1 - Introduction to FDI Flashcards
Name 6 Entry modes in International Business according the Uppsala Model
1) Exporting/Importing
2) Licensing
3) Franchising
4) Strategi Alliance
5) Joint Venture (FDI)
6) Wholly-owned subsidiary (FDI)
how to MNC internalize their activities according the Classical internalization theory?
what benefit do firms have from step-by-step interalization?
MNC need to:
1) engange in phsical networking, trustbuilding, knowledge creation and relationship development
2) invest in transaction costs and adapt products and servies to local markets
3) experimental learning
Internalization allows firms to avoid uncertainties
associated with imperfect external markets by exercising direct control over foreign activities
Define FDI
investment in the form of controlling ownership in a business by an entitiy based in another country
what benefits could arrive from FDI? what critics?
create jobs, increase domestic capital
vs critics: creates dependencies+profit leaves the country to the foreign company
(but through taxes money will stay and also
the company probably reinvest the money)
Name 4 different FDI Investment Types and briefly explain them
1) horizontal FDI: firm duplicates its home country based activities at the same value chain stage in a host country
2) platform FDI: FDI from a source country into a destination country for the purpose of exportig to a thrid country (e.g. car manufactoring in Mexico)
3) vertical FDI: when a firm moves upstream or downstream in different value chains
4) conglomerate FDI: investment in a completely different company in a completely different industry -> FDI not directly related to the investor’s business
Name the 5 levels of Economic Integration and what they include
1) free trade:reduction of tariffs between members
2) customs union:common external tariffs
3) common market: free movement of capital and services
4) economic union: free movement of labor & common monetary & fiscal policy (EU partial)
5) Political Union: common government
Define FTA (free trade agreement)
agreement to form a free-trade area between the cooperating states. you distinguish between bilateral (2 parties) and multilateral (3+ parties)
-> agreement to loose trade restrictions
to expand business opportunities
which factor is FDI affecting?
7 factors
1) political stability
2) access to free trade areas
3) wage rates
4) tax rates
5) size of local market
6) transport and infrastructure
7) commodities
Name even more possible advantages deriving from FDI
1)increased savings and incomes
2)increased education & training
3) increased research, development, technology
4) improved infrastructure
5) lower prices in market place
6) provides financing to developing countries
name 5 more disadvantages
- conflicts of laws
- effects on natural environment
- loss of control -> investors may have less moral attachment
- effect on local culture -> unethical access to local markets
- crowding of local industry
define frontier market
developing country with less liquid financial markets and less mature economies compared to emerging markets; often characterized by higher potential returns and greater risks for investors
name 2 “mainstream” emerging markets
Kenya, Vietnam
give an example of a frontier market and explain why
Estonia - small country with high development level but too small to be considered as emerging market
define emerging market
give 3 example
a nation with a rapidly growing economy and improving financial markets; characterized by increasing industrialization, rising incomes, and investment opportunities, yet still facing certain economic vulnerabilities
Brazil, Chile, Peru, Poland, Thailand, Turkey, Qatar, Saudi Arabia
Name 4 reasons for MNC to invest in developing countries
1) huge markets (Brazil, China, India)
2) rich in natural ressources
3) low cost of labor
4) fewer governmental regulations
what is special about MNC strategy in emerging markets?
some firm strategy focus more on firm’s external environment (industry, market or institutional environments), others more on the characteristics of the firm (resources, capabilities, so inside-out-perspective)
which are the 4 types of international strategies
international, global, multi-domestic, transnational
pls repeat the table at page 30 with the variuos aspects
how might the nature of emerging markets affect the market strategy and marketing mix
- EM show high growth rates and are lucrative markets compared to the relatively stagnant markts in developed countries
- market structure often different (like competition intensity and regulatroy framework)
- EM often lack segmentation -> MNC able to build brand loyality for low costs
- labor costs are relatively low
how can MNCs disintegrate their value chains
2
1) equity based offshoring -> movement of production to subsidiary
2) offshore outsourcing -> outsourcing to a local provider
the nature of institutions
governments have a relatively strong handy in the economy of EM-> specific pre-investment for FDI
+ also strong informal networks with non-transparent barriers to entry for MNCs
what are the dangers of institutions
tend to change rapidly and in unprecedented ways depending on where in the transforming process they are
what could be another challenging factor of FDI
1) Ethic related bc FDI often embark/initiate on aggressive strategies to become first mover
2) MNCs encroaching EM with little considerations of the realistic payoffs
- market might not be ready
- costs of developingthe market could be too high
- local industries might incapable of meeting the MNC’s requirements in terms of quality
considering the nature of competition
MNC may profit from letting their competitiors carry the costs of market and resource development and only move when market and resource base is ripe
