Midterm Flashcards
International Business
(1) a business (firm) that engages in international economic activities
(2) the action of doing business abroad
Multinational Enterprise
firm that engages in foreign direct investment by directly investing in, controlling, and managing value-added activities in other countries
Foreign direct investment
Investment in, controlling, and managing value-added activities in other countries
Global Business includes
international and domestic business activities
Global Mindset
Ability to connect the dots globally
Institution-based view
- Formal and informal rules of the game
- Suggests that the success and failure of firms are enabled and constrained by institutions
IBV - Formal Institutions
Laws, Regulations, Rules
IBV - Informal Institutions
Cultures, Ethics, Norms
Resource-based view
A Firm competitive advantage is based on its valuable, rare, inimitable, and non substitutable resources
Liability of Foreignness
Inherent disadvantage that foreign firms experience in host countries due to nonnative status
Globalization
the close integration of countries and peoples of the world
- Advocates argue it contributes to greater economic growth, higher standards of living, improved technology
- Critics argue it destroys jobs in rich countries, exploits workers in poor countries, grants MNEs too much power, degrades the environment
Emerging economies (emerging markets)
fast growing developing economies
Reverse Innovation
an innovation that is adopted first in emerging economies and then diffused around the world
Risk Management
Identification and assessment of risks and the preparation to minimize the impact of high-risk events
Black Swan Event
An unpredictable event that is beyond what is normally expected and that has severe consequences
Semiglobalization
Suggests that barriers to market integration at borders are high, but not high enough to insulate countries from eachtoher
Gross national product
GDP plus income from nonresident sources
Purchasing Power Parity
A conversation that determines the equivalent amount of goods and services that different currencies can purchase
Nongovernmental Organizations
an organization that is not affiliated with any government
Deglobalization
The process of weakening economic interdependence among countries
Global Value Chain
A chain of geographically dispersed and coordinated activities involved in the production of a good or service and its supply and distribution activities
Regulatory Pillar
The coercive power of governments
Normative Pillar
The mechanism through which norms influence individual and firms behaviour
Norms
Values, beliefs, and actions of relevant players that influence the focal individual and firms
Cognitive Pillar
The internalized values and beliefs that guide individual and firm behaviour
Transaction cost
The cost of doing business
Transition Economy
Emerging economies, particularly those moving from central planning to market competition
Nonmarket strategy
Strategy that centers on leveraging political and social relationships
Geopolitics
International political relations
Civil Law
Uses statutes and codes
Common Law
Shaped by precedents and traditions from previous decisions
Economic System
Rules of the game on how a country is governed economically
Market Economy
An economy that is characterized by the “invisible hand” of market forces
Command Economy
An economy that is characterized by government ownership and control of factors of production
Mixed Economy
An economy that has elements of both a market economy and a command economy
Ethnocentrism
A self-centered mentality by a group of people who perceive their own culture, ethics, and norms as natural, rational, and morally right
Culture
The collective programming of the mind that distinguishes the members of one group or category of people from another
Lingua Franca
A global business language
Social Structure
The way a society broadly organizes its members
Social Structure - Social Stratification
The hierarchical arrangement of individuals into social categories such as classes, castes, and divisions within a society
Social Structure - Social Mobility
The degree to which members from a lower social category can rise to a higher status
Low-context culture
A culture in which communications is usually taken at face value without much reliance on unspoken context
High-context culture
A culture in which communication relies a lot on the underlying, unspoken content, which is as important as the words used
Cluster
Countries that share similar cultures
Power Distance
The extent to which less powerful members within a culture expect and accept that power is distributed unequally
Individualism
The idea that an individuals identity is fundamentally his or her own
Collectivism
The idea that an individual’s identity is fundamentally tied to the identify of his or her collective group
