Term
| Why do companies go international? |
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Definition
1. Market seeking
2. Resource seeking
3. Efficiency seeking
4. Strategic reasons |
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Term
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Definition
| known as either “foreign direct investment” or “portfolio investment”. The main objective is to gain control over the business, and their secondary objective is profit. These are long term investments. Ownership stake must be equal to or greater than 10%. At 10%, you are allowed to keep a board of directors. |
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Term
| Types of partners in foreign direct investment |
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Definition
JV with another foreign partner
Wholly owned subsidiary
JV with local government
JV with local corporation
JV with local citizen
Operations with local public as equity partners |
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Term
| Ownership arrangement in foreign direct investment |
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Definition
100% ownership
Majority ownership in JV
Equal ownership in JV
Minority ownership in JV |
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Term
| Scale of Operations in foreign direct investment |
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Definition
1) Sales Office/Department
2) Warehouse
3) Assembly Line
4) Production of parts |
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Term
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Definition
| primary objective is profit, they do not want to control the business. These are short term investments. Ownership stake is less than 10% |
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Term
| Stages model of internationalization |
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Definition
1. Ad hoc orders to export (accidental exporting)
2. Actively search for export orders
3. Sales office
4. Warehouse
5. Local Production |
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Term
| Who usually is the one to initiate international trade, and why? |
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Definition
| The importer, rather than the exporter, is usually the one who is looking to start international trade. They are looking for suppliers at a cheaper price and generally come from well-off countries. |
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Term
| What does expatriate's satisfaction in foreign developing countries depend on |
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Definition
1. How will my family adjust
2. opportunity for spouse
3. education for children
4. safety and security for myself and family
5. opportunities and future growth |
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Term
| What are the roles of a GM? |
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Definition
1) Interpersonal roles:
Leader
Figurehead
Liaison
2. Informational Roles:
Monitor
Disseminator
Spokesperson
3. Decision maker
innovator |
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Term
| In business, 3 major factors we take for granted at home in our own country are: |
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Definition
1. Laws
2. Government
3. Culture |
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Term
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Definition
1. People and lots of them.
2. Ability (money)
3. Needs and wants |
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Term
| Population in the world characteristics |
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Definition
• Growth is negative in developed countries
• Very high growth in poor countries
• China will be the only country to get old before they get rich |
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Term
| Results of emerging middle class in India, China, Mexico, etc. |
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Definition
Income distribution disparity
Urban poverty
The dream of rural utopia |
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Term
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Definition
1. Bad counting
2. Subsistence farming: barter and household work, not even counted
3. Not a part of the statistical economy, tax evasion or black economy |
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Term
| How to measure the size of the economy |
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Definition
1. Absolute dollar amount
a) Chinese economy is about 10 trillion dollars
b) U.S. is about 14 trillion
2. Purchasing power of the money (Purchasing Power Parity)
a) Chinese economy is about 14.2 trillion vs. US is 14 trillion |
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Term
| 8 Trends in foreign trade |
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Definition
1. International trade is distributed unevenly throughout the world
2. Difference in the absolute size of trade
3. Difference in importance of trade
4. Trade in manufactured goods is fastest growing
5. National economies of developed countries are moving towards service industry
6. Trade is becoming multilateral (except Canada)
7. Composition of trade is changing
8. ¾ of foreign direct investment is directed towards us: Europe, Japan and China |
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Term
| International Trade: why is it good? |
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Definition
| improves the welfare of producers because it increases demand, which increases prices. It also improves the welfare of consumers because increase in imports increases supply, which lowers prices. |
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Term
| There is risk in doing business internationally. (Name 3) |
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Definition
• Foreign exchange rate change risk
• Legal risks (geopolitical risk)
• Agency risk (having to put trust in someone else to do business on your behalf) is more pronounced in international organizations than in domestic organizations. Agency risk is having a manager who may not do what is in the best interest of the shareholders of the company |
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Term
| Macro-Economic Factors in doing business internationally |
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Definition
| Trade is good but free trade pushes for specialization, thus realigning industries in different countries and causing a major upheaval in the society. For example, garment manufacturing used to be a thriving business in Winnipeg, and now it is dead. |
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Term
| Traditional Theories of International Trade (5 of them) |
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Definition
1. Trade improves the welfare of the factors used most intensively
2. Welfare of producers improves in exporting sector relative to producers in importing sector, due to economies of scale, reduced costs, increased demand.
