Internationalisation of Business

Question 1

What is Peng and Meyers definition of a MNC?

Answer 1

A firm that engages in FDI and operates in multiple countries.

Question 2

What is Dickens definition of an MNC?

Answer 2

A firm that has the power to co-ordinate and control operations in more than one country, even if it does not own them.

Question 3

Is it just MNC that do business abroad?

Answer 3

NO!!!

Non-MNCs engage in international business through:

• Importing/exporting
• Licencing/ franchising
• Outsourcing
• Engaging in FPI

IT IS FDI THAT SETS MNC APART FROM NON-MNCS

Question 4

Why do firms become MNCs?

Answer 4

1) Diversify against risk
2) Expand
3) Enter growing markets
4) Gain foothold in economic trade blocks
5) Take advantage of technological expertise
6) Respond to foreign competition

Question 5

Why is a MNC different from a non-MNC (domestic firm?

Answer 5

1) No FDI in domestic firm
2) Exposure to international risks are limited as domestic firm
3) Domestic firms are not exposed to the same level of conflict and cultural difference

Question 6

What are the two types of international investment?

Answer 6

1) FDI (Foreign Direct Investment)

2) FPI (Foreign Portfolio Investment)

Question 7

What is FDI?

Answer 7

Foreign Direct Investment:

Investment by an organisation in a business in a different country, with a view to establishing production in the host country (Morrison, 2009)

Question 8

What is FPI?

Answer 8

Investment in a portfolio of foreign stocks and bonds that do not entail any active management of the companies.

Question 9

What are the drivers of FDI?

Answer 9

1) Cost differences between locations
2) Quality of infrastructure
3) Real GDP growth
4) Natural resource endowments
5) Ease of doing business and availability of skills
6) Access to larger markets (however decreasing in importance due to globalisation)
7) Firms are seeking competitive advantage based on wages, skills and productivity

Question 10

What are the motives behind internationalisation?

Answer 10

1) Resource seekers
2) Market seekers
3) Efficiency seekers
4) Strategic asset seekers

Question 11

What are the different ways of engaging in FDI?

Answer 11

1) Acquisition
2) Greenfield
3) Joint venture (investing company parters with company already in the host country to form a new company)

Question 12

What was the overview of FDI in 2014?

Answer 12

12,096 TOTAL PROJECTS

$649bn capital investment (as opposed to $619bn in 2013)

China top destination country

Real estate was top sector for investment (as opposed to oil and gas in 2013)

1,800,000 jobs created (300,000 more than the previous year)

Question 13

Trends in FDI?

Answer 13

FDI accounts for 40% of external development finance for developing countries

Despite the fact developed countries saw a significant decrease in FDI, developing countries saw an all time high in 2014-2015

Question 14

What will attract FDI?

Answer 14

FDI is market seeking and countries that foster a high-growth economy will attract FDI, further increasing economic growth

Question 15

What is the Hymer Theory?

Answer 15

A theory that emphasises the level of control as the major difference between FDI and FPI.

International production is undertaken through the transfer of resources and taking advantage of a firms specific advantages.

Question 16

Critique of theories explaining FDI and internationalisation?

Answer 16

1) Culture is left out of trade theories
2) Sometimes there is no choice of entry mode when a government is so restrictive
3) Sometimes if the market is small exporting may be the best option
4) Some countries trade more due to historical and political ties

Question 17

What is Dunning’s Eclectic Paradigm?

Answer 17

Dunning’s Eclectic Paradigm is based on three factors:

1) Ownership advantages ( resources that attain competitive advantage)
2) Location advantages (cheap labour, tax systems, political/economic stability)
3) Internationalisation (control through self handling of operations)

Internationalisation advantages are based on the transaction cost theory.

Question 18

Why is Dunning’s Paradigm known as eclectic?

Answer 18

Dunning’s Eclectic Paradigm is known as eclectic because it draws on different theories to bring together concepts from diverse research stands.

Question 19

What is transaction cost theory?

Answer 19

Companies should seek the lower cost between handling something internally and contracting another party to handle something for them.