C.1 Expanding Abroad Flashcards
Why do nations trade?
- Creation of value
- Benefits for exporter (higher prices, increased volume, lower cost per unit)
- Benefits for importer (lower prices, greater variety and increased quality, diversification of supply)
What is an MNE?
Multinational Enterprise - Must have substantial direct investment in foreign countries and actively manage and regard those ops as integral parts of the company - strategically and organizationally
Characteristics of an MNE
- Substantial direct foreign investment (not just trading relationships)
- Active coordinated management of these offshore assets
- Strategic and organizational integration of foreign operations
Motivations to Internationalize - Traditional
Traditional:
- Market seeking: exploit comp adv and economies of scale
- Resource seeking: secure key supplies, exploit cost differences (eg low cost factors of production)
Motivations to Internationalize - Emerging
Emerging:
- Industry Internationalization forces: scale economies, R&D investments, shortening product life cycles
- Global scanning and learning capabilities: access emerging trends, new techs, and best skills worldwide
- Competitive positioning: use global ops to preempt others, cross subsidize markets
Means of Internationalization
Foreign market entry mode:
- Exporting
- Licensing
- Franchising
- Joint Ventures
- Subsidiaries
Entry mode: export
Def/adv/disadv
Def: Importing agent typically
Adv: control over production and quality, least risk, exp/imp agents might have better knowledge on consumers
Disadv: Lose control over product presentment, you don’t learn from consumers bc you’re not close to them
Entry mode: Licensing
Def/adv/disadv
Def: License out a tech or brand name
Adv: Still low investment because you just need a partner to build the production facility in the foreign country; the licencing partner can have better market knowledge
Disadv: Lose control over quality; risk that you create your own competitor; not learning from consumer
Entry mode: Franchising
Def/adv/disadv
Def: Franchise out whole management concept with brand
Adv: They have an easier time to access info about consumers
Disadv: Larger investment means larger risk
Entry mode: Joint Venture
Def/adv/disadv
Def: A new entity with two or more parents owning shares in the entity
Adv: Access to another companies resources; share risk
Disadv: Bigger risk with larger investment; conflict potential from different companies joining together especially if from different countries
Entry mode: Foreign subsidiary
Def/adv/disadv
Def: 100% owned subsidiary - highest commitment. Can be an acquisition or completely new entity
Adv: The highest capacity to learn from the market
Disadv: Highest risk; time consuming, large investment; hard to divest
When should a firm choose which entry mode?
Management preferences
Mentalities and Strategic Approaches to Internationalization (list the types - no def)
- International
- Multinational
- Global
- Transnational
Strategic approach to Internationalization: International
- Products developed for domestic market and sold after internationally - resources are transferred from parent to foreign ops
- International ops as distant outposts that support domestic parent company
- Firm regards itself as domestic with foreign appendages
Strategic approach to Internationalization: Multinational
- Company overseas markets as portfolio of local opportunities
- Local adaptions to products and strategies
- Considerable independence of subsidiaries from HQ
