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International Business > Final > Flashcards

Final Flashcards

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
Q

What managers need to know about te monetary system

A
  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
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25
Q

Type of entry modes

A

Exporting
Licensing & franchising
Establishing a joint venture with a local company
Establishing a new wholly owned subsidary
Acquiring an established enterprise

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26
Q

3 things firms must decide when expanding internationally

A
  1. Which markets to enter
  2. When to enter them and on what scale
  3. Which entry mode to use
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27
Q

Factors affecting mode of entry

A 
Transport costs 
Trade barriers
Political risks
Economic risks 
Costs 
Firm strategy
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28
Q

Favorable markets

A

Politically stable
Free market systems
Low inflation rates
Low private sector debt

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29
Q

Less desirable markets

A

Politically unstable
Mixed or command economies
Excessive levels of borrowing

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30
Q

First mover advantage

A

Pre embt rivals by establishing a strong brand name
Cost advantage over later enterants
Switching costs
Build up sales volume

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31
Q

First mover disadvantage

A

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
Q

Advantage of entering on a significant scale

A

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
Q

Disadvantages of entering on a significant scale

A

Long term impact
Difficult to reverse
Less resources for other places.. Too focused

34
Q

Advantages of small scale entry

A

Allows firm to learn about the market while limiting the firms exposure to the market

35
Q

Disadvantage of small scale entry

A

Shows less commitment

Won’t capture first mover advantages

36
Q

Turnkey projects

A

The contractor handles every detail of project and hands over the key to the owner once a plant is fully ready to operate

37
Q

Licensing

A

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
Q

Franchising

A

A specialized form of licensing in which the franchisor sells intangible property to the franchisee and insists that the franchise follows strict rules

39
Q

Joint ventures with a host country firm

A

Firm that is owned by two or more otherwise independent firms

40
Q

Wholly owned subsidiary

A

Firm owns 100% of stock
New operation
Acquire an established firm

41
Q

Exporting advantage/disadvantage

A

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
Q

Turnkey advantage/disadvantage

A

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
Q

Licensing advantage/disadvantage

A

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
Q

Franchising advantage/disadvantage

A

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
Q

Joint ventures advantage/disadvantage

A

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
Q

Wholly owned subsidiaries advantage/disadvantage

A

Protection if technology
Ability to engage in global strategic coordination
Ability to realize location and experience economies
D
- high costs and risks

47
Q

Competive advantage based on technological know how

A

Avoid licenscing & joint ventures

48
Q

Greenfield strategy

A

Build a subsidiary from the ground up.

Better when the firm needs to transfer organizationally embedded competences, skills routines and culture

49
Q

Acquisition strategy

A

Acquire an existing company

May be better when there are well established competitors or global competitors interested in expanding

50
Q

Why choose acquisition

A

Quick to execute
Enable firms to preempt their competitors
Less risky

51
Q

Problems with acquisitions

A

Acquiring firm overlays for the acquired firm
Cultures clash
Anticipated synergies are slow and difficult to achieve
Bad pre scanning process

52
Q

Why choose greenfield

A

Greater ability to build the kind of subsidiary a company wants

53
Q

Disadvantage of greenfield

A

Slower and more risky

54
Q

Strategic alliances

A

Cooperative agreements between potential or actual competitors

55
Q

Why are strategic alliances attractive

A
  1. Facilitate entry into a foreign market
    2.allow firms to share the fixed costs and risks if developing new products or processes
  2. Bring together complementary skills and assets that neither company could develop on its own
  3. Help form establish technological standards
    5.
56
Q

Success of strategic alliance based on

A
  1. Partner selection
  2. Alliance structure
  3. manner which alliance is managed
57
Q

Objectives for doing business in Europe

A 
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
Q

5 forces model (porter model)

A 
Threat of new entrants 
Threat if substitute products
Bargaining power of buyers (manufacturers & retailers) 
Bargaining power of suppliers
Rivalry amount competitiors
59
Q

Threat of new entrants (8barriers to entry)

A
  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
Q

Cost leadership

A 
Efficient production and facilities 
Superior logics
Great productivity
Efficient service 
Technological improvements 
Ex: Walmart & Zara
61
Q

Product differentiation

A 
Unique product
Technological revolution 
Huge marketing focus 
Best understanding of customers needs 
Ex nike & apple
62
Q

Cost focus

A

Offer lower prices to a specific segment

63
Q

Focused differentiation

A

Unique product in premium price

64
Q

Competitive advantage of nations

A
  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
Q

Marketing mix

A

The choices the firm offers to its target market

  1. Product attributes
  2. Distribution strategy
  3. Communication strategy
  4. Pricing strategy
66
Q

Market segmentation

A

Identifying distinct groups of consumers whose purchasing behavior differs from others in important ways

67
Q

Markets can be segmented

A

Geography
Demography
Socio-cultural factors
Psychological factors

68
Q

How do product attributes influence market strategy

A
  1. Culture
  2. Level of economic development
  3. Product and technical standards
69
Q

How do distribution systems differ

A
  1. Retail concentration: concentrated vs. fragmented
  2. Channel length:
  3. Channel exclusivity
    Channel quality
70
Q

Barriers to internal communication

A
  1. Cultural barriers
  2. Source & country of origin effects
  3. Noise levels
71
Q

Push strategy

A

Personal selling

72
Q

Pull strategy

A

Mass media advertising

73
Q

When is push strategy better

A

Industrial product and complex new products
Distribution channels are short
Few print or electronic media are available

74
Q

When is pull strategy better

A

Consumer good products
Distribution channels are long
Large media outlets available

75
Q

Pricing strategy considerations

A
  1. Price discrimination
  2. Strategic pricing
  3. Regulations that affect pricing decesions
76
Q

3 aspects of strategic pricing

A
  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
Q

Pricing affected

A
  1. Anti dumping regulations

2: competition policy: prevents monpolys

International Business (2 decks)

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