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1
Q

The Post Bretton Woods System

A

A system of flexible exchange rate regimes with no official common denominator Strengths: flexibility and diversity
Drawbacks: turbulence and uncertainty

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2
Q

The IMF:
Core responsibility: lending

A

-an international organization that was established to promote international monetary cooperation, exchange stability and orderly exchange arrangement
-lending

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3
Q

Strategic responses to foreign exchange movement
1. Spot transactions
2.Forward transaction
3. Currency swap
(Financial companies)

A

1.Single-shot exchange of one currency into another
2.A foreign exchange transaction in which participants buy and sell currencies now for future delivery
–primary benefit: to protect traders & investors from being exposed to the fluctuations of the spot rate
3. The conversion of one currency into another in Time 1, with an agreement to revert it back to the original currency at a specific Time 2 in the future

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4
Q

-fluctuations of the spot rate
–forward discount:
—forward premium:

A

=currency hedging
–a condition under which the forward rate of one currency relative to another currency is higher than the spot rate
—a condition under which the forward rate of one currency in terms of another currency is lower than the spot rate

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5
Q

How do banks make money by trading money?

A

They make money by capturing the difference between their offer rate (price to sell) and their bid rate (price to buy). The bid rate is always lower than the offer rate.

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6
Q

Nonfinancial companies
Currency risk:
2 strategies:
 Currency hedging
 Strategic hedging

A

the potential for loss associated with fluctuations in the foreign exchange market
Strategic hedging
Spreading out activities in a number of countries in different currency zones to offset any currency losses in one regions through gains in other regions

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7
Q

Competitor analysis:
3-Collusion: c
4-Tacit collusion:
5-Explicit collusion:
6-Cartel:
Antitrust laws: laws that outlaw cartels

A

1.
2.the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response
3. collective attempts between competing firms to reduce competition
4.firms indirectly coordinate actions by signalling their intention to reduce output and maintain pricing above competitive levels
5-firms directly negotiate output and pricing and divide markets
6-an output- & pricefixing entity involving multiple competitors

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8
Q

when is collusion possible?
5

A

Collusion possible
 Few firms
 Existence of industry price leader
 Homogeneous products
 High barriers to entry
 High market commonality

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9
Q

when is collusion difficult?

A

-Many firms
-No industry price leader
-Heterogeneous products
-Low barriers to entry
-Lack of market commonality

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10
Q

multimarket competition

A

engage same rivals in dif industries

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11
Q

Mutual forbearance

A

multimarket firms respect their rivals’ spheres of influence in certain markets, and their rivals reciprocate, leading to tacit collusion

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12
Q

Cross-market retaliation:

A

retaliatory attacks on a competitor’s other markets if this competitor attacks a firm’s original market

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13
Q

antitrust policy:
Competition policy: government policy governing the rules of the game in competition

A

government policy designed to combat monopolies and cartels

government policy governing the rules of the game in competition

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14
Q

Competition & antitrust policies focus on:
Collusive price setting

 Predatory pricing

A

Price setting by monopolists or collusion parties at a level higher than the competitive level

An attempt to monopolize a market by setting prices below cost and intending to raise prices to cover losses in the long rung after eliminating rivals

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15
Q

Dumping: an exporter selling goods below cost
Antidumping laws:

A

an exporter selling goods below cost

laws that make it illegal for an exporter to sell goods below cost abroad with the intent to raise prices after eliminating local rivals

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16
Q

Resource similarity:

A

the extent to which a given competitor possesses strategic
endowment comparable, in terms of both type and amount, to those of the local firm

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17
Q

Three drivers for counterattacks

A
  1. Awareness
    Blue ocean strategy: strategy that focuses on developing new markets and avoids attacking core markets defended by rivals
  2. Motivation
  3. Capabilities
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18
Q

Defender strategy:

Extender strategy:

Dodger strategy:

Contender strategy:

A

Defender strategy: strategy that centers on local assets in areas in which MNEs are weak

Extender strategy: strategy that centers on leveraging homegrown competencies abroad

Dodger strategy: strategy that centers on cooperating through joint ventures with MNEs and sell-offs to MNEs

Contender strategy: strategy that centers on a firm engaging in rapid learning and then expand overseas

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19
Q

International investment takes place in two basic ways:
 FDI (direct)
 FPI (indirect)
Foreign Portfolio Investment:

