade (just look a t the name)

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6
Q

What is the WTO

A

The body overseeing multilateral trading systems

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7
Q

What does the GATT-WTO system prohibit the imposition of?

A

1. export subsidies (excluding agricultural products)

  1. Import quotas
  2. Tariffs
  3. Dispute settlement mechanisms (it is GATT and WTO who decides on disputes)
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8
Q

what is a trade round?

A

when a group of countries gets together to negotiate tariff reductions and other measures to liberalize trade

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9
Q

What is the debate on WTO?

A

Supporters give the example of China, which became a leading economy since joining the WTO

Critics point out that there is no compelling evidence that the WTO has had a significant positive influence on trade

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10
Q

What is the NAFTA?

A

North America Free Trade Agreement, between CANADA, US, and MEXICO.

it:
1. decreased tariffs, but did not lift regulations
2. increased wages
3. boosted industrial and trade integration
3. created more jobs in the US (mexicans benefited less than expected)

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11
Q

what did NAFTA become?

A

USMCA in 2018

the main difference is the introduction of stricter intellectual property regulations

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12
Q

how many countries are there in europe? how many in the eurozone?

A

27 in europe, 18 in the eurozone

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13
Q

What is the single (or common) market?

A

free movement of goods, capital, and labour

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14
Q

What is the principle of harmonization?

A
  1. mutual recognition: products recognized as legal in one country may be sold throughout the market
  2. harmonized sector: sectors have common rules
  3. subsidiarity: market takes action only if it is more effective
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15
Q

what are the opportunities and treaths for a manager wanting to go international?

A

pros:

new markets

ability to leverage economies of scale and economies of scope

natural resources quest (oil)

innovation quest (silicon valley and bangalore)
cons:

competiton

trade barriers, regulatory and political risks

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16
Q

What is foreign direct investment?

A

when a firm invests directly in new facilities to produce and/or market in a foreign country.

residents of one country acquire ownership of assets for the purpose of controlling the production and distribution

FDI is NOT foreign portfolio investment

17
Q

which forms can FDI take?

A
  1. Greenfield investment: establishment of a wholly new operation in a foreign country
  2. brownfield investment: acquisition or merging with an existing firm in the foreign country

More specifically

vertical FDI: moving upstream or downstream in a foreign country

horizontal FDI: firm duplicates activities in a foreign country

18
Q

what are the advantages and disadvantages of FDI?

A

pros:
1. high profit potential

  1. control over operations
  2. acquire knowledge of local markets
  3. avoid tariffs and NTBs

cons:
1. high financial and managerial investments

  1. high exposure to political risk
  2. vulnerability to restrictions on FDI
  3. greater managerial complexity
19
Q

when is FDI favoured over exporting?

A

when there are:
1. high transportation costs

  1. high trade barriers
20
Q

when is FDI favoured over licensing?

A

when:
1. firm wants control

  1. firms wants to gate keep its technological know how
  2. it is difficult to license
21
Q

what is the difference between FDI flow and FDI stock?

A

FDI flow: amount moving in a given period

FDI stock: total accumulation of inbound FDI in a country or outbound FDI across several years

22
Q

Why has FDI grown more rapidly than world trafe and world output?

A

Firms still fear the threat of protectionism

Globalizationas firms undertake FDI to ensure they have significant presence in many regions of the world

23
Q

What is the difference between OEM and ODM?

A

Original Equipment Manufacturer control components and final assembly, but not R&D and design

24
Q

Where do developed and undedeveloped countries concentrate their activities?

A

Developed: concentrate in high value activities (R&D, Design, Marketing)

Underdeveloped: concentrate in lower value activities (production)

25
Q

Why are acquisitions an attractive form of FDI?

A

they are quicker to execute than greenfield investments, and it is easier and less risky for a firm to acquire desired assets rather than building them from the ground up

26
Q

Which political views on FDI are you aware of?

A
  1. radical view: hostile
  2. free market view: suggests that FDI unrestricted by government intervention is best
  3. pragmatic view: only approves FDI when benefits outweigh costs
27
Q

How can governments encourage or restrict FDI?

A

Encourage:

government backed insurance programs

tax incentives

exemtpion of import duties

land ownership rights

work permit and visa facilitation for management and experts

Restrict:

control over some outward FDI (almost all countries do it to some extent)

28
Q

How can a company develop an international strategy while still staying in domestic markets?

A
  1. indirect exporting through intermediaries (ETC), the seller sees the transaction as a domestic sale, the buyer sees the transaction as a domestic purchase.
  2. supplying foreign firms
  3. licensing or franchising:
  4. become local partners of FDInvestors
29
Q

what is the process for evaluating new markets?

A
  1. producing an initial list of potential new markets
  2. eliminating less attractive markets
  3. selecting most attractive markets
30
Q

when would you advise an ETC?

A

when the company doesn’t have a lot of international expertise and has short term goals

31
Q

what is piggy banking?

A

when a large company brings along its suppliers when it build a factory abroad

32
Q

what is the difference between licensing and franchising?

A

Licensing: owner of intangible preoperty grants the right of use for a specified time (risks lending strategic property to future competitors)

Franchising: the franchisor gives the franchisee the legal right to undertake business in a specified manner

33
Q

describe the modes of market entry alon investment and control criteria

A

exporting (low investment low control)

strategic alliances: JV, licensing & franchising (mid investment mid control)

sibsidiary: acquisition and greenfielding (high investment high control)

34
Q
A

International Management (8 decks)

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