Introduction to IB chapter 6 Flashcards
Emerging economy MNEs
MNEs that originate from an emerging economy and are HQ’d there
Foreign Portfolio Investment (FPI)
Investment in a portfolio of foreign securities such as stocks and bonds
Upstream Vertical FDI
FDI in an usptream stage of the value
Horizontal FDI
FDI that creates operations abroad at the same position in the value chain as the operation in the home country
Joint ventures
operations with shared ownership by several domestic or foreign companies
Vertical FDI
FDI in operations in different stages of the value chain, upstream or downstream
FDI stock
the value of the assets of foreign-owned firms in a country, or controlled by a country’s firms abroad, at a particular point in time.
Downstream vertical FDI
FDI in a downstream stage of the value chain in two different countries
FDI flow
The amount of FDI moving in a given period (usually a year) in a certain direction
OLI paradigm
a theoretical framework which proposes that FDI is the most appropriate form of international business if three conditions are met: a company possesses Ownership, Locational and Internalization advantages (O-, L, and I-advantages)
L-advantages
advantages enjoyed by firms operating in certain locations
Location-bound resources
Resources that can’t be transferred abroad
O-advantages
Resources of the firm that are transferable across borders, and that enable the firm to attain competitive advantages abroad
Agglomeration
the location advantages that arise from the clustering of economic activities in certain locations
Knowledge spillovers
Knowledge diffused from one firm to others among closely located firms
Intra-firm trade
International trade between two subsidiaries in two countries controlled by the same MNE
Asset specificity
an investment that is specific to a business relationship
I-advantages
Advantages of organizing activities within a multinational firm rather than using a market transaction
Market failure
is when the market mechanism doesn’t function efficiently, making certain transactions too costly or difficult to complete.
licensing
a contract by which a firm allows another firm to use its intellectual property rights in return for a fee
Franchising
A contract by which a firm allows another firm to use its branded service or products in return for a fee
Dissemination risk
The risk associated with unauthorized diffusion of firm-specific knowledge
Local content requirements
Requirements that a certain proportion of the value of the goods made in a country originates from that country
Tax avoidance
reducing tax liability by legally moving profits to jurisdictions where tax rates are lower
Bargaining power
the ability to extract a favorable outcome from negotiations due to one party’s strengths
Obsolescing bargain
when a host government changes the terms of a deal with a multinational company after the company has already invested in the country.
Sunk costs
Up-front investments that are non-recoverable if a project is abandoned
Expropriation
Government confiscation of private (foreign-owned) assets
Soft budget constraint
Phenomenon that SOEs tend to receive extra resources from the state when facing financial difficulties
State-owned enterprises (SOEs)
Companies with direct ownership by the state
Sovereign wealth fund (SWF)
A state-owned investment fund composed of financial assets such as stocks, bonds, real estate or other financial instruments
