Resource Allocation

Question 1

What can be reasons for companies to prefer franchising when entering foreign markets?

Answer 1

• tax rates

- more affordable

Question 2

What problems might be associated with franchising for companies?

Answer 2

• quality control
• cultural differences
• working conditions are different
• less control

Question 3

What are entry strategies for controls in relation to capital demand?

Answer 3

From least control to most:

• licensing
• franchising
• export
• FDI

Question 4

How does licensing work?

Answer 4

• products made in host country (licensee) using primary company’s (licensor) patents, trademarks and copyrights
• up-front payments and royalty payments
• defined commitment of license partners
• license agreement has limited time

Question 5

How does franchising work?

Answer 5

• domestic franchisor sells a whole business to a foreign franchisee
• business includes: supply, sales, processes, mgmt concept
• franchisor is head of franchise network
• franchisee has to adopt regulations
• franchise fees with entry fee and running fees

Question 6

What is Indirect Export?

Answer 6

Diagram, pg67
􏰀 Products produced in home country and exported via a domestic export company or an importer located in the home country
􏰀 Employed company bears exchange rate risk, but charges a fee

Question 7

What is Direct Export?

Answer 7

Diagram, pg67
Products produced in home country and exported directly to the customer, an import agent, or a wholesaler in the host country

Question 8

What are the types of governmental support in Germany?

Answer 8

• Information Services
• Financial Services
• Support in export marketing
• Political Framework

Question 9

What is Foreign Direct Investment?

Answer 9

Long-term resource allocation to foreign market

Question 10

What are Copied corporate functions of FDI?

Answer 10

􏰀 Supply (raw materials) 
􏰀 Assembly
􏰀 Production
􏰀 Sales
􏰀 Research & Development
􏰀 Services

Question 11

What are factors of Foreign Subsidiaries of FDI?

Answer 11

􏰀 Legally independent, but economically dependent company
􏰀 Located abroad
􏰀 Control and profit transfer agreement with headquarters

Question 12

What are the Subsidiary networks of MNCs?

Answer 12

􏰀 Joint investments
􏰀 Exchange of goods
􏰀 Standardization of products for different country markets 􏰀 Coordination of internationally dispersed value chains

Question 13

What does coordination of internationally dispersed value chains entail?

Answer 13

􏰀 Coordination of production activities of different subsidiaries
􏰀 R&;D for local subsidiary and other parts of the company
􏰀 Cross-national marketing programs

Question 14

What are the role typologies of FDI?

Answer 14

Diagram, pg 73
(high competence, low strategy) - Contributor
(low competence, low strategy) - Implementer
(high competence, high strategy) - Strategic Leader
(low competence, high strategy) - Black Hole

Question 15

What is the Eclectic Paradigm?

Answer 15

• Combines different approaches, especially theory of monopolistic advantages, location theory, and internalization theory
• Defines the Prerequisites of international production

Question 16

What are pre-requisites of international production in the Eclectic Program?

Answer 16

Diagram, pg74

• Ownership-specific advantages (e.g. firm-specific knowledge advantages; management, marketing, financial skills; brand names; size)
• Internalization advantages (high costs of entering and enforcing contracts; advantages in using price discrimination or cross-subsidization)
• Location-specific advantages (consumer preferences; low-cost labour force; similar culture,)

Question 17

What evidence does Agarwal/Ramaswami (1992) sho for choice of foreign market entry mode?

Answer 17

Interactions of OLI advantages mostly predict entry mode

Question 18

What does the Uppsala model show?

Answer 18

􏰀 Internationalization emerges from incremental decisions
􏰀 Restrictions: Shortage of knowledge and resources
􏰀 Internationalization along ‘establishment chain

Question 19

What are the 4 steps to resource commitment and market knowledge rise in the Uppsala model?

Answer 19

􏰀 No regular export
􏰀 Export via independent representative (agent)
􏰀 Sales subsidiary
􏰀 Production subsidiary

Question 20

What are the dynamics of internationalization in the Uppsala model?

Answer 20

Internationalization decisions depend on:

• Current internationalization step
• State aspects
• Change aspects
• Learning effects lead to positive interplay between the two aspects

Question 21

What are the key factors to consider in the Uppsala model?

Answer 21

• dynamics of internationalization
• market commitment
• market knowledge
• current activities
• commitment decisions

Question 22

What are market commitments of Uppsala model?

Answer 22

􏰀 Amount of committed resources

􏰀 Exclusiveness of resource use

Question 23

What market knowledges of Uppsala model do?

Answer 23

􏰀 Influences commitment decisions

􏰀 Enhances value of committed resources

Question 24

What do current activities do according to the Uppsala model?

Answer 24

Influence market knowledge and commitment

Question 25

What do commitment decisions do according to the Uppsala model?

Answer 25

􏰀 Lead to scale effects and reduction of uncertainty through more information
􏰀 Depend on tolerable market risk
-Low risk → commit resources
-High risk → try to increase market knowledge