Ethics
The principles, standards, and norms of conduct that govern individual and firm behaviour
Ethical relativism
A perspective that suggests that all ethical standards are relative
Ethical Imperialism
A perspective that suggests that “there is one set of Ethics and we have it”
Extraterritoriality
The reach of one country’s laws to other countries
Cultural Distance
The difference between two cultures along identifiable dimensions
Institutional distance
The extent of similarity or dissimilarity between the regulator, normative, and cognitive institutions of two countries
Cultural intelligence
An individuals ability to understand and adjust to new cultures
Value Chain
A stream of activities from upstream to downstream that add value
Benchmarking
Examining whether a firm has resources and capabilities to perform a particular activity in a manner superior to competitors
Commoditization
A process of market competition through which unique products that command high prices and high margins gradually lose their ability to do so, thus becoming commodities
Outsourcing
Turning over an activity to an outside supplier that will perform it on behalf of the focal firm
Offshoring vs Onshoring
Offshoring - outsourcing to an international or foreign firm
Onshoring - outsourcing to a domestic firm
VRIO
Resource-based framework that focuses on the value, rarity, imitability, and organizational aspects of resources and capabilities
Complementary asset
The combination of numerous resources and assets that enable a firm to gain a competitive advantage
Business Process Outsourcing
Outsourcing business processes to third-party providers
Original equipment manufacturer
Firm that executes design blueprints provided by other firms and manufactures such products
Original design manufacturer
Firm that both designs and manufactures products
Original brand manufacturer
Firm that designs, manufactures, and markets branded prodcts
Reshoring
Moving formerly offshored activities back to the home country
Trade Surplus
An economic condition in which a nation exports more then it imports
Trade deficit is the opposite
Theory of mercantilism
A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer
Free Trade
The idea that free market forces should determine how much to trade with little or no government intervention
Theory of Absolute Advantage
A theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage
Theory of Comparative Advantage
A theory that focuses on the relative advantage in one economic activity that one nation enjoys in comparison with other nations
Factor endowment theory
A theory that suggests that nations will develop comparative advantage based on their locally abundant factors
Strategic trade theory
A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success
Theory of national competitive advantage of industries
A theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects
- Firm strategy, structure, and rivalry
- Country factor endowments
- Domestic demand conditions
- Related and supporting industries
Subsidy
Government payment to domestic firms
Foreign Portfolio Investment
Investment in a portfolio of foreign securities such as stocks and bonds
Sovereign wealth fund
A state-owned investment fund composed of financial assets such as stocks, bonds, real estate, and other financial instruments
Horizontal FDI
A type of FDI in which a firm duplicates its home country-based activities at the same value-chain stage in a host country
Vertical FDI
A type of FDI in which a firm moves upstream or downstream at different value chain stages in a host country
Upstream vertical FDI
A type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country
Downstream vertical FDI
A type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country
FDI flow
Amount of FDI moving in a given period in a certain direction
FDI inflow
Inward FDI moving into a country in a given period
FDI outflow
Outward FDI moving out of a country in a given period
OLI Advantage
A firms question for ownership advantages, location advantages, and internalization advantages via FDI
OLI - Ownership
An MNE’s possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded assets overseas
OLI - Location
Advantage enjoyed by firms operating in a certain location
OLI - Internalization
The replacement of cross-border markets with one firm locating and operating in two or more countries
Dissemination Risk
Risk associated with unauthorized diffusion of firm-specific know-how
Agglomeration
Clustering of economic activities in certain locations
Knowledge Spillovers
Knowledge diffused from one firm to others among closely located firms
Oligopoly
Industry dominated by small number of players
Intrafirm trade
International transactions between two subsidaries in two countries controlled by the same MNE
Free market view
