Lecture 10

Question 1

What are the factors that are drawing more companies into the international market arena?

Answer 1

Foreign markets present higher profit opportunities than the domestic market
Companies need larger customer base to achieve economies of scale
Company wants to reduce its dependence on any one market
Global firms offering better products or lower prices can attack the company’s domestic market. The company might want to counterattack these competitors in their home markets.

Question 2

What are the major external criterias for deciding the mode of entry?

Answer 2

Market size and growth
Risk
Government regulations
Competitive environment
Local infrastructure

Question 3

What are the key internal criteria of deciding the mode of entry?

Answer 3

Company objectives
Need for control/full control
Internal resources, assets and capabilities

Question 4

What are the different modes of entry?

Answer 4

Exporting
Licensing
Franchising
Contract manufacturing
Investment
Investment via ownership or equity stake

Question 5

What is indirect exporting?

Answer 5

It is when firms sell their products in the foreign market via an intermediary located in the firm’s home country

Question 6

What is direct exporting?

Answer 6

It is when firm’s handle their own exports which is increases investment, risk, and potential return.

Question 7

What is licensing?

Answer 7

It is when companies can operate in foreign markets by way of having the licensor offer to use a manufacturing process, trademark, some proprietary assets to a foreign company (the licensee) in exchange for royalty fees of sales revenues

Question 8

What is franchising?

Answer 8

It is an arrangement whereby the franchisor gives the franchisee the right to use the franchisor’s business concept and product trade name in exchange for royalty payments

Question 9

What is contract manufacturing?

Answer 9

It is when a global company provides technical specifications to a subcontractor or local manufacturer

Question 10

What is foreign direct investment?

Answer 10

They are figures that reflect investment flows out of the home country as companies invest in or acquire plants, equipment, or other assets

Question 11

What is a joint venture?

Answer 11

It is a more extensive form of participation, specifically when done with a local partner
With a joint venture, the foreign company agrees to share equity and other resources with other partners to establish anew entity in the target country.

Question 12

What is investment via ownership or equity stake?

Answer 12

It is the most extensive form of participation in global markets

Question 13

What do acquisitions provide?

Answer 13

They provide a rapid means to get access to the local market and are a variable option to obtain well-established brand names

Question 14

What are strategic alliances?

Answer 14

They links between companies from different countries to jointly pursue a common goal

Question 15

What do weak alliances create?

Answer 15

They create a recipe for disaster

Question 16

What does equal ownership alliances mean?

Answer 16

It means that partners are equally concerned about the other’s success

Question 17

What is the risk criteria of the political and economic environment?

Answer 17

stability of the political system
degree of control of economic system
effectiveness of public administration
labor relations and social peace

Question 18

What is the risk criteria of the domestic economic conditions?

Answer 18

population size
per capita income
economic growth during previous 2 years
inflation during previous 2 years
availability of high-quality local labour

Question 19

What is the risk criteria of the external economic relations?

Answer 19

restrictions imposed on imports
restrictions imposed on exports
restrictions imposed on foreign investments in the country
restrictions imposed on monetary transfers
restrictions on the exchange of local money into foreign currencies

Question 20

What are the risks associated with changes in company ownership?

Answer 20

Changes in ownership structure are usually due to dramatic political changes, such as wars or «coups-d’état». A company may face the expropriation or confiscation of its property, or ti may face the nationalization of its industry.

Question 21

What is expropriation?

Answer 21

Expropriation refers to foreign government’s takeover of company goods, land, or other assets, with compensation that tends to fall short of their market value

Question 22

What is confiscation?

Answer 22

Confiscation is an outright takeover of assets without compensation.

Question 23

What is nationalization?

Answer 23

Nationalization refers ot foreign government’s takeover for the purpose of making the industry a government-run industry. In nationalization, companies usually receive some level of compensation for their losses.

Question 24

How do companies reduce risk of expropriation, confiscation or nationalization?

Answer 24

Many companies use joint ventures with local companies