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IB Final Exam > Chapters 13-20 > Flashcards

Chapters 13-20 Flashcards

1
Q

What is a bill of lading?

A

Is issued to the exporter by the common carrier transporting the merchandise.

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2
Q

What are the purpose of the bill of lading?

A
  1. A receipt
  2. Contract
  3. Document of title
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3
Q

What is a bill of exchange?

A

An instrument used in international commerce as payment.

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4
Q

What is the mission of the Export-Import Bank?

A

To provide financing aid that will facilitate exports, imports, and the exchange of comodities.

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5
Q

Letter of credit

A

States that a bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

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6
Q

What are the forms of countertrade?

A
  • Barter
  • Counter purchase
  • Offset
  • Switch trading
  • Compensation or Buybacks
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7
Q

What is countertrade?

A

An alternative way of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.

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8
Q

What are the pros of countertrade?

A
  • Gives firms a way to finance an exporter deal when other means are not available
  • give a firm a competitive advantage edge
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9
Q

What is market segmentation?

A

Identifying groups of consumers by purchasing behaviors.

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10
Q

What are the 2 key market segmentation issues?

A
  • difference between countries of market segments
  • existence of segments that transcend national borders
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11
Q

What is a fragmented retail system?

A

There are many retails, no one of which has a major share of the market.

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12
Q

What is a concentrated retail system?

A

It has few retailers supplying most of the market.

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13
Q

Channel length

A

Refers to the number of intermediaries between the producer (or manufacturer) and the consumer.

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14
Q

What is an exclusive distribution channel?

A

Difficult for outsiders to access.

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15
Q

Channel quality

A

Refers to the expertise, competences, and skills of established retailers in a nation, and their ability to sell and support the products of IB.

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16
Q

What are the barriers to international communications?

A
  • cultural
  • source effects
  • country of origin effects
  • noise level
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17
Q

Explain the concepts of the Lessard-Lorange model

A

• the spot exchange rate when budget is adopted (initial rate) • projected rate forecasted for the end of budget (forward rate) • ending rate when the budget and performance are being compared

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18
Q

Bilateral netting

A

Transactions between two subsidiaries within an international business.

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19
Q

Tax treaty

A

Agreement between two countries specifying what items of income will be taxed by authorities of the country where the income is earned.

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20
Q

What is a strategy?

A

The actions that managers take to attain the goals o the firm. There is no strategy without actions.

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21
Q

Managers can increase profitability and profit growth by pursuing strategies that:

A

• add value • lower costs • sell more in existing markets • expand internationally

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22
Q

How can a firm increase profitability with value creation?

A

When the firm value creation is the difference between V (the price the firm can charge 4a product) and C (the cost of producing the product.

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23
Q

How is value created?

A

By increasing profits by: • using a differentiation strategy • using a low cost strategy

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24
Q

What are the four main differences between distribution systems?

A
  1. Retail concentration
  2. Channel length
  3. Channel exclusivity
  4. Channel Quality
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25
Q

What is differentiation strategy? Provide an example of a company.

A

Adding value to a product so that customers are willing to pay more for it. I.e. Apple

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26
Q

What is a low cost strategy?

A

Lowering costs such as Toyota.

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27
Q

What are the primary value creation activities?

A
  • R&D
  • production
  • marketing and sales
  • customer service
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28
Q

How can a firm increase profit through international expansion?

A
  1. Expand their market
  2. Realize location economies
  3. Realize grater cost economies from experience effect
  4. Earn a greater return
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29
Q

What are core competences?

A

Skills within a firm that competitors cannot easily match or imitate.

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30
Q

Describe location economies

A

Economies that arise from performing a value creation activity in the optimal location for that activity

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31
Q

Why is the experience curve?

A

A systematic reductions in production costs that occur over the life of a product

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32
Q

What are the four basic strategies?

A
  1. Global standardization
  2. International
  3. Transnational
  4. Localization
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33
Q

What is the global standardization strategy?

A

Focuses on increasing profitability and profit growth by reaping the cost reductions from economies of scale, learning effects, and loction economies. (low cost strategy on a global scale)

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34
Q

When does it make sense to pursue a global standardization strategy?

A

When there are strong pressures for cost reductions and demands for local responsiveness are minimal.

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35
Q

What is a localization strategy?

A

Increase profitability by customizing goods or services so that they match tastes and preferences in different national markets.

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36
Q

When does it make sense to use the localization strategy?

A

Added value associated with local customization supports higher pricing, which enables the firm to capture cost reductions

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37
Q

What is transnational strategy?

