Chapters 13-20 Flashcards
What is a bill of lading?
Is issued to the exporter by the common carrier transporting the merchandise.
What are the purpose of the bill of lading?
- A receipt
- Contract
- Document of title
What is a bill of exchange?
An instrument used in international commerce as payment.
What is the mission of the Export-Import Bank?
To provide financing aid that will facilitate exports, imports, and the exchange of comodities.
Letter of credit
States that a bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.
What are the forms of countertrade?
- Barter
- Counter purchase
- Offset
- Switch trading
- Compensation or Buybacks
What is countertrade?
An alternative way of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.
What are the pros of countertrade?
- Gives firms a way to finance an exporter deal when other means are not available
- give a firm a competitive advantage edge
What is market segmentation?
Identifying groups of consumers by purchasing behaviors.
What are the 2 key market segmentation issues?
- difference between countries of market segments
- existence of segments that transcend national borders
What is a fragmented retail system?
There are many retails, no one of which has a major share of the market.
What is a concentrated retail system?
It has few retailers supplying most of the market.
Channel length
Refers to the number of intermediaries between the producer (or manufacturer) and the consumer.
What is an exclusive distribution channel?
Difficult for outsiders to access.
Channel quality
Refers to the expertise, competences, and skills of established retailers in a nation, and their ability to sell and support the products of IB.
What are the barriers to international communications?
- cultural
- source effects
- country of origin effects
- noise level
Explain the concepts of the Lessard-Lorange model
• 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
Bilateral netting
Transactions between two subsidiaries within an international business.
Tax treaty
Agreement between two countries specifying what items of income will be taxed by authorities of the country where the income is earned.
What is a strategy?
The actions that managers take to attain the goals o the firm. There is no strategy without actions.
Managers can increase profitability and profit growth by pursuing strategies that:
• add value • lower costs • sell more in existing markets • expand internationally
How can a firm increase profitability with value creation?
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.
How is value created?
By increasing profits by: • using a differentiation strategy • using a low cost strategy
What are the four main differences between distribution systems?
- Retail concentration
- Channel length
- Channel exclusivity
- Channel Quality
What is differentiation strategy? Provide an example of a company.
Adding value to a product so that customers are willing to pay more for it. I.e. Apple
What is a low cost strategy?
Lowering costs such as Toyota.
What are the primary value creation activities?
- R&D
- production
- marketing and sales
- customer service
How can a firm increase profit through international expansion?
- Expand their market
- Realize location economies
- Realize grater cost economies from experience effect
- Earn a greater return
What are core competences?
Skills within a firm that competitors cannot easily match or imitate.
Describe location economies
Economies that arise from performing a value creation activity in the optimal location for that activity
Why is the experience curve?
A systematic reductions in production costs that occur over the life of a product
What are the four basic strategies?
- Global standardization
- International
- Transnational
- Localization
What is the global standardization strategy?
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)
When does it make sense to pursue a global standardization strategy?
When there are strong pressures for cost reductions and demands for local responsiveness are minimal.
What is a localization strategy?
Increase profitability by customizing goods or services so that they match tastes and preferences in different national markets.
When does it make sense to use the localization strategy?
Added value associated with local customization supports higher pricing, which enables the firm to capture cost reductions
What is transnational strategy?
Tries to simultaneously achieve low costs trough location economies, economies of scale, and learning effects.
When does it make sense to use the transnational strategy?
When both cost pressures for local responsiveness are intense.
What is international strategy?
One that takes products first produced for the domestic market and sell them internationally with only minimal local customization.
When does it make sense to use the international strategy?
When there are low pressures for low cost and low responsiveness
What is organizational architecture?
The totality of a firm’s organization including:
- org. structure
- control systems and incentives
- processes
- org. culture
- people
What are the support value creation activities?
- information systems
- logistics (supply chain)
- human resources
What are location economies?
When firms disperse value creation activities to locations where they can be done more effectively and efficiently.
What is the learning effects?
Cost savings that come from learning by doing.
How does a firm leverage subsidiary skills?
leverage skills developed in foreign operations and transfer them elsewhere in the firm.
What are the 3 dimensions of organizational structure?
- Vertical differentiation
- Horizontal differentiation
- Integrating mechanisms
What is vertical differentiation?
The location of decision making responsibilities within a structure.
What is horizontal differentiation?
The formal division of the organization into sub-units
What is integrating mechanisms?
The mechanisms for coordinating subunits.
What are the two decision making powers?
- Centralized 2. Decentralized
What are the arguments for centralization?
• facilities coordination • ensures consistent decisions within the org. objectives • empowers management • avoids duplication of activities
Describe the decentralized decision-making power.
• relieves the burden of centralized decision-making • motivates individuals • greater flexibility • better decisions • increases controls
Why is horizontal differentiation important?
Decisions are made on the basis of Function, type of business, or geographical area.
What is a worldwide area structure?
The world is divided into geographic areas, favored by firms with a low degree of diversification.
What is a WW product divisional structure?
Adopted by firms that are reasonably diversified.
What is the global matrix structure?
