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International Business > Week 6 > Flashcards

Week 6 Flashcards

1
Q

What was the dominant pattern of the global factory up until the 1990s?

A

Unified ownership with centralised organisation and control by one firm

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2
Q

What is the new shift in the global factory trend?

A

Shifting towards a growth in arms’-length coordination between firms.

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3
Q

What is eroding these “traditional” corporate structures?

A

Trade and transaction costs have fallen which is making inter-firm collaboration more viable.

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4
Q

If a firm has lots of arms length contracts instead, what is its main role?

A

Its main role is now orchestrating (supervising/coordinating) its fragmented supply chain. (Fever-Tree)

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5
Q

What are the implications for SMEs of the evolving global factory?

A

MORE OPPORTUNITY. They could very likely be contracted

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6
Q

What are the benefits for MNEs using arms length fragmented supply chains?

A

They can focus on high value activities and areas of competitive advantage. Delinking reduces capital tied up thus increasing profitability and returns

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7
Q

Give a rough definition of the global value chain

A

Complex vertical sequence of linked production processes that combine to deliver a finished good or service

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8
Q

Why might firms cooperate as a long term strategy?

A
  • Global expansion strategy
  • Reduce R&D, marketing, distribution costs
  • Capability seeking
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9
Q

What are X-Coalitions?

A

Horizontal alliances where each firm performs specialist activities at one or more stages in value chain. Each firm provides O and/or L advantages

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10
Q

What is the most common type of X coalition?

A

Joint ventures

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11
Q

What are the principal objectives of joint ventures?

A

Resource or capability seeking

Idea is to create an otherwise unavailable combination of specialist skills and knowledge

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12
Q

What are some characteristics of a joint venture?

A
  • Separate legal entity
  • Shared decision making
  • Shared investment
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13
Q

What are the costs/risks of joint ventures?

A
  • Conflicting managerial structure
  • Incompatible objectives
  • Opportunistic behaviour
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14
Q

What is a Y coalition?

A

A vertical alliance where many, if not all, activities of value chain are undertaken by each firm in the alliance.

STRATEGIC BUSINESS ALLIANCE

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15
Q

SBAs generally occur between…

A

major global competitors.

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16
Q

What is the primary objective of a strategic business alliance?

A

To reduce fixed costs in R&D, manufacturing, logistics and distribution by delivering greater scale economies

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17
Q

Why are SBAs important in technology-intensive industries?

A

Because the costs associated with R&D in tech intensive industries are very high so pooling resources is smart.

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18
Q

Give another advantage of SBAs relating to advantage sharing.

A

They can improve production and managerial efficiency by pooling together know how and O advantages

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19
Q

Why are SBAs becoming more popular?

A
  • Rising R&D costs means firms need to consolidate their efforts
  • Firms are increasingly specialised in R&D so joining forces is good
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20
Q

Are SBAs good for competition?

A

There are of course competition concerns with SBAs relating to collusion.

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21
Q

What are some costs and risks of SBAs?

A
  • Mutual dependence
  • Coordination
  • Incompatible objectives
  • Unequal commitment
22
Q

What are OEMs?

A

Own-equipment manufacturer

Contracts for outsourcing production at arms length with independent suppliers. The MNE transfers O advantages so the contractor ONLY supplies this one MNE

23
Q

What are OBMs?

A

Own-brand manufacturers

Contracting out production and supplying several MNEs.

24
Q

Using OEM and OBM allows MNEs to..

A
  • Reduced their capital tied up
  • Reduce their investment
    -Reduce variable and fixed costs

MNEs can focus on increasing the sources of their competitive advantage

25
Q

What are ODMs?

A

Own-design manufacturers.

Advanced form of OBM. They do R&D and so MNEs get access to these outputs

26
Q

What is a fractal factory?

A
  • All production takes place on one site
  • Significant benefits to having all suppliers on site to solve problems
27
Q

What is out-sourcing?

A

The contracting out all or part on a productive/organisational activity to a third party supplier

28
Q

What is FDI (offshoring)?

A

The cross-border relocation and distribution of production/organisational activities previously undertaken in home country.

29
Q

Why might a firm choose to outsource?

A

-Someone else can do it cheaper/better than you!

30
Q

Why might outsourcing be better/cheaper?

A

-Potentially hold “O” advantages
-The amount of finance tied up in these activities mightn’t be worth it.

31
Q

What does Ronald Coase suggest might put a firm off of outsourcing?

A

High transaction costs. Searching and negotiating costs.

32
Q

What are Williamson’s 3 elements for outsourcing?

A

Bounded rationality
Opportunism
Asset specificity

33
Q

What is bounded rationality?

A

The idea that you cannot account for all outcomes/eventualities in a contract so it cannot be water-tight.

34
Q

What is opportunism?

A

The idea that agents will try and game the system. You cannot rely on good will

35
Q

What is asset specificity?

A

Relationship specific investment has no other uses. Changes bargaining power

36
Q

What happens is you have bounded rationality and opportunism?

A

You are FUCKED

37
Q

What are Barthélmy’s five deadly outsourcing sins?

A

-outsourcing activities that shouldn’t be outsourced
-choosing wrong vendor
-writing a poor contract
-overlooking personnel issues
-losing control of activity

38
Q

What is another critical issue with outsourcing?

A

You might lose tacit knowledge. You’ll lose your employees with that unreachable experience.

39
Q

What are the objectives of FDI?

A

Behrmans:

Market
Resource
Efficiency
Strategic asset

40
Q

Why would firms choose to transfer some of their activities abroad whether in-house or at arms’-length? (FDI)

A
  • Cost savings from IDL
41
Q

What should firms consider if engaging in FDI?

A

Risk implications
Can you coordinate effectively?
How to enter?

42
Q

What are the dimensions we look at in terms of the home-country effects of FDI?

A
  • Impact in trade (BoP)
  • Impact on domestic labour market
43
Q

What are the general findings on the impact of outward FDI on home country exports?

A

Complementarity

44
Q

How do outward vertical and horizontal FDI differ on their impact on home country trade?

A

Horizontal FDI could lead to a substitute live relationship with trade (fewer exports)

Vertical FDI could lead increased exports

Could depend on manufacturing/services

45
Q

What factors determine the magnitude of substitutability/complementarity for FDI and trade.

A
  • Type of FDI (vertical/horizontal)
  • Manufacturing vs services?
  • Trade policy
46
Q

Generally, what is the impact of FDI on home-country employment?

A

Most studies find that domestic and foreign employment are complements and so outsourcing/off-shoring leads to a positive impact on domestic employment.

47
Q

What happens if foreign and domestic labour are substitutes and you engage in FDI?

A

Lower foreign wages leads to an increase in foreign employment and a reduction at home. This is more likely if FDI is horizontal.

48
Q

How does FDI actually improve employment in the home country?

A

Well, given home and foreign labour are complements, as you offshore low-value activities, firm will become more profitable and expand. The increases the availability of higher-value jobs at home and therefore employment increases through changing skill composition.

49
Q

How does outward FDI impact skilled vs unskilled labour at home differently?

A

High skilled workers gain as unskilled activities are transferred abroad. This increases demand for skilled labour.

For unskilled workers, demand for their services falls

50
Q

How does outward FDI affect home labour productivity?

A

By offshoring low-skilled jobs, we increase the skill intensity of domestic production and therefore we raise productivity and wages.

51
Q

How does labour market flexibility affect the impact of FDI?

A

In flexible labour markets, demand for skilled labour increases and people move to these jobs.

Less flexible labour markets experience

International Business (8 decks)

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