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0
Q

Floating exchange rate

A

A country allows the foreign exchange market to determine the relative value of the currency

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1
Q

International monetary system

A

Institutional arrangements that countries adopt to govern exchange rates

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2
Q

Examples of currency that are floating

A

Pound
US dollar
Euro
Japanese yen

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3
Q

Pegged (fixed) exchange rate

A

Fixes value of its currency relative to a reference currency

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4
Q

Dirty float

A

Country ties to hold the value if it’s currency within some range of a reference currency such as US dollar

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5
Q

Fixed exchange rate

A

Countries fix their currencies against each other at some mutually agreed on exchange rate

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6
Q

Gold standard

A

System which countries peg currencies to gold and guarantee their convertibility

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7
Q

Balance of trade equilibrium

A

Income of a country’s residents earn from exports is equal to the money it’s residents pay for imports

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8
Q

Breton woods system agreements

A
  1. Fixed exchange rate system was established
  2. All currencies fixed to gold but only could convert US dollar directly
  3. Devaluations could not be used for competitive purposes
  4. A country would not devalue it’s currency more then 10% without IMF approval
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9
Q

What two multinational institutions were formed at Breton woods

A

IMF

World bank

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10
Q

IMF definition

A

Maintains order in the international monetary system through a combination of discipline and flexibility

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11
Q

World bank

A

Promotes general economic development

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12
Q

4 things the IMF did

A
  1. Fixed rates stopped competive ness devaluations and brought stability to the WTE
  2. Fixed rates imposed monetary discipline on countries, limiting price inflation
  3. In cases if fundamental disequilibrium devaluations were permitted
  4. IMF lent foreign currency to members during short periods of balance of payments defect when a rapid tightening of the monetary system would hurt domestic employment
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13
Q

2 ways countries can borrow from world bank

A
  1. IBRD scheme: money raised through bond sales in international capital market (borrowers lay a market rate of interest)
  2. International development agency loans (poorest countries)
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14
Q

Why the fixed exchange rate collapsed

A

Huge increase in welfare programs and the vietnam war were financed by increasing the money supply and caused significant inflation. Other country’s increased the value if their currencies relative to the dollar bc they speculated it would be devalued. Us started to print money, run high trade deficits and experience high inflation it affected the whole system and brought it to it’s breaking pt

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15
Q

Jamaica agreement

A

New exchange rate system
Floating rates created
Gold abandoned
IMF quota increase

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16
Q

Perks of floating rate

A

Monetary policy autonomy: remove obligation of government to maintain exchange rage this restoring monetary control to gov
Automatic trade balance adjustments

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17
Q

Perks of fixed rate

A

Provides monetary discipline: gov can’t expand their money supplies at inflationary rates
Minimizes speculation
Reduces uncertainty

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18
Q

Currency board

A

Convert their domestic currency on demand into another currency at a fixed rate

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19
Q

IMF today

A

Focuses on Lending money to countries in financial crisis (currency crisis, banking crisis, & foreign debt crisis)

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20
Q

Currency crisis

A

Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or authorities are forced to expand large volumes of international currency rates which sharply increase interest rates

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21
Q

Banking crisis

A

Situation in which a loss of confidence in the banking system leads to a run on the banks ( large amounts of mooney being withdrawn)