A

Tries to simultaneously achieve low costs trough location economies, economies of scale, and learning effects.

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38
Q

When does it make sense to use the transnational strategy?

A

When both cost pressures for local responsiveness are intense.

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39
Q

What is international strategy?

A

One that takes products first produced for the domestic market and sell them internationally with only minimal local customization.

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40
Q

When does it make sense to use the international strategy?

A

When there are low pressures for low cost and low responsiveness

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41
Q

What is organizational architecture?

A

The totality of a firm’s organization including:

  • org. structure
  • control systems and incentives
  • processes
  • org. culture
  • people
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42
Q

What are the support value creation activities?

A
  • information systems
  • logistics (supply chain)
  • human resources
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43
Q

What are location economies?

A

When firms disperse value creation activities to locations where they can be done more effectively and efficiently.

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44
Q

What is the learning effects?

A

Cost savings that come from learning by doing.

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45
Q

How does a firm leverage subsidiary skills?

A

leverage skills developed in foreign operations and transfer them elsewhere in the firm.

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46
Q

What are the 3 dimensions of organizational structure?

A
  1. Vertical differentiation
  2. Horizontal differentiation
  3. Integrating mechanisms
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47
Q

What is vertical differentiation?

A

The location of decision making responsibilities within a structure.

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48
Q

What is horizontal differentiation?

A

The formal division of the organization into sub-units

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49
Q

What is integrating mechanisms?

A

The mechanisms for coordinating subunits.

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50
Q

What are the two decision making powers?

A
  1. Centralized 2. Decentralized
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51
Q

What are the arguments for centralization?

A

• facilities coordination • ensures consistent decisions within the org. objectives • empowers management • avoids duplication of activities

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52
Q

Describe the decentralized decision-making power.

A

• relieves the burden of centralized decision-making • motivates individuals • greater flexibility • better decisions • increases controls

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53
Q

Why is horizontal differentiation important?

A

Decisions are made on the basis of Function, type of business, or geographical area.

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54
Q

What is a worldwide area structure?

A

The world is divided into geographic areas, favored by firms with a low degree of diversification.

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55
Q

What is a WW product divisional structure?

A

Adopted by firms that are reasonably diversified.

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56
Q

What is the global matrix structure?

A

Tries to minimize the limitations of WW area and WW product divisional structures.

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57
Q

What are the differnt types of control systems?

A
  1. Personal
  2. Bureaucratic
  3. Output
  4. Cultural
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58
Q

What is personal control?

A

Personal contact with subordinates - most used in small firms

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59
Q

The control systems and strategy

A
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60
Q

What are bureaucratic controls?

A

A system of rules and procedures that directs the actions of sub units.

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61
Q

What is Output Controls?

A

Setting goals for sub units to achieve and express those goals in terms of objective performance metrics.

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62
Q

What is cultural controls?

A

When employees “buy into” the norms and value systems of the firm.

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63
Q

What are incentive systems?

A

Devices used to reward behavior.

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64
Q

What is performance ambiguity?

A

When the causes of a sub unit’s poor performance are not clear.

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65
Q

Performance ambiguity

A
  • is low in firms with a localization strategy
  • higher in international firms
  • still higher in firms with global standarization
  • highest in transnational firms
66
Q

What are processes?

A

Refer to the manner in which decisions are made and work is performed.

67
Q

What is the link between firms pursuing an international strategy and its architecture?

A
  • the need for control is moderate
  • ww product division is common
  • need for integrating mechanisms is moderate
  • performance ambiguity is relatively low and so is cost of control
68
Q

What is the relationship between a firm pursuing a localization strategy and its architecture?

A

They focus on local responsiveness:

  • they do not have a high need for integrating mechanisms
  • performance ambiguity and the cost of controls is low
  • WW area structure is common
69
Q

What is the link between firms pursuing a global standarization strategy and its architecture?

A
  • headquarters maintains control over most decisions
  • need for integrating mechanisms is high
  • strong organizational cultures are encourage
  • WW product division is common
70
Q

What is the link between firms pursuing a transnational strategy and its architecture?

A
  • some decisions are centralized, other decentralized
  • need for coordination and cost is high
  • an array of formal and informal integrating mechanisms are used
  • strong culture encourage
  • matrix structures are common
71
Q

How are the environment, strategy, architecture, and performance related?

A
  • a firm’s strategy must be consistent with the environment in which it operates
  • a firm’s organization architecture must be consistent with its strategy
72
Q

What is the link between Strategy and artchitecture?

