MNC, FDI, Int Strat

Question 1

Why do nations collaborate?

Answer 1

1. political benefits:
   peace
   more political weight
2. economic benefits:
   more trade
   income growth
   access to resources
   consistent rules for trade

Question 2

what economic integration groups do you reckon?

Answer 2

1. Free trade area: removal of intragroup tariffs
2. Customs union: removal of intragroup tarifs and common external tariff
3. Common market: removal of intragroup tariffs, common external tariff, and free movement of goods, people, and capital
4. Economic union: removal of intragroup tariffs, common external tariff, free movement of good/people/capital, and common economic policies
5. Political union: removal of intragroup tariffs, common external tariff, free movement of goods/people/capital, common economic policies, and integration of political and economic affairs (policymaking regulations etc)

Question 3

What are the disadvantages of economic integration?

Answer 3

1. Political
   discrimination against firms outside a region undermine global integration
2. Economic
   chance of loss of sovereignty and increased dependency on other countries

Question 4

How would you define economic integration?

Answer 4

Efforts to reduce trade and investment barriers within one region / around the globe

Question 5

What is the GATT?

Answer 5

Multilateral agreement covering international trade (just look a t the name)

Question 6

What is the WTO

Answer 6

The body overseeing multilateral trading systems

Question 7

What does the GATT-WTO system prohibit the imposition of?

Answer 7

1. export subsidies (excluding agricultural products)

2. Import quotas
3. Tariffs
4. Dispute settlement mechanisms (it is GATT and WTO who decides on disputes)

Question 8

what is a trade round?

Answer 8

when a group of countries gets together to negotiate tariff reductions and other measures to liberalize trade

Question 9

What is the debate on WTO?

Answer 9

Supporters give the example of China, which became a leading economy since joining the WTO

Critics point out that there is no compelling evidence that the WTO has had a significant positive influence on trade

Question 10

What is the NAFTA?

Answer 10

North America Free Trade Agreement, between CANADA, US, and MEXICO.

it:
1. decreased tariffs, but did not lift regulations
2. increased wages
3. boosted industrial and trade integration
3. created more jobs in the US (mexicans benefited less than expected)

Question 11

what did NAFTA become?

Answer 11

USMCA in 2018

the main difference is the introduction of stricter intellectual property regulations

Question 12

how many countries are there in europe? how many in the eurozone?

Answer 12

27 in europe, 18 in the eurozone

Question 13

What is the single (or common) market?

Answer 13

free movement of goods, capital, and labour

Question 14

What is the principle of harmonization?

Answer 14

1. mutual recognition: products recognized as legal in one country may be sold throughout the market
2. harmonized sector: sectors have common rules
3. subsidiarity: market takes action only if it is more effective

Question 15

what are the opportunities and treaths for a manager wanting to go international?

Answer 15

pros:

new markets

ability to leverage economies of scale and economies of scope

natural resources quest (oil)

innovation quest (silicon valley and bangalore)
cons:

competiton

trade barriers, regulatory and political risks

Question 16

What is foreign direct investment?

Answer 16

when a firm invests directly in new facilities to produce and/or market in a foreign country.

residents of one country acquire ownership of assets for the purpose of controlling the production and distribution

FDI is NOT foreign portfolio investment

Question 17

which forms can FDI take?

Answer 17

1. Greenfield investment: establishment of a wholly new operation in a foreign country
2. brownfield investment: acquisition or merging with an existing firm in the foreign country

More specifically

vertical FDI: moving upstream or downstream in a foreign country

horizontal FDI: firm duplicates activities in a foreign country

Question 18

what are the advantages and disadvantages of FDI?

Answer 18

pros:
1. high profit potential

2. control over operations
3. acquire knowledge of local markets
4. avoid tariffs and NTBs

cons:
1. high financial and managerial investments

2. high exposure to political risk
3. vulnerability to restrictions on FDI
4. greater managerial complexity

Question 19

when is FDI favoured over exporting?

Answer 19

when there are:
1. high transportation costs

2. high trade barriers

Question 20

when is FDI favoured over licensing?

Answer 20

when:
1. firm wants control

2. firms wants to gate keep its technological know how
3. it is difficult to license

Question 21

what is the difference between FDI flow and FDI stock?

Answer 21

FDI flow: amount moving in a given period

FDI stock: total accumulation of inbound FDI in a country or outbound FDI across several years

Question 22

Why has FDI grown more rapidly than world trafe and world output?

Answer 22

Firms still fear the threat of protectionism

Globalizationas firms undertake FDI to ensure they have significant presence in many regions of the world

Question 23

What is the difference between OEM and ODM?

Answer 23

Original Equipment Manufacturer control components and final assembly, but not R&D and design

Question 24

Where do developed and undedeveloped countries concentrate their activities?

Answer 24

Developed: concentrate in high value activities (R&D, Design, Marketing)

Underdeveloped: concentrate in lower value activities (production)

Question 25

Why are acquisitions an attractive form of FDI?

Answer 25

they are quicker to execute than greenfield investments, and it is easier and less risky for a firm to acquire desired assets rather than building them from the ground up

Question 26

Which political views on FDI are you aware of?

Answer 26

1. radical view: hostile 2. free market view: suggests that FDI unrestricted by government intervention is best 3. pragmatic view: only approves FDI when benefits outweigh costs

Question 27

How can governments encourage or restrict FDI?

Answer 27

Encourage: government backed insurance programs tax incentives exemtpion of import duties land ownership rights work permit and visa facilitation for management and experts Restrict: control over some outward FDI (almost all countries do it to some extent)

Question 28

How can a company develop an international strategy while still staying in domestic markets?

Answer 28

1. indirect exporting through intermediaries (ETC), the seller sees the transaction as a domestic sale, the buyer sees the transaction as a domestic purchase. 2. supplying foreign firms 3. licensing or franchising: 4. become local partners of FDInvestors

Question 29

what is the process for evaluating new markets?

Answer 29

1. producing an initial list of potential new markets 2. eliminating less attractive markets 3. selecting most attractive markets

Question 30

when would you advise an ETC?

Answer 30

when the company **doesn't have** a lot of international **expertise** and has **short term goals**

Question 31

what is piggy banking?

Answer 31

when a large company brings along its suppliers when it build a factory abroad

Question 32

what is the difference between licensing and franchising?

Answer 32

Licensing: owner of intangible preoperty grants the right of use for a specified time (risks lending strategic property to future competitors) Franchising: the franchisor gives the franchisee the legal right to undertake business in a specified manner

Question 33

describe the modes of market entry alon investment and control criteria

Answer 33

exporting (low investment low control) strategic alliances: JV, licensing & franchising (mid investment mid control) sibsidiary: acquisition and greenfielding (high investment high control)