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22
Q

Foreign debt crisis

A

When a country can’t service it’s foreign debts

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23
Q

Causes of Asian currency crisis

A 
Investment boom
Excess capacity: expectations based on future demand 
High debt 
Expanding imports 
Speculation against these currencies
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24
What managers need to know about te monetary system
1. Currency management 2. Business strategy:exchange rate movements can have major impact in the competiveness of a country 3. Corporate government relations: businesses can influence gov policy towards the international monetary system
25
Type of entry modes
Exporting Licensing & franchising Establishing a joint venture with a local company Establishing a new wholly owned subsidary Acquiring an established enterprise
26
3 things firms must decide when expanding internationally
1. Which markets to enter 2. When to enter them and on what scale 3. Which entry mode to use
27
Factors affecting mode of entry
``` Transport costs Trade barriers Political risks Economic risks Costs Firm strategy ```
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Favorable markets
Politically stable Free market systems Low inflation rates Low private sector debt
29
Less desirable markets
Politically unstable Mixed or command economies Excessive levels of borrowing
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First mover advantage
Pre embt rivals by establishing a strong brand name Cost advantage over later enterants Switching costs Build up sales volume
31
First mover disadvantage
Pioneering costs: money spent learning the game Might make major mistakes due to not knowing the forgin environment Cost of promoting and establishing a product/ educating customers
32
Advantage of entering on a significant scale
Make a strategic commitment to the market Easy for company to attract customers and suppliers More Likly to get first mover advantages Might gain other foreign investors
33
Disadvantages of entering on a significant scale
Long term impact Difficult to reverse Less resources for other places.. Too focused
34
Advantages of small scale entry
Allows firm to learn about the market while limiting the firms exposure to the market
35
Disadvantage of small scale entry
Shows less commitment | Won't capture first mover advantages
36
Turnkey projects
The contractor handles every detail of project and hands over the key to the owner once a plant is fully ready to operate
37
Licensing
A licensor grants the rights to intangible priority to the licensee for a period of time and receives a royalty fee from the licensee
38
Franchising
A specialized form of licensing in which the franchisor sells intangible property to the franchisee and insists that the franchise follows strict rules
39
Joint ventures with a host country firm
Firm that is owned by two or more otherwise independent firms
40
Wholly owned subsidiary
Firm owns 100% of stock New operation Acquire an established firm
41
Exporting advantage/disadvantage
A -avoids cost of establishing local manufacturing operations -gain experience curve D - might be lower cost manufacturing locations - high tariffs and transport costs -agents in foreign country might not work in exporters interest
42
Turnkey advantage/disadvantage
A -earn economic returns from the know-how required to assemble and run a complex process -less risky than conventional FDI D - no long term interest in foreign company - May create a competitor -sell competitive advantage to competitors
43
Licensing advantage/disadvantage
A - avoids development costs -avoids barrier to entry - can capitalize on market opportunities without developing those applications itself D - doesn't have tight control for realizing experience curve & location economies - firms ability to coordinate strategic moves across countries is limited - intangible assets could be lost
44
Franchising advantage/disadvantage
A - avoids costs and risks of opening up a foreign market -firms can quickly build a global presence D - inhibits firms ability to take profits out of one country to support competitive attacks on another - geographic distance is difficult
45
Joint ventures advantage/disadvantage
A -firms benefit from a local partners knowledge of local market, culture, etc -costs and risk of opening a foreign market are shared - satisfy political considerations for market entry D - risks giving control of its technology to partner - may not have the tight control to realize experience curve or location Economies - conflicts and battles for control
46
Wholly owned subsidiaries advantage/disadvantage
Protection if technology Ability to engage in global strategic coordination Ability to realize location and experience economies D - high costs and risks
47
Competive advantage based on technological know how
Avoid licenscing & joint ventures
48
Greenfield strategy
Build a subsidiary from the ground up. | Better when the firm needs to transfer organizationally embedded competences, skills routines and culture
49
Acquisition strategy
Acquire an existing company | May be better when there are well established competitors or global competitors interested in expanding
50
Why choose acquisition
Quick to execute Enable firms to preempt their competitors Less risky
51
Problems with acquisitions
Acquiring firm overlays for the acquired firm Cultures clash Anticipated synergies are slow and difficult to achieve Bad pre scanning process
52
Why choose greenfield
Greater ability to build the kind of subsidiary a company wants
53
Disadvantage of greenfield
Slower and more risky
54
Strategic alliances
Cooperative agreements between potential or actual competitors
55
Why are strategic alliances attractive
1. Facilitate entry into a foreign market 2.allow firms to share the fixed costs and risks if developing new products or processes 3. Bring together complementary skills and assets that neither company could develop on its own 4. Help form establish technological standards 5.
56
Success of strategic alliance based on
1. Partner selection 2. Alliance structure 3. manner which alliance is managed
57
Objectives for doing business in Europe
``` Increase the sales and profits Diversify your business Put pressure in a global competitor 1st step for being global Better understanding of the European customer Improve as a accompany ```
58
5 forces model (porter model)
``` Threat of new entrants Threat if substitute products Bargaining power of buyers (manufacturers & retailers) Bargaining power of suppliers Rivalry amount competitiors ```
59
Threat of new entrants (8barriers to entry)
1. Economies of scale 2. Product of differentiation 3. Capital requirements 4. Onetime switching cost ( cost to change from one supplier to another) 5. Access to distribution channels 6. Gov policy 7. cost advantage 8. Competitor response
60
Cost leadership
``` Efficient production and facilities Superior logics Great productivity Efficient service Technological improvements Ex: Walmart & Zara ```
61
Product differentiation
``` Unique product Technological revolution Huge marketing focus Best understanding of customers needs Ex nike & apple ```
62
Cost focus
Offer lower prices to a specific segment
63
Focused differentiation
Unique product in premium price
64
Competitive advantage of nations
1. Factor conditions ex HR physical resources, knowledge, capital 2. Demand conditions 3. Related and supporting industries 4. Firm strategy, structure & rivalry 5. Chance 6. Government
65
Marketing mix
The choices the firm offers to its target market 1. Product attributes 2. Distribution strategy 3. Communication strategy 4. Pricing strategy
66
Market segmentation
Identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
67
Markets can be segmented
Geography Demography Socio-cultural factors Psychological factors
68
How do product attributes influence market strategy
1. Culture 2. Level of economic development 3. Product and technical standards
69
How do distribution systems differ
1. Retail concentration: concentrated vs. fragmented 2. Channel length: 3. Channel exclusivity Channel quality
70
Barriers to internal communication
1. Cultural barriers 2. Source & country of origin effects 3. Noise levels
71
Push strategy
Personal selling
72
Pull strategy
Mass media advertising
73
When is push strategy better
Industrial product and complex new products Distribution channels are short Few print or electronic media are available
74
When is pull strategy better
Consumer good products Distribution channels are long Large media outlets available
75
Pricing strategy considerations
1. Price discrimination 2. Strategic pricing 3. Regulations that affect pricing decesions
76
3 aspects of strategic pricing
1. Predatory pricing: use profit in one market to support pricing designed to drive out competitors in another 2. Multi point pricing: pricing grateful in one area might affect rivals pricing in another region 3. Experience curve pricing: price low worldwide in attempt to build global sales volumes
77
Pricing affected
1. Anti dumping regulations | 2: competition policy: prevents monpolys

International Business (2 decks)

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