Lecture 3

Question 1

Indirect exporting mode

Answer 1

Rely on intermediary, a sales agent or trading company to complete the export transaction

Question 2

Direct exporting mode

Answer 2

Here, you have to take on research, marketing, finance, logistics involved in the trade transaction: a lot of it involves the management team familiarizing itself with foreign law codes, and regulations
* As experience is built amongst management, the task becomes easier, and less riskier

Question 3

Licensing

Answer 3

Sell a license to a foreign firm to allow it to use the home- country firm’s production process; including logos, trademarks, designs, branding; foreign firm pays royalties: often about licensing
technology (this is often used by manufacturing firms

Question 4

Franchising

Answer 4

Licensing, plus exercising more control to ensure consistency: often a retail arrangement (e.g. fast food

Question 5

Subcontracting

Answer 5

Hiring foreign firm to produce a product to certain specifications (materials, processes, and quality

Question 6

JV

Answer 6

Joint Venue. Establishing a new firm which is jointly owned with a foreign firm: thus, you can rely on foreign expertise of the foreign market

Question 7

M&A

Answer 7

Mergers and Acquisitions. The most common form of FDI.
* If a company buys part of the shares of a foreign company, we call this a merger (Daimler-Chrysler)
* If it buys all, we call it an acquisition (e.g., Microsoft buying Mojang M&As tend, historically, to come in waves, when economic and political conditions are favorable

Question 8

Atracction

Answer 8

Already existing company, with successful product, market, etc., easier than starting from scratch, esp in a foreign marke

Question 9

Resource Seeking:

Answer 9

Home company wants resources from the foreign country
Natural resources, or human resources, or technologies

Question 10

Greenfield Investment

Answer 10

Start from scratch

Question 11

Market Seeking

Answer 11

Market Seeking: This is how large companies attempt to continually increase their profits

Question 12

Efficency seeking

Answer 12

• To rationalize the structure of established resource-based or market- seeking investment in a way that the company can gain from the common governance of geographically dispersed activities
• Economies of scale, economies of scope (producing 2 or more things together, b/c. e.g. they go into the same product, or firm-level economies)
• Most suited to Multi-National Enterprises (MNEs)

Question 13

Strategic asset seeking:

Answer 13

To beat out other competitors in an oligopolistic game of international advantage

Question 14

Intra-firm trade

Answer 14

Makes up a very large percentage of global trade (about 1/3)
* Intra-firm trade means, when parts of a company produce, and then sell things, to other parts of the same company (which might or might not do entirely different things, but which have the same ownership

Question 15

Value chains

Answer 15

A major thing that managers have to do, is make sure that they
rationalize the production process
* This can be divided into tasks
* These task charts are called value chains
* You can move vertically upwards and downwards in your value chain, and also, if you are multinational, you can move horizontally
* And each task (or maybe every task) can be done in a different
country, when you are a Multi-National Enterprise (MNE

Question 16

Firm-specific assets

Answer 16

Your company’s collection of tangible (e.g. machines, office space) assets, plus intangible (expertise, good working relationships) assets, makes the decision to produce in a certain country efficiency gaining
* This will be different for each firm

Question 17

BITs

Answer 17

Bilateral investment treaty. Protect captital flows between 2 countries, and restrict taxation, ect. This type of treaty is extremely important to assure investors

Question 18

RIT

Answer 18

Regional investment treaty

Question 19

IIAs

Answer 19

International Investment Agreements

Question 20

UNCTAD

Answer 20

UN Conference on Trade and Development

Question 21

Ownership requirements

Answer 21

• Ownership requirements: e.g.: foreign firms excluded from certain sectors on national security grounds; e.g. petroleum
• Or limit foreign ownership to a maximum specified amoun

Question 22

Performance requirements

Answer 22

• Place controls on the behavior of the foreign firm in a number of areas
• MNE has to maintain a minimum level of locally sourced intermediate inputs: Local content requirement
• Also in areas of training, tech transfer, exports, local R&D, and hiring of local managers

Question 23

TRIMS

Answer 23

Trade Related Investment Measures , some of these are prohibited by Marrakesh Agreement
* Some times include domestic content, trade balancing, Forex balancing, domestic sales requirements

Question 24

EPZ

Answer 24

Export Processiong Zone.
* Special place for MNEs to locate
* Enjoy a number of concessions bundled together
* Including favorable treatment in infrastructure, taxation, tariffs on
imported intermediate goods, and labour costs
* Will export most of their produce from this area
* These are also controversial; arguably they create jobs; but also allow MNEs to get away with little taxatio

Question 24

MAI

Answer 24

Multilateral Agreement on Investment. Host countries apply national treatment to foreign firms

Question 25

R&D

Answer 25

Research and development represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings. R&D allows a company to stay ahead of its competition by catering to new wants or needs in the market.

Question 26

MNEs

Answer 26

Multi-National Enterprises (MNEs)