International Business CH15,16,17,18,&20. UCF Resch

FDI
Foreign direct investment: Strategy in which the firm establishes a physical presence abroad by acquiring productive assets such as capital, technology, labor, land, plant, and equipment.
Consortium
Consortium: project-based, usually non-equity venture with multiple partners fulfilling a large-scale project. E.g., commercial aircraft manufacturing (Boeing and Airbus) or the construction of a new airport in Shanghai.
Cross-Licensing Agreement
Cross-licensing agreement: type of a project-based, non-equity venture where partners agree to access licensed technology developed by the other on preferential terms.
• E.g. Microsoft entered into a cross-licensing agreement with Japan’s JVC so share patented knowledge on software development.
Joint Venture
A form of collaboration between two or more firms to create a jointly-owned enterprise.
Market Seeking Motives
• Gain access to new markets or opportunities
• Follow key customers
• Compete with key rivals in their own markets
Asset Seeking Motives
• Access raw materials
• Gain access to knowledge or other assets
• Access technological and managerial know-
how available in a key market
Efficiency Seeking Motives
• Reduce sourcing and production costs
• Locate production near customers
• Take advantage of government incentives
• Avoid trade barriers
Greenfield Investment
The firm invests to build a new manufacturing, marketing, or administrative facility, as opposed to acquiring existing facilities. (Starting from scratch).
Acquisition
Direct investment or purchase of an existing company or facility.
Licensing
An arrangement in which the owner of intellectual property grants another firm the right to use that property for a specified period of time in exchange for royalties or other compensation.
Purpose of Intellectual Property Rights
Provide inventors with a monopoly advantage for a specified period of time, so they can exploit their inventions and create commercial advantage.
Responsibility of the Licencor
To provide intellectual property (patent, trademark, design, copyright, or know-how), and supporting goods (parts, components, raw materials, etc).
Responsibility of the Licencee
Compensate the licencor through a combination of a lump sum payment, down-payment plus royalty, products, know-how, and cross licensing.
Advantages for the Licencor
•Low investment
•Low involvement
•Low effort, once established
•Low-cost initial entry strategy
Disadvantages for the Licencor
•Performance depends on the foreign licensee
•Licensor has limited control over its asset(s) abroad
•Runs the risk of creating a future competitor
Franchising
Arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties, or other compensation.
Franchiser Provides:
A trademark-protected business concept plus everything needed for its implementation (patents, know-how, training, services, products).
Franchisee Provides:
A combination of a lump sum payment, down payment plus royalty, and other mark ups and contributions.
Master-franchising Agreement
An independent company authorized to establish, develop, and manage the entire franchising network in its market. E.g., McDonald’s in Japan.
Turn-key Contracting
Arrangement where a firm plans, finances, organizes, manages, and implements all phases of a project abroad and hands it over to a foreign country after training local personnel. Typical in the construction and engineering services industries.
Management Contracting
A contractor supplies managerial know-how to operate a hotel, resort, airport, hospital, or other facility in exchange for compensation
Examples of Intellectual Property
Technical assistance, know-how, and trademarks. (Secret recipes, comic book characters such as spider man, logos).
Global Sourcing
Procurement of products or services from suppliers located abroad for consumption in the home country or a third country.
Drivers of Global Sourcing
1.Technological advances in communications, especially the Internet and international telephony
2.Falling costs of international business
3.Entrepreneurship and rapid economic transformation in emerging market countries
Captive Sourcing
Sourcing from the firm’s own production facilities located abroad.
Contract Manufacturing
Arrangement in which the focal firm contracts with an independent supplier to manufacture goods according to well-defined specifications. E.g., Nike, IKEA.
Offshoring
The relocation of a business process or entire manufacturing facility to a foreign country.
What types of activities in a firm are more/less likely to be outsourced?
More likely: service sector, including banking, software writing, legal services, and customer service activities.
Why Companies Outsource
Lower wages and cost of products. To improve productivity. More qualified personnel.
In international business, what is marketing concerned with?
Marketing is concerned with identifying, measuring and pursuing customers needs and market opportunities abroad.
Purpose of a Global Marketing Strategy
The plan of action the firm develops for foreign markets that guides its decision making on:
1. How to position itself and its offering
2. Which customer segments to target
3. To what degree it should standardize
or adapt its marketing program elements.
Segmentation
The process of dividing the firm’s total customer base into homogeneous clusters (subgroups) that allows management to formulate unique marketing strategies for each group.
Characteristics of a global market segment
Income level, lifestyle, demographic profile, or desired product benefits.
Adaptation
Modifying elements of the marketing program (e.g. product, advertising, pricing, distribution) to accommodate specific customer requirements in individual foreign markets.
