Chapter 9

Question 1

What are exports and Imports? list advantages and disadvantages

Answer 1

usually only option for small and new firms wanting to go international

exports: goods and services sold abroad and sent out of country
imports: goods and services purchased abroad and brought into the country
advantages: minimum investments and min risk, easy access to overseas markets
disadvantages: some countries have rules against dropping an ineffective distributor, strategy is usually transitional in nature

Question 2

What is a Wholly Owned Subsidiary?

Answer 2

A wholly owned subsidiary (WOS): is an overseas operation totally owned and controlled by an MNC; a primary reason for running a WOS is for total control:

disadvantages: a high risk with a large investment in one area, not very efficient with entering multiple countries or markets, host countries worry that the MNC could drive out local enterprises, home country unions sometimes view foreign subsidiaries as an attempt to “export jobs”

Question 3

What are Mergers and Acquisitions?

Answer 3

Mergers and Acquisitions (M&A) are the cross-border purchase or exchange of equity involving two or more companies

advantages: to quickly expand resources, construct high-profit products in a new market, get a foothold in a new geographic market, increase a firm’s global competitiveness, fill gaps in companies’ product lines in a global industry, reduce costs in R&D, production, or distribution
disadvantages: cultural differences, time constraints, transition costs, post-merger is difficult to clearly communicate new goals to subsidiary

Question 4

What is an Alliance?

Answer 4

an alliance is any type of cooperative relationship among different firms (some temp some permanent)

Question 5

What is an International joint venture (IJV)?

Answer 5

an international joint venture (IJV) is an agreement under which two or more partners from different countries own or control a business

Question 6

What are two types of alliances and joint ventures

Answer 6

Nonequity: one group is merely providing a service for another

equity: a financial investment by the MNC partners involved
advantages: improvement of efficiency, access to knowledge, mitigating political factors, overcoming collusion or restriction in competition

Question 7

What is licensing?

Answer 7

an agreement that allows one party to use an industrial property in exchange for payment to the other party-> the party giving the license will allow the other to use a patent, a trademark, or proprietary information in exchange for a fee

Question 8

What are reasons for licensing?

Answer 8

product in mature stage, competition strong, profit margins declining; licensor less expensively enters foreign market; licensee adds a product to its line; the licensor usually is a small firm lacking financial and managerial resources; licensors tend to spend large on R&D–licensees tend to spend little

Question 9

What is franchising?

Answer 9

franchising is an arrangement in which one party (the franchisor) permits another (the franchisee) to operate an enterprise using its trademark, logo, product line, and method of operation in return for a fee
and is widely used in fast-food and hotel/motel industries

the franchisor provides assistance and sometimes the purchase of goods or supplies, requires payment of a fee up front and then a percentage of the revenues.

advantages: minor adjustments for the local market, highly profitable

Question 10

WOS vs IJV

Answer 10

although a company may invest abroad to increase its control in a local market, shared ownership also has advantages:

• companies benefit from better communication with local government officials
• host countries benefit from worker and industry protection and more control over worker training and technology transfers

Question 11

purchase-or-build acquisition vs. Greenfield

Answer 11

The purchase-or-build decision entails deciding whether to purchase an existing business or to build a subsidiary fresh from the ground up

• benefits of purchasing a firm include the existing company’s goodwill in the marketplace, brand recognition, and access to financing
• drawbacks of purchasing existing facilities can include obsolete equipment, poor labor relations, and an unsuitable location
• building a new subsidiary can involve drawbacks such as obtaining the necessary permits, arranging financing and, recruiting local personnel

Question 12

What are the advantages/disadvantages of an Acquisition

Answer 12

advantages: goodwill, brand recognition, and alternative methods of financing such as an exchange of stock ownership
disadvantages: obsolete equipment, poor labor relations, an unsuitable location

Question 13

What are the advantages/disadvantages of a greenfield investment?

Answer 13

(building a subsidiary abroad from the ground up)

advantages: internalization of knowledge, location, control
disadvantages: obtaining the necessary permits and financing, hiring local personnel

Question 14

What is the importance of Production costs?

Answer 14

production costs are important to the FDI decision

• some prominent costs include worker benefits, employee training programs, and burdensome regulations
• lower research and development costs can encourage FDI but these costs can be outweighed by supply factors, such as access to top scientists and technical experts

Question 15

What is the importance of Customer Knowledge?