A
73
Q

How can a firm implement organizational change?

A
  • Unfreeze the org. trough shock therapy - taking bold actions
  • move the org. to a new state - requires a substantial and quick change
  • refreeze the org. in its new state - requires employees to socialize into the new way of doing things
74
Q

Why its difficutl to implement organizational change?

A
  • existing distribution of power and influece
  • current culture
  • manager’s preconceptions about the appropiate business model or paradigm
  • institutional constrains
75
Q

What are the basic decisions firms make when expanding globally?

A
  1. which market to enter
  2. when to enter them on what scale
  3. which entry mode to use
76
Q

What are the entry modes for expanding internationally?

A
  • exporting
  • turn key projects
  • licensing or franchising
  • joint ventures
  • new wholly owned subsidiary
77
Q

What influences the choice of entry mode?

A
  • transportation costs
  • trade barriers
  • political risks
  • economic risks
  • costs
  • firm strategy
78
Q

Which foreign favorable markets should firms enter?

A
  • are politically stable
  • have free market systems
  • have relatively low inflation rates
  • have low private sector debt
79
Q

Which foreign markets are less desirable for firms to enter?

A
  • politically unstable
  • have mixed or command economies
  • have excessive levels of borrowings (this causes corp. taxes to go up)
80
Q

Once the attractive market has been identified, firms must consider the timing of entry, why?

A
  • Entry is early when the firm enters a foreign market before other firms (first movers advantage)
  • entry is late when the firm enters the market after the firms have already established themselves in the market
81
Q

What does the first mover advantage includes?

A
  • ability to pre-empt rivals
  • ability to build up sales volume and ride the experience curve
  • ability to create switching costs that tie customers making it difficult for others to win business
82
Q

What does the first mover disadvantage include?

A

pioneerings costs

83
Q

When is it attractive to choose exporting?

A
  • avoids the cost of establishing local manufacturing operations
  • helps the firm achieve experience curve and location economies
84
Q

When is less attractive to choose exporting?

A
  • there may be lower-cost manufacturing locations
  • high transport costs and tariffs can make it uneconomical
  • agents in foreign country may not act right by the exporter
85
Q

When is attractive to choose a turnkey project?

A
  • When they are a way of earniing economic returns from the know-how
  • they can be less risky than conventional FDI
86
Q

When is less attractive to choose a turnkey project?

A
  • the firm has no long-term interest in the foreign country
  • the firm may create a competitor
87
Q

When is attractive to choose a licensing?

A
  • the firm avoids development costs and risks associated with opening a foreign market
  • the firm avoids barries to investments
  • the firm can capitalize on market opportunities
88
Q

When is less attractive to choose licensing?

A
  • proprietary assests could be lost
  • the firm’s ability to coordinate strategic moves accross countries is limited
  • firm does not have tight controls required for realizing experience curve and location economies
89
Q

When is attractive to choose franchasing?

A
  • it avoids the costs and risks of opening up a foreign market
  • firms can quickly build a global presence
90
Q

Why export?

A

It is a way to increase market size and profits

91
Q

When is less attractive to choose licensing?

A
  • it inhibits the firm’s ability to take profits out of one country
  • the geographic distance of the firm from its franchansees can make it difficult to detect problems
92
Q

When is attractive to choose a join ventures?

A
  • firms benefit from a local partner’s knowledge of the local market, culture, language, political system, and business system
  • costs and risks are shared
  • they satisfy political considerations
93
Q

When is less attractive to choose a join venture?

A
  • the firm risks giving control of its technology to its partner
  • the firm might not have the tight control to realize experience curve or location economies
  • shared ownership can lead to conflicts and blattles for control
94
Q

When is attractive to choose a wholly owned subsidiary?

A
  • they reduce the risk of losing control over core competences
  • they give a firm the tight control in different countries
  • required in order to realize location and experience curve economies
95
Q

When is less attractive to choose a wholly owned subsidiaries?

A

the firm bears the full cost and risk of setting up overseas operations

96
Q

Which entry mode is best?

A
97
Q

How do competencies imfluence entry mode?

A
  • optimal entry mode depends on a firms core competencies
  • when competitive advantage is based on proprietary technological know-how
  • when competitive advantage is based on management know-how
98
Q

Which is better a greenfield or acquisition?

A
  • greenfield - builds a subsidiary from the ground up
  • acquisition - acquire an existing company

the choice depends on the situation

99
Q

Why is attractive to choose an acquisition?