Standardization
Efforts to make marketing program elements uniform so as to target entire regions of countries, or even the global marketplace, with a similar product or service. However, targeting the same product everywhere is not usually feasible.
Global Brand
A huge brand that can:
•Increase the effectiveness of marketing programs
•Facilitate the ability to charge premium prices
•Increase the firm’s leverage with re-sellers;
•Stimulate brand loyalty
•Inspire trust and confidence in the product.
Brand Equity
The commercial value that derives from consumer perception of the brand name of a particular product or service, rather than from the product or service itself. – (Google’s Definition).
International Price Escalation
•Refers to the problem of end-user prices reaching high levels in the export market.
•It is caused by multi-layered distribution channels, intermediary margins, tariffs, and other added costs associated with the foreign market.
•May result in an excessively high retail price in the target market, creating a competitive disadvantage for the exporter.
International Financial Management
The acquisition and use of funds for cross-border trade, investment, and other commercial activities.
Capital Structure
The mix of long-term equity and debt financing firms use to support their activities.
Equity Financing
Selling stock or reinvesting earnings.
Debt Financing
Obtaining loans (e.g from a bank).
Raising Funds Through Equity and its Advantage
Firm obtains capital from selling shares of stock.
Advantage: The firm obtains capital without incurring debt and having to repay funds to providers.
Raising Funds Through Financing and its Advantage
The firm borrows money from a creditor in exchange for repayment of principal and interest.
Advantage: The firm does not sacrifice any ownership interests.
Raising Funds Through Intra-Corporate Loans and its Advantage
Obtaining funds from within firm’s network of subsidiaries and affiliates.
Advantage: Minimizes transaction costs of borrowing from banks and avoids the ownership-diluting effects of equity financing.
Bond
A debt instrument that enables the issuer (borrower) to raise capital by promising to repay the principal along with the interest on a specified date (maturity).
Purpose of Cash Flow Management
Manage funds passing in and out of the firm’s
value-adding activities. Ensures cash is available where and when it is needed.
Transfer Pricing
(also known as intra-corporate pricing) refers to prices that subsidiaries and affiliates charge one another as they transfer goods and services within the same MNE.
Trade Credit
A subsidiary defers payment for goods received from the parent firm (30-day, 90-day etc.)
What do managers use capital budgeting for?
Managers use capital budgeting to decide which international projects are economically desirable.
Why are capital budgeting decisions for international firms a complicated matter?
Internationally, such decisions are complex because managers must consider many variables, each of which can strongly affect the potential profitability of a venture.
•These variables include: Differences in currencies, tax rules, government intervention, country risk, inflation etc.
Currency Risk
Concerns exchange rate fluctuations that harm business profits.
Transaction Exposure
Currency risk that firms face when outstanding accounts receivable or payable are denominated in foreign currencies.
Translation Exposure
Currency risk that results when a firm translates financial statements denominated in a foreign currency into the functional currency of the parent firm.
Economic Exposure
Currency risk that results from exchange rate fluctuations affecting the pricing of products, the cost of inputs, and the value of foreign investments.
Hedging
Refers to efforts to compensate for a
possible loss from a bet or investment by making offsetting bets or investments.
Tax Havens
Are countries hospitable to business and inward investment because of their low corporate income taxes.
•Bahamas, Luxembourg, Monaco, Singapore, and Switzerland are examples.
Corruption
The abuse of power to achieve illegitimate personal gain.
Where in the world do you have low or high levels of corruption?
Low: Denmark, Singapore, Australia, Canada.
High: Somalia, Iraq, Venezuela, Russia.
Corporate Governance
The system of procedures and processes by which corporations are managed, directed, and controlled. It provides the means through which firms undertake ethical behaviors, CSR, and sustainability
U.S. Foreign Corrupt Practices Act
Permits the U.S. government to persecute any company or individuals for paying bribes or engaging in corruption anywhere in the world, as long as the company or person has a certain degree of connection (e.g. a Spanish company, with a subsidiary in the U.S.) to the U.S.
Ethics
Moral principles and values that govern the behavior of people, firms, and governments, regarding right and wrong.
Counterfeiting
Making replicas of branded products.
Normatist
Belief that ethical behavioral standards are universal, and firms and individuals should seek to uphold them consistently around the world.
Relativist
Belief that ethical truths are not
absolute but differ from group to group. According to this perspective, a good rule is “when in Rome,
do as the Romans do.”
Code of Conduct
A set of rules outlining the social norms and rules and responsibilities of, or proper practices for, an individual, party or organization.
Sustainability
Meeting humanity’s needs without harming future generations. 3 Types of interest:
Economic (Wages, and location)
Social (Avoid child labor and sweatshops)
Environmental.