Answer 15

Knowledge of customer and buyer behavior can be a key issue in the decision of whether to undertake FDI
- a local presence can give companies valuable knowledge of customers that is unobtainable in the home market

Question 16

What is the practice of following clients?

Answer 16

the practice of following clients into markets abroad typically occurs when suppliers of component parts have close working relationships with their customers. FDI puts the supplier nearer their customers where they can better understand and anticipate their needs

Question 17

What is the practice of following rivals?

Answer 17

the practice of following rivals resembles a “follow the leader” scenario and is common in industries with a limited number of large firms. FDI is driven by a belief that not matching rival’s moves can mean losing a “first mover” advantage or being shut out of a lucrative market altogether

Question 18

Define initial division structures and its 3 types

Answer 18

initial division structures is the early stage of internalization and consists of:

• export arrangement: common among manufacturing firms, especially those with technologically advanced products
• subsidiary: common for finance-related business or other operations that require onsite presence form the start
• on-site manufacturing operations: in response to local governments when sales increase, helps to reduce transportation costs

Question 19

Define internal division structure, who uses it, and the advantages/disadvantages

Answer 19

an internal division structure is a structural arrangement that handles all international operations out of a division created for this purpose.

companies with an international division structure: are in development stage, have limited international sales, have limited geographic diversity, have few executives with international expertise

advantages: assures international focus receives top management attention, unified approach to international operations, often adopted by firms still in developmental states of international business operations
disadvantages: separates domestic from international managers; may find it difficult to think and act strategically, or to allocate resources on a global basis

Question 20

what are the 3 types of global structures?

Answer 20

1. Global product division
2. global area division
3. global functional division

Question 21

define global product division and its pros/cons

Answer 21

a global product division is a structural arrangement in which domestic divisions are give worldwide responsibility for product groups

pros: global product divisions operate as profit centers, provides a direct line of communication from customer, helps R&D to work on development of products that serve the world customer, permits managers to gain expertise in technical and marketing aspects of products
cons: duplication of facilities and staff personnel within divisions, division manager may pursue currently attractive geographic prospects and neglect others with long-term potential, division managers may spend too much time tapping local rather than international markets

Question 22

define global area division and provide the pros and cons

Answer 22

global area division is the structure under which global operations is organized on geographic basis rather than product basis

pros: international operations put on same level as domestic operations, global division managers are responsible for all business operations in designated geographic area, often used by firms in mature businesses with narrow product lines, firm is able to reduce cost per unit and price competitively by manufacturing in a region
cons: difficult to reconcile a product emphasis with geographic orientation, new R&D efforts often ignored because divisions are selling in mature markets

Question 23

define global functional division and provide the pros and cos

Answer 23

a global functional division is a structure that organizes worldwide operations primarily based on function and secondarily on product (approach used mainly by extractive companies such as oil and mining)

pros: emphasizes functional expertise, centralized control, relatively lean managerial staff
cons: coordination of manufacturing and marketing are often difficult, managing multiple product lines can be very challenging because of separation of production and marketing into different departments; only the CEO can be held accountable for the profits

Question 24

define mixed organization structures and provide the pros/cons

Answer 24

a mixed organization structure is a combination of global product, area, or functional arrangements

advantages: allows the organization to create the specific type of design that best meets its needs
cons: as matrix design’s complexity increases, coordinating personnel and getting everyone to work toward common goals often become difficult; too many groups go their own way

Question 25

What is a transnational network structure

Answer 25

a transnational network structure is a multinational structural arrangement combining elements of function, product, geographic design, while relying on network arrangement to link worldwide subsidiaries

at the center: nodes charged with coordinating product, functional, and geographic information

Question 26

What are the three components of a transnational network structure?

Answer 26

• dispersed subunits: subsidiaries anywhere in the world where they can benefit the organization
• specialized operations: activities carried out by subunits that focus on particular product lines, research areas, and marketing areas, and are designed to tap specialized expertise or other resources in the company’s worldwide subsidiaries
• interdependent relationships: used to share information and resources throughout the dispersed and specialized subunits

Question 27

What are the organizational characteristics of MNCs

Answer 27

• Formalization: use of defined structures and systems in decision making, communication, and controlling
• Specialization: assigning individuals to specific, well defined tasks, horizontal specialization, vertical specialization
• Centralization: important decisions are made at the top;
• Decentralization: decision making is pushed down to the line and lower-level personnel are involved