A

investment in a portfolio of foreign sucurities
such as stocks and bonds

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20
Q

Horizontal FDI:

Vertical FDI:

A

-a type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country

-a type of FDI in which a firm moves upstream of downstream at different value chain stages in a host county

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21
Q

FDI flow:
FDI inflow:
FDI outflow:
FDI stock:

A

1.the amount of FDI moving in a given period in a certain direction
2.inbound FDI moving into a country in a year
3.outbound FDI moving out of a country in a year
4.total accumulation of inbound FDI in a country or outbound FDI from a country across a certain period

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22
Q

OLI advantages :
Ownership

 Location

 Internalization

A

1.An MNE’s possession and leveraging of certain valuable, rare, hard-to-imitate and organizationally embedded assets overseas in the context of FDI

2.Advantages enjoyed by firms operating in a certain location

3.The replacement of cross-border markets with one firm (the MNE) locating and operating in two or more countries

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23
Q

Why firms prefer FDI to licensing
O advantages

A

 FDI reduces dissemination risks
The risk associated with unauthorized diffusion of firm-specific know-how

 FDI provides tight control over foreign operations Without FDI, the foreign firm cannot control its licensee

 FDI facilitates the transfer of tacit knowledge through ‘learning by doing Certain know-how may be too difficult to transfer to licensees without FDI tacit knowledge: non codifiable & needs practice

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24
Q

Location advantages
Agglomeration:
advantages
Knowledge spillover:

A
  1. clustering of economic activities in certain locations Advantages
    Advantages :
    Knowledge spillover
    Knowledge diffused from one firm to others among closely located firms
     Industry demand that creates a skilled labour force whose members may work for different firms without moving out of the region
     Industry demaind that facilitates a pool of specialized suppliers and buyers also located in the region
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25
Q

Intrafirm trade:

A

International transactions between the two firms

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26
Q

Political views on FDI. !!!!
 Radical view on FDI

 Free market view on FDI

 Pragmatic nationalism view on FDI

A

1.A political view that is hostile to FDI
Threats FDI as an instrument of imperialism, a vehicle for exploiting domestic resources

2.Suggests that FDI unrestricted by government intervention is the best

3.Considering both the pros and cons and approving FDI only when its benefits outweigh its costs

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27
Q

Benefits of FDI to HOST countries

A

Capital inflow
Can improve a country’s balance of payments

 Technology
Technology spillovers: technology diffused from foreign firms to domestic firms

 Advanced management know-how
 Job creation

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28
Q

costs of FDI to host countries

A

 Loss of sovereignty

 Adverse effect on competition
May drive some firms out of
business

 Capital outflow
Profits made will be send back to home countries

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29
Q

Benefits of FDI to home countries

A

 Repatriated (send back) earnings from profits from FDI

 Increased exports of components & services to host countries

 Learning from operations abroad

30
Q

costs of FDI to home countries

A

 Capital outflow  Job loss

31
Q

Liability of foreigness:
Manifested in two ways:

A

1.the inherent disadvantage foreign firms experience in host countries because of their non-native status

 Differences in formal and informal institutions govern the rules of the game in different countries
 Foreign firms are often still discriminated against

32
Q

Strategic goals:
Natural resource seeking

Market seeking

Efficiency seeking

Innovation seeking

A

a) Possession of natural resources and related transport and communication infrastructure

b) An abundance of strong market demand and customers willing to pay

c) Economies of scale and abundance of low- cost factors

d) Abundance of innovative individuals, firms, and universities

33
Q

Cultural distance:
Institutional distance:

A

-the difference between two cultures along identifiable dimensions such as individualism

–the extent of similarity or dissimilarity between the regulatory, normative and cognitive institutions of two countries

34
Q

Two schools of thought on where to enter
1)Stage model

2) The second school of thought argues that

A

Firms will enter culturally similar countries during their first stage of internationalization and will then gain more confidence to enter culturally distant countries in later stages

The second school of thought argues that it is more important to consider strategic goals rather than culture and institutions

35
Q

First-mover advantages:
benefits that accrue to firms that enter the market first and that late entrants do not enjoy