A political view that suggests that FDI unrestricted by government intervention is the best
Technology Spillover
Technology diffused from foreign firms to domestic firms
Institutional Void
Institutional conditions of a country lacking market-supporting infrastructure
Location-Specific Advantage
Benefits a firm reaps from the features specific to a place
First-Mover Advantage
benefits that accrue to firms that enter the market first and that late entrants do not enjoy
Late-Mover Advantage
Benefits that accrue to firms that enter the market later and that early entrants do not enjoy
Scale of entry
Amount of resources committed to entering a foreign market
Nonequity mode
Mode of entry that reflects relatively smaller commitments to overseas markets
Equity Mode
Mode of entry that indicates larger commitments to overseas markets
Entry Mode
A form of operation that a firm employs to enter foreign markets
Turnkey Project
a delivery method in which a contractor works with a project owner under a single contract to complete all project stages from detail engineering through construction
Build-Operate-Transfer agreement
A nonequity entry mode used to build a longer-term presence by first constructing and then operating a facility for a period of time before transferring operations to a domestic agency or firm
Research and Development Contract
outsourcing agreement in R&D between firms
Co-marketing
effors among a number of firms to jointly market their products and services
Joint Venture
A new corporate entity created and jointly owned by two or more parent companies
Wholly owned subsidary
A subsidiary located in a foreign country that is entirely owned by the parent multinational
Linkage, Leverage, and Learning advantages
A firms quest of linkage advantages, leverage advantages, and learning advantages, which are typically associated with multinationals from emerging economies
Country of origin effect
The positive or negative perception of firms and products from a certain country
Reciprocity
Informal agreement based on mutual exchange of gratifications
Strategic alliance
Voluntary agreement of cooperation between firms
Contractual alliance
Alliance between firms that is based on contracts and does not involve sharing of ownership
Equity-based alliance
Alliance based on ownership or financial interest between the firms
Strategic investment
One firm investing in another as a strategic investor
Cross-Shareholding
Both firms investing in eachother to become cross-shareholders
Acquisition
Transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter
Merger
Combination of operations and management of two firms to establish a new legal entity
Due diligence
Investigation prior to signing contracts
Learning race
Race in which partners aim to outrun eachother by learning the “tricks” from the other side as fast as possible
Relational capability
Ability to manage interfirm relationships
Acquisition Premium
Difference between acquisition price and market value of target firms
Strategic Fit
Effective matching of complementary strategic capabilities
Organizational fit
The similarity in cultures, systems, and structures
Hubris
Overconfidence in ones capabilities
Managerial motive
Managers desire for power, prestige, and money. which may lead to decisions that do not benefit the firm overall in the long run
Expatriate
Person living outside their native country
Inpatriate
An employee who is transfered to a different country where the company headquarters is
Repatriate
Sending someone back to their home country
Opportunism
The act of self-interest seeking with guile
IBV two core propositions
- Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework
- While formal and informal institutions combine to govern firm behaviour, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms
Bounded Rationality
The necessity of making rational decisions in the absence of complete information
Political Risk
Risk associated with political changes that may negatively impact domestic and foreign firms
3 ways to understand cultural differences
Context, Cluster, Dimensions
Approaches to managing ethics overseas
- Respect for human dignity and basic rights
- Respect for local traditions
- Respect for institutional context
Resource / Capability
The tangible and intangible assets a firm uses to choose and implement its strategies
Sensing
Abilities to discover opportunities
Seizing
Abilities to capture value from opportunities
Reconfiguration
Ability to remain flexible by redesigning business models, realigning assets, and revamping routines
SWOT analysis focuses
RBV: S and W
IBV: O and T
Casual ambiguity
Difficulty of identifying the actual cause of a firms successful performance
3 Pillars of IBV
Regulative
Normative
Cognitive
Classic Trade Theories
- mercantilism
- absolute advantage
- comparative advantage
Key Question
What determines the success and failure of firms around the globe?