3. Welfare of consumers will improve for products from any import-oriented industry
4. Exports are biased towards resource abundance, so they’ll want to export whatever is produced most in their home location.
5. Trade brings about equalization of incomes, interest rates and rents among all countries - in the long run |
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Term
| New Theories of International Trade (3 of them) |
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Definition
1. Old theories are for homogeneous products. Today we have branding and product differentiation (But note the weak position of unbranded commodities such as oil, gas, wheat, copper, sugar, coffee, bananas).
2. Importance of clustering (agglomeration) - coming together of groups of industries which are mutually supportive, e.g. Silicon Valley (IT Industry) (Sometimes fostered by the coming together of critical resources). Points up the importance of externalities - things outside the firm but which affect the company’s balance sheet
3. Modern determinants of success are not costs or factors of production but design, quality, marketing skills. Exchange rate is almost a non-factor for long-term relationships. The focus is on supply chain, marketing, production, R&D. |
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Term
| Improved exchange rate of Canadian dollar and its impact on certain factors (8 items) |
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Definition
1. Exports will decrease because foreign countries aren’t able to buy as much because their money isn’t worth as much when compared to the Canadian dollar.
2. Imports will increase because Canada can afford to buy more with its dollar.
3. Tourism outbound will decrease because it’s more expensive to travel through and buy things in Canada.
4. Tourism outbound will increase because Canadians have “stronger” money to spend in other countries.
5. Productivity of Canadian companies will improve because they have only two options: either to improve productivity to compete with cheap imported products, or die!
6. Inflation will slow down because the stronger Canadian dollar can buy more things. If companies are doing better, they produce more, and their prices go down a bit, so they don’t need to raise prices.
7. Labour relations in Canada will become worse, as we have to be more productive. So we lay off employees or go bankrupt, resulting in more jobs lost.
8. Natural resources found in Canada vs. exchange rate: Canadian dollar will become stronger (we want Canadian dollars, so we’ll have lots of foreign currency to sell) |
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Term
| Generic Exporting Strategies (3) |
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Definition
1. Export one standardized product to all markets (ex: Japan TVs) Benefit: Economies of Scale
2. Introduce product to home market, then begin to export as home market matures (ex: many US Products). *Note how this fuels criticism of LDC’s of dumping obsolete technology onto them! WORST POSSIBLE STRATEGY. ex: Fiat in India and VW in China
3. Customize product for each export market (typical of many European exporters). More popular with multi-national enterprises. (ex: Heinz company) |
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Term
| Segmentation of Markets (10) |
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Definition
1. Product quality, features, and price mix to be managed for different markets
2. Income
3. Demographics
4. Geography
5. Weather
6. Natural Resources
7. Use of Product
8. Lifestyle of consumer
9. Consumer product vs. Industrial product
10. Knowledge |
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Term
| Costs Associated with Exporting (7) |
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Definition
1. Transportation and Logistics
2. Tariffs or duties
3. Exchange rate transaction costs or exchange rate hedging cost
4. Additional Manpower
5. Commissions
6. Distribution Costs
7. Insurance Costs |
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Term
| Hiring of an Agent and why it's a good idea |
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Definition
It’s a good idea to hire an agent because:
• They know the market
• They know the government (and have contacts)
• They have access to distribution channels
• They can invest some capital
• They might have knowledge of production capabilities
• They may have knowledge of operations in multiple markets |
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Term
| Countertrade (definition) |
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Definition
| various devices and techniques to get around payment or currency problems, or as an instrument to force local investment and economic development |
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Term
| Methods of Countertrade (7) |
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Definition
1. Barter
2. Counter purchase or re-investment - often significant in the purchase of military equipment
3. Contract to purchase part or all of output
4. Production sharing - e.g in mining or petroleum production- take payment by receiving a share of physical output - assume risk of price volatility in commodity markets
5. Industrial offset - requirement for some portion of final product to be produced or assembled locally
6. Switching - like the above - but involves balancing benefits over three or more countries (C owes A, A owes B, so C pays B. Everybody happy.)
