Globalization and Other Transactions

Question 1

Factors that drive globalization

Answer 1

Deregulation of financial markets
Improvements to transportation
Technological advancements
Organizational/operational options for international business

Question 2

Licensing

Answer 2

Providing an entity the right to use processes or technologies in exchange for a fee

Question 3

Franchising

Answer 3

Providing an entity marketing service or delivery strategy that allows for training and related service delivery resources in exchange for a fee

Question 4

Joint ventures

Answer 4

Taking advantage of a comparative advantage of one or both of the participants in marketing or delivering a product

Question 5

Direct foreign investment

Answer 5

Establish international operations by purchasing a foreign company as a subsidiary of starting a subsidiary operation in a foreign country

Question 6

Global sourcing

Answer 6

Synchronization of all organization operations on an international basis

Question 7

Risks of exchange rate fluctuation

Answer 7

Transaction risk
Economic risk
Translation risk

Question 8

Risks of foreign economies

Answer 8

Foreign demand
Interest rates
Inflation
Exchange rates
Political risk

Question 9

Horizontal combination

Answer 9

Companies in same industry produce same goods/services under single management

Question 10

Vertical combination

Answer 10

Combination of companies at different stages of the production process
Companies are some same or multiple industries

Question 11

Diagonal combination

Answer 11

Engage with a company that provides ancillary support for the the main company’s primary activity

Transportation services for a slaughterhouse

Question 12

Circular combination

Answer 12

When different business units with relatively remote connections come together under single management. Reduces over all administrative and/or operational costs

Big pharma with contribution company for elderly homes

Question 13

Tender offer

Answer 13

A company makes an offer directly to a company’s shareholders to buy the outstanding shares

Question 14

Sell-off

Answer 14

Outright sale of subsidiary because lack of synergy or alignment

Question 15

Spin-off

Answer 15

New, independent company by separating a subsidiary from parent
Completed with stock dividends to existing shareholders or offering shareholders stock in parent company
usually when unit is less profitable

Question 16

Equity carve-out

Answer 16

Subsidiary is made public through IPO
Cash comes from the sale of shares which goes to parent
Unlocks independent value of sub formerly contained in parent