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International Financial Management > L1 > Flashcards

L1 Flashcards

1
Q

Methods of establishing presecne in foreign markets

A
  1. international trade- produce in home, export to host
  2. international licensing- liscense foreign comp to use tech, trademark or know-how for free
  3. international distr and production- establish distri and produc facitility aboard and exercise control (FDI)
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1
Q

FDI meaning

A

process where resident of one country (home) gets ownership for produc, distr and other activities of a firm in another country (host)

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2
Q

Types of FDI

A
  1. horizontal
  2. vertical
  3. conglomerate
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3
Q

Horizontal

A

expansion to produce the same or similar products aboard

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4
Q

FDI

Vertical

A

adding a stage in the production process (back or fwd)

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5
Q

Conglomerate

A

involves both horizontal and vertical

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6
Q

Greenfield Invest

A

makes news produc, distri or other facility in host country
positive
+ good for host as creates jobs and increase production capicity

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7
Q

Cross border M&A

A

merge or acquire with established firm
neg:
- politically sensitive due to ownership and control of dom assets being transferred to foreingers
- might not increase production so less welcomed

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8
Q

Joint venture

A

with established firm in host country
each party contributes

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9
Q

theories of FDI

A
  1. Hymers 1976 industrial organization hypotheis
  2. location hypothesis
  3. internalisation hypotheis
  4. Eclectic or OLI Theory
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10
Q

what theories try to answer

A

why comp induldge in FDI and not other types of foreign invest
why do firms locate activites in one country, rather than another

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11
Q

Hymers 1976 Industrial organization hypothesis

A

firms do fdi: possess specific adavatage over domestic comps in that host country:

also called ownership advantage

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12
Q

Location Hypothesis

A

fdi because: access factors of production aboard at lower cost
Immobile factors can create locational advantages, drawing more FDI to them.

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13
Q

Example of Ownership Advantage

A
  • better access to cheap finance
  • superior managerial and organizational capabiliteis
  • superior technology and information
  • privileged access to RM or final goods market
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14
Q

Examples of locational advantages

A

Human capital
natural resource
infrastructure
political, legal
size and develop of financial system

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15
Q

location developing and developed countries

A

Developing
+high potential
+low wage
-high political risk

developed
-more comp markets
+mature financial system

16
Q

Internalisation hypothesis

A

Firms internally handle some production stages, replacing market transactions
covers why FDI instead of cross border or licensning

17
Q

what interalising hypothesis say it allows business to do

A

full control over product quality
avoid interruption to supplies due to lag or cost of buying and selling

18
Q

OLI or Eceltic

A

combines the other theories together
by john dunning
3 criteria for busi to choose FDI
1. ownership advatnage (O)
2. internalisation advantage (I) - benefits outweigh that of licensing them to dom firm
3. comp of both O and I advant with factors of production in host (L)

19
Q

Motives for FDI

A
  1. natural resoruce
  2. market
  3. efficiency
  4. strategic asset

follows OLI paradigm

20
Q

Natural resouce seeking

A

get:
* higher qual at lower real cost, than that of home country
* unable to get in country

e.g. fossil fuel

21
Q

Market seeking

A

exploit foreign market by supplying goods to host country/ exporting goods to nearby area

seekers want to protect their Market Share, exploit new markers

22
Q

Problems with market seeking

A
  • host country barrier to intenrational trade
  • cost and time lag of transport
  • tailoring products and services to meet local demands

horizontal FDI can bypass

23
Q

Efficiency seeking

A

Maximize benefits of shared ownership and governance for diverse production across regions
usually done by large, expe and diversified comps

Seekers integrate dispersed production facilities to benefit from each location’s strengths and create global synergy

24
Q

Stageic asset

A

promote LT strat by transforming core comptency and competivie position
usually knowledge based resources and for:
* get foreign supplier to control market inputs
* merge with foreign comp to drive another out of busi

25
Q

Benefits and cost of FDI

A
  1. output growth
  2. employment, wages, income equality
  3. technology advances
  4. market structure
  5. enviroment and qaulity of life
26
Q

Output growth +

Benefits and cost of FDI

A

increase total cap accum
more tax revenue
spill over to local firms- employee from big firm goes to small, brings knowledge
efficiency

27
Q

Employment

Benefits and cost of FDI

A

maybe good or bad:
* depends if greenfield or acquistion of firm
* empir evid mixed- varies across countries, indus types and motive of invest

28
Q

Wages

Benefits and cost of FDI

A

MNE’s usually pay higher
causes income inequality- wages of skilled increase from those unskilled

29
Q

Income inequality

Benefits and cost of FDI

A

demand for high skilled workers in both home and host coutnry increased

30
Q

Technology advances

Benefits and cost of FDI

A

technological spill over- local firms can learn about effieceny and tech
still tech cap in OECD countries- aerospace
tech diffusions stronger in vertical production and distr chain

31
Q

tech spillover stages

Benefits and cost of FDI

A
  1. transfer
  2. diffusion- tech learned by local firm
  3. absorption- host country local adpats tech to their advan

e.g., Japenese R&D and production

32
Q

Market strucutre

Benefits and cost of FDI

A

foreign comp may reduce industrial concentration by their entry
foreing comp may take up some market share, previously held by domestic producer

33
Q

Enviroment and quality of Life

Benefits and cost of FDI

A

FDI- either boon or bane for enviroment
dependant on industry and orginin of country

International Financial Management (9 decks)

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