A
  • they are quick to execute
  • they enable firms to preemt their competitors
  • they may be less risky than greenfield
100
Q

Why is less attractive to choose an acquisition?

A
  • the acquiring firm overpays for the acquiered firm
  • the cultures clashes
  • anticipated synergies are slow and difficult to achieve
  • there is inadequate pre-aquisition screening
101
Q

Why choose greenfield?

A
  • it gives the firm a greater ability to build the kind of subsidiary company wants
  • but, they are slower to establish and are also risky
102
Q

What are strategic alliances?

A

Cooperative agreements between potencial or actual competitors

103
Q

What are strategic alliances attractive?

A
  • facilitate entry into a foreign market
  • allow firms to share the fixed cost and risks
  • bring together complementary skills and assets
  • help a firm establish technonological standards
104
Q

What are the pitfalls of exporting?

A
  • poor market analysis
  • poor understanding of competive conditions
  • lack of customization for local markets
  • poor distribution program
  • problems securing financing
105
Q

How can firms improve export performance?

A
  • firms need to collect information
  • get direct assistance from some countries
  • use export management companies
106
Q

Where can U.S. firms get export information?

A
  • Department of Commerce
  • Small Business Administration
  • Local and state governments
  • International Trade Administration
  • U.S. and Foreign Commercial Service Agency
107
Q

What are export management companies?

A

Export specialists that act as the export marketing department or international department for the client.

108
Q

How to reduce the risks of exporting?

A
  • have EMC’s or export consultant to ID opportunities
  • focus on one, or a few markets
  • enter a foreign market on a small scale
  • recognize the time and managerial commitment
  • hire locals to help establish a presence in the market
109
Q

How to overcome the lack of trust in export financing?

A
  • use a third party - normally a bank
110
Q

What is a draft?

A

an order written by an exporter instructing the importer to pay a specific amount at a specific time.

also called bill of exchange

111
Q

What are the cons of countertrade?

A
  • it might involve the exchange of unusable or poor quality goods
  • requires the firm to establish an in house trading department
112
Q

How are strategy, production, and logistics related?

A
  1. Production and logistics lower costs of value creation by dispersing production to the most effective locations
  2. add value by better serving customer needs
113
Q

How can quality be improved?

A

Most firms use the Six sigma program

114
Q

Firms should locate production so that

A
  • production and logistics can be locally responsive and effective
  • P&L can respond quickly to shifts in customer demand
115
Q

Which factors should a firm consider when selecting where to locate production

A
  • country factors
  • technological factors
  • product factors
116
Q

Why are country factors important?

A

Manufacturing should be located where economic, political and cultural conditions are most condusive to the performance of that activity.

117
Q

Firms should consider the following in country factors

A
  • the availability of skilled labor and supporting industries
  • formal and informal trade barries
  • expectations about future exchange rate changes
  • transportation costs
  • regulations affecting FDI
118
Q

Why are technological factors important?

A
  • reduces set up times for complex equipment
  • increases the utilization of individual machines
  • improves quality control
119
Q

**Production should be concentrated in a few locations when: **

A
  • fixed costs are substantial
  • the minimum efficient scale of production is high
  • flexible manufacturing technologies are available
120
Q

Production in multiple locations makes sense when:

A
  • both fixed costs and the minimum scale of production are relatively low
  • appropriate flexible manufacturing technologies are not available
121
Q

What are the two factors that impact location decisions?

A
  1. The products’s value-to-weight ratio
  2. Whether the product serves universal needs
122
Q

How are country factors and concentrated/decentralized production favored related?

A
123
Q

What are the hidden costs of foreign production locations?

A
  • high employee turnover
  • poor workmanship
  • poor product quality
  • low productivity
124
Q

What is the strategic role of foreign factories?

A

factories established to take advantage of low cost labor can evolve into facilities with advanced design capabilities

125
Q

Improvements in a facility comes from:

A
  • preassures to lower costs or respond to local markets
  • an increase in the availability of advanced factors of production
126
Q

Many companies see foreign factories as globally dispersed centers of excellence, why?

A
  • supports the development of a transnational strategy
  • global learning - valuable knowledge can be found in foreign subsidiaries
127
Q

Why should a firm make their products?

A

Vertical integration - making component parts in-house

  1. Lower costs
  2. Facilities investments in highly specialized assets
  3. Protects proprietary technologies
  4. Facilitates the scheduling of adjacent processes
128
Q

Why should firms buy their products?

A
  1. Gives the firm greater flexibility
  2. Helps drive down the firm’s cost structure
  3. Helps the firm capture orders from international customers
129
Q

How do firms manage the global supply chain?