7. Unblocking funds for approved purposes - gives government control over use of foreign exchange |
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Term
| Typical Steps in Export/Import Transaction (13) |
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Definition
1. Importer orders goods
2. Exporter agrees to fill the order
3. Importer goes to its own bank (Bank i) and opens a letter of credit (LC)
4. Bank i sends the LC to Bank x (exporter’s bank)
5. Bank x tells the exporter about the arrival of LC
6. Exporter ships the order and presents the documents to Bank x (bill of lading, insurance papers, and draft)
7. Bank x presents the documents to Bank i
8. Bank i checks the documents and accepts the draft and sends it back to Bank x with a promise to pay in 60 days.
9. Bank x can now sit on the draft or sell it to an investor
10. Bank x sells draft to investor, takes its cut, and makes its payment to exporter
11. Bank i releases shipment to importer
12. Importer pays to Bank i
13. Bank i pays to investorMisc. |
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Term
| What do sourcing and marketing have in common? |
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Definition
| In both of these functions, an organization is mostly forced to work with outside companies. Large opportunities of joint skill development might exist and thus these activities should be considered a part of the same pipeline. |
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Term
| Trends in Sourcing Strategy |
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Definition
1. Importance of exchange rate is reducing
2. Importance of long term supply relationships is increasing (Toyota)
3. Communication is cheaper and better
4. Transportation has become a lot cheaper (thanks to GPS and containerization - can be loaded onto a plane, ship, train, or truck and they are all standardized in size).
5. Multiplicity of sources (Nike)
6. Enhanced role of purchase manager - huge opportunities for cost reductions! More so than in marketing or finance or anything.
7. Trends in global manufacturing
Old system: produce at home, sell everywhere possible
New system: Produce everywhere (China), sell everywhere.
8. Growing management skills in international sourcing |
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Term
| Major Links in a Value Chain |
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Definition
| Design --> Procurement --> Manufacturing --> Distribution --> Customer Service |
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Term
| Product Life Cycle Stages |
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Definition
1. Introduction
2. Growth
3. Maturity
4. Decline |
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Term
| Conflict between R&D, Marketing, and Manufacturing |
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Definition
R&D: Source of ideas. In a research dominated company the researcher will want to make a highly complicated (thus difficult to produce cheaply) and perfect (thus causing delay in launching) product.
Marketing: source of markets and sales, also customer feedback. In a marketing dominated company, they will want to go for mass customization which might increase cost.
Manufacturing: source of products. In a production dominated company, the manager might encourage very high level of to the annoyance and dissatisfaction of customers. |
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Term
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Definition
a strategy of technology transfer. It is a contract between licensee (buyer) and licensor (seller) whereby the licensee has the right to use certain things that belong to licensor:
1. Trademarks
2. Patents
3. Designs
4. Intellectual Property
5. Processes
6. Technology
7. Know-how |
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Term
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Definition
It is a special form of licensing whereby the licensor licenses out the whole business model to the licensee. The licensor has control over:
1. Product design
2. Marketing
3. Pricing
4. Standards of Service
5. Quality and consistency
6. Packaging
7. Production process
8. Accounting practices
9. Store design
10. Procurement |
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Term
| Reasons for licensing (for licensor) |
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Definition
1. Cheap way to enter a new market (they lack capital)
2. Lack of management depth
3. Lack of market knowledge
4. Local market might be too small
5. A way to test the market
6. Avoid restrictions on FDI (Foreign Direct Investment), on imports
7. Risk of nationalization
8. Milking obsolete technology
9. Get revenues from a peripheral technology |
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Term
| Multinationals are not big on licensing, except for in specific circumstances: |
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Definition
1. They want to be come industry standard (ex: blu-ray, MS DOS, Windows, Linux, Android, etc)
2. When a monopoly exists they will be sued by the government of the country in which it exists under the monopolistic restrictive trade practices act. (In this case the company will file appeals after appeals to exhaust the whole process to delay the final verdict, eventually they’ll lose after like 10 years and have to license their core technology)
