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Intro to business > Module 6 > Flashcards

Module 6 Flashcards

1
Q

Name the two types of foreign investments

A
  1. Foreign direct investment (FDI)
  2. Foreign portfolio investment (FPI)
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2
Q

What is a foreign portfolio investment?

A

Foreign portfolio investments are investments in securities abroad traded on foreign markets.

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3
Q

What are joint ventures?

A

Joint ventures are operations with shared ownership

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4
Q

What are horizontal FDI?

A

Horizontal FDI is at the same level in the value chain as the operations in the home country

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5
Q

What are vertical FDI?

A

Position in value chain moves up/down

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6
Q

What are upstream and downstream FDI?

A

Upstream FDI is FDI focused on the supplier side of the business

Downstream FDI is FDI focused on the demand side of the business

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7
Q

Name the difference between the FDI flow and stock?

A

FDI flow is the amount of FDI capital transferred by MNE

FDI stock is the book value of foreign corporations

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8
Q

When is FDI the most attractive form of international business?

A

OLI-paradigm:
1. Possession of Ownership advantages (O).
2. Locational advantages (L)
3. Internalization advantages (I)

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9
Q

What are ownership advantages?

A

If an asset has ownership advantages it can be effectively transferred to foreign countries.

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10
Q

What are location advantages?

A

Advantages that offset the liability of ownership. These advantages can range from market characteristics to cheap labour, etc.

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11
Q

Why do companies set up operations abroad instead of export?

A
  1. Avoid protectionist policy
  2. Transportation costs, considering perishability, breakability and heavy and bulky goods
  3. Direct interaction with the customer: essential with JIT and after sale service
  4. Production and sale inseperable (like hotels)
  5. Marketing assets
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12
Q

What are marketing assets

A

Assets used to acquire important intangible assets like distribution networks and brands.

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13
Q

What is an agglomeration?

A

An agglomeration is a clustering of economic activities in specific areas. Usually with companies in the same industry.

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14
Q

What are the benefits of an agglomeration?

A
  1. Knowledge spillover
  2. Specialized workforce
  3. Specialized buyers and suppliers
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15
Q

What is knowledge spillover?

A

Knowledge diffusion between closely located firms.

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16
Q

What are internalization advantages?

A

advantages that occur when external market relationships are internalized.

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17
Q

What is asset specificity?

A

An asset can only be used in very specific situations. This can help in decision of FDI vs exporting.

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18
Q

Intra-firm trade

A

This is a direct consequence of FDI’s , because this is the trade between the MNE and it’s subsidiaries.

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19
Q

Factors influencing the decision between FDI and licensing

A
  1. FDI gives more management control to reduce knowledge dissemination.
  2. knowledge can be too difficult to transfer (tacit knowledge)
  3. Better control foreign operations
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20
Q

What is tacit knowledge?

A

Tacit knowledge is noncodifiable knowledge that requires practice.

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21
Q

What is outsourcing?

A

The relocation of some operational tasks aborad to deliver the services back to the parent firm, often for siginificantly less money.

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22
Q

Name some of the problems with offshore outsourcing

A

1 .Asset specificity
2.Outsourcing firm may use company knowledge to help competition
3. Monitoring quality and standards is costly and limited.

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23
Q

Name the three types of restrictive institutions

A
  1. Ban on FDI (often in certain sector)
  2. Case-by-case approval
  3. Ownership requirements: some countries require partial ownership of national firms in certain sectors
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24
Q

Name three components of FDI regulation

A
  1. REgulatory institutions of business from country receiving FDI
  2. Trade regulations impacting FDI to favour national economy
    3 Corporate taxation
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25
Q

Name the three debates on FDI

A
  1. Bargaining between MNE and host government
  2. MNE from emerging market
  3. Sovereign wealth fund investment
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26
Q

What is bargaining power

A

ability to negotiate positive outcome

27
Q

What is obsolescing bargain?

A

renegotiation after FDI entry, which is concerning for large investment requiring projects (sunk costs)

28
Q

What is expropriation?

A

confiscation of private assets by public entities.

29
Q

what are the explanations of the rise of MNEs from emerging markets?

A
  1. Different O-advantages than MNEs originating from advanced economies
  2. MNE still in learning phase building their capabilities
  3. acces to big home market
30
Q

What is a sovereign wealth fund?

A

State-owned investment fund of financial assets. This is mostly created by countries with high current account surpluses (trading surplus)

31
Q

What is the integration-responsiveness framework?

A

Framework of MNEs to deal with global integration and local responsiveness

32
Q

What are the four possible strategies in the integration-responsiveness framework?

A
  1. Home replication strategy
  2. Localization strategy
  3. Global standards strategy
  4. Transnational strategy
33
Q

What is global integration?

A

A strategy that emphasizes benefits of aggregating operations on international scale

34
Q

What is local responsiveness?

A

Catering to local consumer demands and institutions

35
Q

What is the home replication strategy?