A
  • at the lowest possible cost
  • in a way that best serves customer needs
  • establish a competitive advantage through superior customer service
130
Q

How the product is delivered depends on the firm’s market entry strategy

A
  • firms that produce locally can sell directly to the consumer, to retailer, or to the wholesaler
  • firms that produce outside the country have the same options plus selling to an import agent
131
Q

Which distribution strategy should a firm choose?

A
  • when price is important - a shorter channel is better
  • when the retail sector is very fragmented - a long channel can be beneficial
132
Q

What are the four main differences between distribution systems?

A
  • retail concentration
  • channel lenght
  • channel exclusivity
  • channel leght
133
Q

What are the communication channels available to firms?

A
  • direct selling
  • sales promotions
  • direct marketing
  • advertising
134
Q

What are the two types of communication strategies?

A
  1. a push strategy - personal selling (used a lot in developing countries)
  2. a pull strategy - mass media advertising
135
Q

What does the choice between the push or pull strategies depend on?

A
  1. Product type and comsumer sophistication
  2. channel lengh
  3. media availability
136
Q

What is the optimal mix?

A
  • a push strategy:
    • industrial products and or complex new products
    • distribution channels are short
  • a pull strategy:
    • for consumer goods
    • distribution channels are long
    • sufficient print and electronic media are available
137
Q

When does it makes sense to use standardize advertising?

A
  • it has significant economic advantages
  • creative talent is scarce
  • brand names are global
138
Q

When does it make sense not to standardize advertising?

A
  • cultural differences among nations are significant
  • advertising regulations limit standardized adv.
139
Q

What pricing strategy should firms used?

A
  • Price discrimination
  • Strategic pricing
  • Regulations that affect pricing decisions
140
Q

What is price discrimination?

A

Occurs when firms charge consumers in different countris different prices for the same products.

141
Q

In order for price discrimination to work

A
  • must be able to keep national markets separate
  • countris must have different price elasticity of demand
142
Q

Elastic price demand

A

when a small change in price produces a large change in demand

143
Q

Ineslastic demand

A

When a large change in price produces only a small change in demand

144
Q

What are the 3 aspects of strategic pricing?

A
  1. predatory pricing
  2. multi-point pricing
  3. experience curve pricing
145
Q

What is predatory pricing?

A

Use profit gained inone market to support aggressive pricing designed to drive competitors out

146
Q

What is multi-point pricing?

A

a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market

147
Q

What is the experience curve-pricing?

A

Price low worldwide to build global sales volumes, in several years when it moves down the experience curve, it will make substantial profits and have a cost advantage over competitors.

148
Q

What limits a firm’s ability to set prices?

A
  • antidumping regulations
  • competition policy
149
Q

Where should R&D be located?

A

In the home country or where it makes sense to be more effective and efficient.

150
Q

What are the activities included in HRM?

A
  • HR strategy
  • staffing
  • performance evaluation
  • management developments
  • compensation
  • labor relations
151
Q

What is an ethnocentric staffing policy?

A

All key managament positions are filled by parent-country nationals.

152
Q

What is the polycentric approach to staffing?

A

Recruit host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters

153
Q

What is the geocentric approach of staffing?

A

Seek the best people, regardless of the nationality for key jobs.

154
Q

What are the main reasons U.S. expatriate manager fail?

A
  • the inability of spouse to adapt
  • inability to adjust
  • other family-related reasons
  • personal or emotional maturity
  • inability to cope with larger overseas responsibilities
155
Q

What are the four dimensions that predict expatriate success?

A
  • Self-orientation
  • Others-orientation
  • Perceptual ability
  • Cultural toughness
156
Q

How Should Expatriates Be Evaluated?

A

home country managers tend to rely on hard data when evaluating expatriates
host country managers can be biased towards their own frame of reference

157
Q

How shoudl expatriates be paid?

A
  • most firms use the balance sheet approach
  • equalizes purchasing power across countris
  • adds a financial incentive to take the position
158
Q

What are the components of the compesation package?

A
  1. Base salary
  2. Foreign service premiun
  3. Various allowances
  4. Tax differntials
  5. Benefits
159
Q

Several variables influence the development of a country’s accounting system including:

A
  • the relationship between business and the providers of capital
  • political and economic ties with other countries
  • the level of inflation
  • the level of a country’s economic development
  • the prevailing culture in a country
160
Q

What is multilateral netting?

A

Transactions between multiple subsidiaries within an international business.

IB Final Exam (1 decks)

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