Tries to minimize the limitations of WW area and WW product divisional structures.
What are the differnt types of control systems?
- Personal
- Bureaucratic
- Output
- Cultural
What is personal control?
Personal contact with subordinates - most used in small firms
The control systems and strategy
What are bureaucratic controls?
A system of rules and procedures that directs the actions of sub units.
What is Output Controls?
Setting goals for sub units to achieve and express those goals in terms of objective performance metrics.
What is cultural controls?
When employees “buy into” the norms and value systems of the firm.
What are incentive systems?
Devices used to reward behavior.
What is performance ambiguity?
When the causes of a sub unit’s poor performance are not clear.
Performance ambiguity
- is low in firms with a localization strategy
- higher in international firms
- still higher in firms with global standarization
- highest in transnational firms
What are processes?
Refer to the manner in which decisions are made and work is performed.
What is the link between firms pursuing an international strategy and its architecture?
- 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
What is the relationship between a firm pursuing a localization strategy and its architecture?
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
What is the link between firms pursuing a global standarization strategy and its architecture?
- headquarters maintains control over most decisions
- need for integrating mechanisms is high
- strong organizational cultures are encourage
- WW product division is common
What is the link between firms pursuing a transnational strategy and its architecture?
- 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
How are the environment, strategy, architecture, and performance related?
- 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
What is the link between Strategy and artchitecture?
How can a firm implement organizational change?
- 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
Why its difficutl to implement organizational change?
- existing distribution of power and influece
- current culture
- manager’s preconceptions about the appropiate business model or paradigm
- institutional constrains
What are the basic decisions firms make when expanding globally?
- which market to enter
- when to enter them on what scale
- which entry mode to use
What are the entry modes for expanding internationally?
- exporting
- turn key projects
- licensing or franchising
- joint ventures
- new wholly owned subsidiary
What influences the choice of entry mode?
- transportation costs
- trade barriers
- political risks
- economic risks
- costs
- firm strategy
Which foreign favorable markets should firms enter?
- are politically stable
- have free market systems
- have relatively low inflation rates
- have low private sector debt
Which foreign markets are less desirable for firms to enter?
- politically unstable
- have mixed or command economies
- have excessive levels of borrowings (this causes corp. taxes to go up)
Once the attractive market has been identified, firms must consider the timing of entry, why?
- 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
What does the first mover advantage includes?
- 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
What does the first mover disadvantage include?
pioneerings costs
When is it attractive to choose exporting?
- avoids the cost of establishing local manufacturing operations
- helps the firm achieve experience curve and location economies
When is less attractive to choose exporting?
- 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
When is attractive to choose a turnkey project?
- When they are a way of earniing economic returns from the know-how
- they can be less risky than conventional FDI
When is less attractive to choose a turnkey project?
- the firm has no long-term interest in the foreign country
- the firm may create a competitor
When is attractive to choose a licensing?
- 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
When is less attractive to choose licensing?
- 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
When is attractive to choose franchasing?
- it avoids the costs and risks of opening up a foreign market
- firms can quickly build a global presence
Why export?
It is a way to increase market size and profits
When is less attractive to choose licensing?
- 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
When is attractive to choose a join ventures?
- 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
When is less attractive to choose a join venture?
- 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
When is attractive to choose a wholly owned subsidiary?
- 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
When is less attractive to choose a wholly owned subsidiaries?
the firm bears the full cost and risk of setting up overseas operations
Which entry mode is best?
How do competencies imfluence entry mode?
- 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
Which is better a greenfield or acquisition?
- greenfield - builds a subsidiary from the ground up
- acquisition - acquire an existing company
the choice depends on the situation
Why is attractive to choose an acquisition?
- they are quick to execute
- they enable firms to preemt their competitors
- they may be less risky than greenfield
Why is less attractive to choose an acquisition?
- 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
Why choose greenfield?
- 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
What are strategic alliances?
Cooperative agreements between potencial or actual competitors
What are strategic alliances attractive?
- 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
What are the pitfalls of exporting?
- poor market analysis
- poor understanding of competive conditions
- lack of customization for local markets
- poor distribution program
- problems securing financing
How can firms improve export performance?
- firms need to collect information
- get direct assistance from some countries
- use export management companies
Where can U.S. firms get export information?
- Department of Commerce
- Small Business Administration
- Local and state governments
- International Trade Administration
- U.S. and Foreign Commercial Service Agency
What are export management companies?
Export specialists that act as the export marketing department or international department for the client.
How to reduce the risks of exporting?
- 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
How to overcome the lack of trust in export financing?
- use a third party - normally a bank
What is a draft?
an order written by an exporter instructing the importer to pay a specific amount at a specific time.
also called bill of exchange
What are the cons of countertrade?
- it might involve the exchange of unusable or poor quality goods
- requires the firm to establish an in house trading department
How are strategy, production, and logistics related?
- Production and logistics lower costs of value creation by dispersing production to the most effective locations
- add value by better serving customer needs
How can quality be improved?