A

This is a strategy focused on replication of home country-based competence and distribute it globally. Create new operation like home operation. Often at beginning of international expansion.
Local responsiveness and global integration are low.

36
Q

What is the localization strategy?

A

Each foreign market is local and worthy of significant attention and adaptation. Local responsiveness is high while global integration is low.

37
Q

What is the global standards strategy?

A

Development and distribution of standardized products to reach maximum benefits of low-cost-advantages. Often create excellence and has global key accounts.

Local responsiveness low, global integration is high.

38
Q

What is the transnational strategy?

A

Cost-efficient locally responsive and learning-driven strategy around the world. Diffusion of innovation to subsidiaries. Complex structure causes slow decision-making.

Both global integration and local responsiveness are high.

39
Q

What are centers of excellence?

A

Subsidiary of MNE with iportant capabilities to be leveraged by other subsidiaries.

40
Q

What are global key accounts?

A

Customers operating internationally expecting service worldwide in countries they operate in. Global standards strategy well-suited to serve these people.

41
Q

What is a corporate headquarter?

A

Central unit of MNE hosting executives and central staff functions, usually in country of MNE’s origin.

42
Q

What are the four organizational structures of MNEs?

A
  1. International division
  2. Geographic divisions
  3. Global product division
  4. Global matrix
43
Q

What is the international division structure?

A

All activities abroad are bundled in one division. This happens at initial international expansion (home replication strategy)

44
Q

What is the geographic area structure?

A

MNE’s activities are strutured into global regions. This is most appropriate for the localization strategy. This local responsiveness can be a virtue but creates huge regional autonomy.

45
Q

What is a global product structure?

A

PRoduct divisions have global responsibilities for one particular product. Matches well with global standards strategy. This increases efficiencies and reduces duplication.

46
Q

What is a global matrix structure?

A

Sharing of responsibilities between product and region divisions. This slows down decision-making because every employee has two bosses.

This is often matched with the transnational strategy.

47
Q

What is meant with knowledge demand?

A

Processes and systems developing, leveraging and transferring knowledge.

48
Q

What is organizational knowledge?

A

organization’s knowledge going beyond the knowledge of individuals.

49
Q

What is a reverse-knowledge transfer?

A

Subsidiary-created knowledge is shared with parent organization.

50
Q

What is community of practice?

A

Group doing similar work exchanging knowledge about work practices. This is hard in MNEs, therefore there are often virtual communities of practice, which aids innovation that is not necessarily workplace bounded.

51
Q

What is knowledge governance?

A

Structures and mechanisms used for facilitating, creating, sharing, integrating and utlizaing knowledge.

52
Q

What is absorptive capacity?

A

Ability to recognize the value of information and collect and apply it.

53
Q

What is a worldwide/global mandate?

A

responsibility for one MNE function . This often creates centers of excellence that are given more autonomy. This leads to subsidiary initiative.

54
Q

Explain what the VRIO-model is

A

V= Valuable
R=Rare
I=inimitable
O = organized

If the answer to all these questions is yes, than you have a sustainable competitive advantage

55
Q

Name the two debates on organizing and innovating MNEs

A
  1. Top management teams
  2. moving (business unit) headquarters overseas
56
Q

What is the central issue in the debate about top management teams?

A

The main question here is who companies assign the regional management positions. They have three options:
1. National from home country of MNE (Japan)
2.Host country national (European)
3. Third country national (European)

CEO positions have started to become more internationalized.

57
Q

What are the five main considerations in the debate about moving (business unit) HQs overseas?

A

The following considerations need to be made:
1. Does it help us move closer to main markets
2. Is there a clear sinal of the firm’s global nature
3. Is there access to financial markets?
4. Gives indication of dedication to target market
5. reduce tax burdens

58
Q

What are push factors for firms to expand internationally?

A
  1. Access to bigger market
  2. Pressure from investors
  3. High competition in home market
  4. Internationalization of customers
59
Q

What are push factors for firms to expand internationally?

A
  1. Sucess in home market
  2. Attracting new customers
  3. Learning from competitors
60
Q

Which four factors make a country attractive for companies?

A
  1. Resources (human, natural, infrastructure)
  2. Market (size, growth)
  3. Competition (intensity, entry barrier etc.)
  4. Institutions (regulations, tax benefits etc.)
61
Q

What are the four strategic objectives for expansion?

A
  1. Natural resource seeking
  2. Market seeking
  3. Efficiency enhancing
  4. capability enhancing
62
Q

What are the expansion methods?

A

Non-equity:
1. Licensing
2. Exporting
3. Franchising

Equity:
1. Joint ventures
2. Acquisitions
3. Greenfield operations

63
Q

What are greenfield operations?

A

A subsidiary of the firm builds up an operation from scratch

64
Q

What is international coordination and which methods to do so are there?

A

International coordination is aligning tasks and activities across countries. It can be done either through:
1. Mutual adjustment (horizontal)
2. Direct supervision (vertical)

Intro to business (11 decks)

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