3. Too small to do it on their own! Survival. They can’t compete in the marketplace. Ex: Dolby sound filtering system. |
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Term
| Cautions and Concerns for Licensor |
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Definition
1. How much to charge for maximizing profitability?
2. Will the licensee steal my technology and become a competitor?
3. Control the terms of agreement! (quality, brand image)
4. Feedback from Licensee
5. Feedback from the customer
6. What if the licensee improves the technology?
7. Sub-licensing
8. Where licensee can sell the product |
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Term
| Reasons for Licensing (for licensee) |
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Definition
1. Existing proven technology/brand/etc. exists (less risk)
2. Cheaper than doing the R&D yourself
3. Easier to manage, marketing, promotion, and procedures are already set
4. Much quicker |
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Term
| Licensing Contract Important Points |
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Definition
1. Hire a lawyer from the other jurisdiction
2. Make sure which language and law is applicable
3. Clause on production, marketing, sub licensing, and technology development
4. Clauses about safeguarding the technology, reputation, etc.
5. Sometimes binding arbitration is better than going to the court of law
6. Finally, trust between parties is more important than an airtight 100 page contract. |
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Term
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Definition
• Bone of contention between US and less developed countries (LDC)
• US wants heavy protection on patents and copyright materials.
• In most cases the LDC says we cannot afford to have these laws! Our citizens are very poor (especially in pharmaceutical category) so their patent laws are either weak or non-existent.
• Even if laws exist and are elaborate, they are not implemented because of rampant corruption. |
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Term
| When patent laws get crazy |
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Definition
• On the other hand, has US gone overboard with their patent laws providing patents for products and services that are considered the property of the people by certain countries (ex: yoga).
• Research in human genome technology: does this mean that in the very near future, some of my body parts will be owned by major corporations? Gene patenting! Absurd!
• So maybe the patent laws are a hinderance to research
• Patents are issued for 17 years (so 17 year s of monopoly) and copyrights are given for the life of the author plus 70 years.
• Patent laws can be good though, it’s a difficult debate. |
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Term
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Definition
| two or more companies have equity partnership. They're the most common mode of internationalization, however 75% of managers aren't happy with their JV results. |
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Term
| 4 Types of Joint Ventures based on the product and markets where they are sold |
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Definition
1. Existing product in existing market (to strengthen existing business)
2. New product in existing market (to bring new (foreign) products into existing market)
3. New product in new market (to diversify into new business)
4. Existing product in new market (to take products into foreign markets) |
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Term
| JV with Existing Product in Existing Market: |
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Definition
| The goal is market penetration or cost reduction, improvement in services etc. Most popular type of JV. Can be done with production, marketing, R&D, or finance. |
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Term
| JV with New Product in Existing Market |
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Definition
1. Improves your product line
2. Improves capacity utilization (economies of scale improves)
3. May bring in foreign exchange (ex: Honda Fit, 100% made in China)
4. May get Tax Credit from the government |
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Term
| JV with Existing Product in New Market |
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Definition
1. Increased market potential leads to higher capacity utilization
2. Increase sales
3. Foreign exchange
4. Tax Breaks |
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Term
| Requirements of Success of a Joint Venture (9) |
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Definition
1. Strategic Logic
Is there a market?
Is the JV best way to go?
Balanced partnership
What are the costs and benefits?
2. Strategic Fit
Goals of you and your partner
Timeline of you and your partner
Measurement of Success
Compatibility with partner (ex: corporate culture and attitude)
Do respective capabilities fill the gap?
3. Shape and design of JV: Especially the case of strategic freedom of joint venture.
4. Payoff needs to be balanced. ex: dividends, royalties, management fees, etc.
5. Management roles and authority must be clearly defined.
6. Hire managers with JV experience.
7. Experienced companies have more laid back attitude to measuring JV success.
8. TRUST AMONG PARTIES
9. Safety and security; good education; chance of socialization; common language; opportunity for spouse to work --> are very important things that expatriate worker/executive will need. |
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