Most firms use the Six sigma program
Firms should locate production so that
- production and logistics can be locally responsive and effective
- P&L can respond quickly to shifts in customer demand
Which factors should a firm consider when selecting where to locate production
- country factors
- technological factors
- product factors
Why are country factors important?
Manufacturing should be located where economic, political and cultural conditions are most condusive to the performance of that activity.
Firms should consider the following in country factors
- the availability of skilled labor and supporting industries
- formal and informal trade barries
- expectations about future exchange rate changes
- transportation costs
- regulations affecting FDI
Why are technological factors important?
- reduces set up times for complex equipment
- increases the utilization of individual machines
- improves quality control
**Production should be concentrated in a few locations when: **
- fixed costs are substantial
- the minimum efficient scale of production is high
- flexible manufacturing technologies are available
Production in multiple locations makes sense when:
- both fixed costs and the minimum scale of production are relatively low
- appropriate flexible manufacturing technologies are not available
What are the two factors that impact location decisions?
- The products’s value-to-weight ratio
- Whether the product serves universal needs
How are country factors and concentrated/decentralized production favored related?
What are the hidden costs of foreign production locations?
- high employee turnover
- poor workmanship
- poor product quality
- low productivity
What is the strategic role of foreign factories?
factories established to take advantage of low cost labor can evolve into facilities with advanced design capabilities
Improvements in a facility comes from:
- preassures to lower costs or respond to local markets
- an increase in the availability of advanced factors of production
Many companies see foreign factories as globally dispersed centers of excellence, why?
- supports the development of a transnational strategy
- global learning - valuable knowledge can be found in foreign subsidiaries
Why should a firm make their products?
Vertical integration - making component parts in-house
- Lower costs
- Facilities investments in highly specialized assets
- Protects proprietary technologies
- Facilitates the scheduling of adjacent processes
Why should firms buy their products?
- Gives the firm greater flexibility
- Helps drive down the firm’s cost structure
- Helps the firm capture orders from international customers
How do firms manage the global supply chain?
- at the lowest possible cost
- in a way that best serves customer needs
- establish a competitive advantage through superior customer service
How the product is delivered depends on the firm’s market entry strategy
- 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
Which distribution strategy should a firm choose?
- when price is important - a shorter channel is better
- when the retail sector is very fragmented - a long channel can be beneficial
What are the four main differences between distribution systems?
- retail concentration
- channel lenght
- channel exclusivity
- channel leght
What are the communication channels available to firms?
- direct selling
- sales promotions
- direct marketing
- advertising
What are the two types of communication strategies?
- a push strategy - personal selling (used a lot in developing countries)
- a pull strategy - mass media advertising
What does the choice between the push or pull strategies depend on?
- Product type and comsumer sophistication
- channel lengh
- media availability
What is the optimal mix?
- 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
When does it makes sense to use standardize advertising?
- it has significant economic advantages
- creative talent is scarce
- brand names are global
When does it make sense not to standardize advertising?
- cultural differences among nations are significant
- advertising regulations limit standardized adv.
What pricing strategy should firms used?
- Price discrimination
- Strategic pricing
- Regulations that affect pricing decisions
What is price discrimination?
Occurs when firms charge consumers in different countris different prices for the same products.
In order for price discrimination to work
- must be able to keep national markets separate
- countris must have different price elasticity of demand
Elastic price demand
when a small change in price produces a large change in demand
Ineslastic demand
When a large change in price produces only a small change in demand
What are the 3 aspects of strategic pricing?
- predatory pricing
- multi-point pricing
- experience curve pricing
What is predatory pricing?
Use profit gained inone market to support aggressive pricing designed to drive competitors out
What is multi-point pricing?
a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market
What is the experience curve-pricing?
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.
What limits a firm’s ability to set prices?
- antidumping regulations
- competition policy
Where should R&D be located?
In the home country or where it makes sense to be more effective and efficient.
What are the activities included in HRM?
- HR strategy
- staffing
- performance evaluation
- management developments
- compensation
- labor relations
What is an ethnocentric staffing policy?
All key managament positions are filled by parent-country nationals.
What is the polycentric approach to staffing?
Recruit host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters
What is the geocentric approach of staffing?
Seek the best people, regardless of the nationality for key jobs.
What are the main reasons U.S. expatriate manager fail?
- the inability of spouse to adapt
- inability to adjust
- other family-related reasons
- personal or emotional maturity
- inability to cope with larger overseas responsibilities
What are the four dimensions that predict expatriate success?
- Self-orientation
- Others-orientation
- Perceptual ability
- Cultural toughness
How Should Expatriates Be Evaluated?
home country managers tend to rely on hard data when evaluating expatriates
host country managers can be biased towards their own frame of reference
How shoudl expatriates be paid?
- most firms use the balance sheet approach
- equalizes purchasing power across countris
- adds a financial incentive to take the position
What are the components of the compesation package?
- Base salary
- Foreign service premiun
- Various allowances
- Tax differntials
- Benefits
Several variables influence the development of a country’s accounting system including:
- 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
What is multilateral netting?
Transactions between multiple subsidiaries within an international business.
