chp6 investment Flashcards
Leontief Paradox
Based on Hecksher-Ohlin, US should import labor-intensive and export capital-intensive
But the opposite happens: export (skilled labor intensive) software; import capital intensive heavy machinery
NON-TARIFF BARRIERS TO TRADE
Subsidies / ‘cheap’ exports
NON-TARIFF BARRIERS TO TRADE
Trade-related aspects of intellectual property rights (TRIPs)
Problems with lack of enforcement / keep companies from trading
NON-TARIFF BARRIERS TO TRADE
Trade-related investment measures (TRIMs)
Local content requirements (e.g. NAFTA and 62.5% rule for automobiles)
Why do firms engage in FDI
establish income-generating assets abroad, such that they retain management control rights
FDI = AN ____ MARKET
INTERNALIZED
Ownership advantages
Firm-level sources of competitive advantage that help to overcome the “liability of foreignness”
Scarce, tacit firm-specific assets or resources like a great brand or proprietary technology
Ownership advantages
Ability of managers to identify and exploit resources and coordinate
Ownership advantages
Geographically dispersed operations as a ‘strategic hedge’
Ownership advantages
Location advantages
Attractive, country-specific resources that are “location-bound”
Markets: a large growing population or segment that is attractive for your goods
Resources: natural resources that you need for your business
Innovations: knowledge, technology, skills, best practices, new approaches that you wish to tap into
Efficiency: since wages and other costs are NOT equal around the globe (!), companies can exploit these differences to reduce costs
Location advantages
INTERNALIZATION ADVANTAGES
bypass unreliable supplier
reduced communication difficulties
INTERNALIZATION ADVANTAGES
avoidance of weak contract laws
INTERNALIZATION ADVANTAGES