Formal Institutions Pillar
Regulatory
Intellectual Property Rights
Rights regarding ownership of intellectual property
Intellectual property
Intangible property that is the result of intellectual activity
Informal institutions pillars
Normative, Cognitive
Democracy
Citizens elect representatives
Totalitarianism (dictatorship)
One person or party exercises absolute political control over the population
Authoritarianism
Political plurality is undermined and concentrated government power is imposed
Dynamic capability
Ability to reconfigure its resources and capabilities
International Trade RBV
exports that are valuable, unique, hard to imitate
International Trade IBV
Different rules governing trade are designed to determine how gains are shared or not shared
Factor Endowment
Extent to which different countries possess various factors of production
Product Life cycle theory
theory that accounts for changes in the patterns of trade over time by focusing on product life cycles
Management control right
The right to appoint key managers and establish control mechanisms
Pragmatic nationalism
Political view that only approves FDI when its benefits outweigh its costs
FDI Benefits
Host country:
- Capital inflow
- Technology spillovers
- Job creation
Home country:
- Repatriated earnings
- Increased exports
- Learning via FDI
Expropriation
Government’s confiscation of foreign assets
Obsolecing bargain
Deal struck by MNEs and host governments that change requirements after initial FDI entry
How MNEs negotiate with host governments
Common interests, Conflicting interests, Compromises
Integration-responsiveness framework
Framework of MNE management on how to simultaneously deal with the pressures for both global integration and local responsiveness
Local Responsiveness
The necessity to be responsive to different customer preferences around the world
Home Replication Strategy
Emphasizes the duplication of home country based competencies in foreign countries
Localization Strategy
Focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone local market worthy of significant attention and adaptation
Global Standardization Strategy
Focuses on development and distribution of standardized products worldwide in order to reap the maximum benefits from low-cost advantages
Centre of Execllence
MNE subsidiary explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by, and/or disseminated to other subsidiaries
Worldwide mandate
charter to be responsible for one MNE function throughout the world
Transnational Strategy
Endeavours to be simulaneously cost-efficient, locally responsive, and learning driven around the world
International Division
Organizational structure that is typically set up when firms initially expand abroad
Geographic Area Structure
Organization structure that organizes the MNE according to different geographic areas
Country (regional) manager
Manager of Geographical area
Global product division structure
organizational structure that assigned global responsibilities to each produce division
Global Matrix
organizational structure used to alleviate the disadvantages associated with both geographic area and global product division structures
Organizational Culture
Collective programming of mind that distinguishes the members of one organization from another
Knowledge management
Structures, processes, and systems that actively develop, leverage, and transfer knowledge
Explicit Knowledge
Knowledge that is codifiable (can be written down and transferred without loss of richness)
Tacit Knowledge
Knowledge that is noncodifiable, whose acquisition and transfer require hands-on practice
Open Innovation
Use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand the markets for external use of innovation
Absorptive Capacity
Ability to recognize the value of new information, assimilate it, and apply it
Social Capacity
Informal benefits individuals and organizations derive from their social structures and networks
Micro-Macro Link
Micro, informal interpersonal relationships among managers of various units may greatly facilitate macro, intersubsidary cooperation among these units
Subsidiary initiative
Proactive and deliberate pursuit of new opportunities by a subsidary
Global Account structure
Customer focused dimension that supplies customers in a coordinated and consistent way across various countries
Solution based structure
Customer-focused solution in which a provider sells whatever combination of goods and services the customers prefer
Corporate Social Responsibility
Consideration of, and response to, issues beyond the narrow economic, technological, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains that the firm seeks
Fiduciary duty
Duty by law
Global Sustainability
Ability to meet needs of the present without compromising the ability of future generations to meet their needs around the world
Primary stakeholder
Group of constituents on whom the firm relies on for continuous survival
Secondary stakeholder
Stakeholder who influence or affect, but are not engaged with transactions of the firm and are not essential for its survival
Corporate Social Performance
Social performance outcomes of firms CSR
ESG Performance
Performance yardstick consisting of environmental, social, and governance dimensions
Socially responsible investment
Investment in firms that have excellent environmental, social, and governance performance
Shareholder primacy
Places shareholders as the most important stakeholder group
Stakeholder capitalism
View of capitalism that suggests firms must respect stakeholder interests
Corporate Social Irresponsibility
Lack of CSR
Stakeholder primacy
Suggests that a firm needs to have a fundamental commitment to all stakeholders
Reactive strategy
Strategy that would only respond to CSR causes when required
Defensive strategy
Strategy that focuses on regulatory compliance but little commitment to CSR
Accommodative strategy
Strategy characterized by viewing CSR as worthwhile
Proactive strategy
Doing more that is required with CSR
Corporate philanthropy
Firms donation to social causes
