Modes of internationalisation

Question 1

International Business

Answer 1

• all commercial transactions that take place between two or more countries
  
  • business activities that straddle two or more countries

Question 2

Multinational enterprise (MNE) :

Answer 2

• any business that has productive activities in two or more countries
• Broad definition (scope): any firm that engages in international trade and investment
Multinationals are “rootless cosmopolitans” (Martin Wolf in Why Globalization Works)

Question 3

The role of MNE

Answer 3

• Provides standard products worldwide
• Facilitates the convergence of consumer taste
• Main actor of global production
• Facilitates global trade of intermediate and finished goods (between subsidiaries and between headquarters and subsidiaries )
Influences local players and firms (supplier, distributors, employees) with global standard and value

Question 4

Firm internationalisation

Answer 4

• Transforming from a domestic to MNE
  
  • The process by which firms establish and conduct transactions with firms and customers in other countries, and international operations have an increasing influence on their future.
  • Internationalisation is an evolutionary process over time as firms expand their geographical reach and mindsets.

Question 5

Modes of operation for internationalised firm:

Answer 5

• Inward (servicing domestic customers through transactions with foreign firms)
- Outward (servicing customers in foreign markets )

Question 6

Exporting:

Answer 6

• Exporting firm will often appoint another firm in foreign country as its representative (i.e. agent, distributor).
  
  • Exporting is a favoured mode for small and medium-sized enterprises (SMEs) and firms in the early stages of internationalisation.

Indirect exporting: exporting using a local agent
Direct exporting: exporting by engaging overseas customer and agent

Question 7

Licensing:

Answer 7

legal right enabling firms to use another firm’s intellectual (intangible) property in exchange for a fee.
– Trademark
– Patents and inventions – Copyrights

Question 8

Franchising:

Answer 8

form of licence requiring franchisee to work under supervision/ control of franchisor.
– E.g. McDonald’s, Hotels, – Strict quality control

Question 9

Subcontracting/contract manufacturing:

Answer 9

part/all of product produced by foreign contractee.

Question 10

Management contracts:

Answer 10

international firm provides the managerial expertise to operate another firm in a foreign country for an agreed fee for fixed period of time.

Question 11

Turnkey projects:

Answer 11

a firm (or consortium of firms) designs, builds and equips facilities, then transfers them to the foreign owner on completion (chemical, pharmaceutical, petroleum-refining and metal- refining industries—require complex, expensive production technologies).

Question 12

Foreign direct investment (FDI) :

Answer 12

involves ownership and some control of foreign firms

Question 13

Globalisation

Answer 13

increasing rates of cross-border transactions leading to greater interdependence of countries, industries, companies