A

Proprietary, technological

 Preemption of scarce resources
mover investments

 Establishing entry barriers for late entrants

 Avoidance of clash with dominant firms at home
market changes

 Relationships with key stakeholders such as customers and government

36
Q

Late-mover advantages: benefits that accrue to firms that enter the market later and that early entrants do not enjoy

A

Opportunity to free ride on first-
leadership

 Resolution of technological and market uncertainty

 First-movers difficulty to adapt to
entrants

37
Q

Mode of entry: method used to enter a foreign market

Nonequity mode:

Licencing/franchising

A

a mode of entry (exports and contractual agreements) that tends to reflect relatively smaller commitments to overseas markets

The licensor/franchisor sells the rights to intellectual property such as patents and know-how to the livensee/franchisee for a royalty fee

38
Q

Nonequity mode:
Turnkey projects
and drawbacks

A

Clients pay contractors to design and construct new facilities and train personnel

drawbacks:
-Turnkey projects do not allow for a long-term presence
-If foreign clients are competitors, selling them technology through turnkey may boost their competitiveness

39
Q

Nonequity mode:
Build operate transfer (BOT)

A

Used to build a longer term presence by building and then operating a facility for
a period of time before transferring operations to domestic agency of firm

40
Q

Nonequity mode:

R & D contracts

 Co-marketing

A

–Outsourcing agreement in R&D between firms

-Efforts among a number of firms to jointly market their products and services

41
Q

Equity modes:

 Joint venture (JV)

 Wholly owned subsidiaries (WOS)

A

1) A new corporate entity created and jointly owned by two or more companies
2) Equity modes are indicative or relatively larger, harder-to-reverse commitments. An MNE enters foreign markets via equity modes through FDI

42
Q

Formal institutions: government regulations concerning start-ups
 Registrations
 Taxation
 Inspection

Informal institutions: individualistic and low uncertainty avoidance societies tend to
fester more entrepreneurs

A

gogo

43
Q

Direct exports

To reduce transaction risks, banks on both sides can facilitate this transaction by a letter of credit
letter of credit ?

A

The sale of products made by firms in their home country to customers in other countries.

a financial contract that states that the importer’s bank will pay a specific sum of money to the exporter upon delivery of the merchandise

44
Q

Licensing:

Franchising:

A

firm A’s agreement to give firm B the rights to use A’s proprietary technology or trademark for a fee paid to A by B

firm A’s agreement to give firm B the rights to use A’s proprietary assets for a royalty fee paid to A by B (servie industries)

45
Q

FDI
Advantages:
o disadvantages

A

1)–Becoming more committed to foreign markets
–A firm is better able to control how its technology and brand name are used
2) -Costs
o Complexityrequires a significant managerial commitment

46
Q

International strategies for staying in domestic markets:

A
  1. Indirect exports
    A way to reach overseas customers by exporting through domestic based export
    intermediaries
  2. Become suppliers for foreign firms
  3. Become licensees/franchisees of foreign brands
  4. Become alliance partners of foreign direct investors
  5. Harvest and exit through sell-offs
47
Q

Strategic alliance:

A

a voluntary agreement between firms involving exchange, sharing, or co-developing of products, technologies or services

48
Q

Contractual (non-equity-based) alliances:

A

alliances between firms that are based on
contracts and do not involve the sharing of ownership

49
Q

Equity-based alliances:

A

alliances based on ownership or financial interest between firms

50
Q

Acquisition:
Merger:

A

-transfer of the control of operations and management from one firm (target) to another firm (acquirer), the former becoming a unit of the latter

-the combination of operations and management of two firms to establish a new legal entity

51
Q

The impact of formal institutions on alliances and acquisitions can be found along two dimensions:

  1. Antitrust concerns
  2. Entry mode requirements
A

Antitrust authorities suspect at least some tacit collusion when competitors cooperate. However, because integration within alliances is usually not as tight as acquisitions, antitrust authorities are more likely to approve alliances than acquisitions

In many countries, governments discourage or ban acquisitions to establish wholly-owned subsidiaries

52
Q

Four factors that may influence alliance performance
1. Equity

  1. Learning and experience
  2. Nationality
  3. Relational capabilities
A
  1. A greater equity stake may indicate a higher-lever commitment, which is likely to
    result in higher performance
  2. Learning from partners is important in assessing alliance performance. Since
    learning is abstract, experience is often used to measure

3.Dissimilarities in national culture may create strains in alliances. International
alliances tend to have more problems than domestic ones

  1. The art of relational capabilities which are firm-specific and difficult to codify and transfer, may make or break alliances
53
Q

Hubris: over-confidence in one’s capabilities
Managerial motives: manager’s desire for power/money, which may lead to decisions that do not benefit the firm overall in the long run

A

yes- this are motives for acquisition

54
Q

Integration-responsiveness framework:

A

a framework of MNE management on how simultaneously deal with two sets of pressures for global integration and local responsiveness
 Cost reduction
 Local responsiveness

55
Q

Strategic choices
1. Home replication

  1. Localization
  2. Global standardization
  3. Transnational
A

1) A strategy that emphasizes the replication of home coutry-based competences in foreign countries
Manufacturing: manifested in export strategy
Services: done through licensing/franchising

2) A strategy that focuses on a number of foreign countries/regions, each of which is
regarded as a stand-alone local market worthy significant attention and adaption

3) A strategy that focuses on development and distribution of standardized products worldwide in order to reap the maximum benefits from low-cost advantages

4) A strategy that endeavors to be cost efficient, locally responsive and learning driven simultaneously around the world

56
Q

Home replication strategy:
-advantages
-disadvantages

A

1) Leverages home country-based advantages
 Relatively easy to implement
2) Lack of local responsiveness
 May result in foreign consumer alientation

57
Q

Localization strategy:
-advantages
-disadvantages

A

1) Maximizes local responsiveness
2) High costs due to duplication of
efforts in multiple countries

58
Q

Global standardization strategy:
-advantages
-disadvantages

A

1) Leverages low-cost advantages
2) Lack of local responsiveness
 Too much centralized control

59
Q

Transnational strategy:
-advantages
-disadvantages

A

1)Cost efficient while being locally responsive
- Engages in global learning and diffusion of
innovations
2) Organizationally complex
 Difficult to implement

60
Q

Knowledge management:

A

the structures, processes, and systems that actively develop, leverage and transfer knowledge

61
Q

Cross-listing:

A

listing shares on a foreign stock exchange, high costs, but the benefits outweigh the costs

62
Q

Concentrated versus diffused ownership
Concentrated ownership & control:
Diffused ownership:

A

founders start up firms and completely own and control them on an individual or family basis

publicly traded corporations owned by numerous small shareholders but non with a dominant level of control. Separation of ownership and control

63
Q

Family ownership

A

Advantages:
o Better incentives to focus on the long-run performance
o May minimize the conflicts between owners and managers Disadvantages
o May lead to selection of less qualified managers
o Destruction of value because of family conflicts
o Expropriation (onteigening) of minority shareholders

64
Q

State ownership
SOEs: state-owned enterprises

A

Owned and controlled by government agencies and officials far removed from ordinairy citizens and employees
Little motivation for SOE managers and employees to improve performance, because it could hardly benefit them personally

65
Q

Stakeholders:

A

any group or individual who can affect or is affected by the achievements of the organization’s activities

66
Q

Corporate social responsibility (CSR):

A

consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks

67
Q

A key goal for CSR is global sustainability:

A

the ability to meet the needs of the present without compromising the ability of future generations to meet theirs.

68
Q

Primary stakeholder groups:

A

constituents on which the firm relies for its continuous survival and prosperity
 Shareholders
 Managers
 Employees
 Suppliers
 Customers
Governments & communities (laws, regulations, taxes)

69
Q

Secundary stakeholder groups:

A

those who influence or affect, or are influenced or affected by, the corporation but are not engaged in transactions with the firm and are not essential for its survival
 Environmental groups
 Labor practice groups

70
Q

Institutions & CSR
The strategic response framework consists of:
1. Reactive strategy

  1. Defensive strategy
  2. Accommodative strategy
  3. Proactive strategy
A
  1. Reactive strategy
    A strategy that would only respond to CSR causes when required by disasters and
    outcries
  2. Defensive strategy
    A strategy that focuses on regulatory compliance but with little actual commitment to CSR by top management
  3. Accommodative strategy
    A strategy characterized by some support from top managers, who may
    increasingly view CSR as a worthwhile endeavor
  4. Proactive strategy
    A strategy that endeavors to do more than is required in CSR

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