Supplement 1 IB Flashcards
When does a firm qualify as an MNE?
When the investment amount of FDI is >10%
Which form of FDI is most common?
Horizontal FDI, because firms only have to copy their know-how about this step in the value chain and implement it abroad.
Downstream FDI
is consumer focused. Gets a firm’s activities closer to the consumer (distributor, marketing)
Upstream FDI
focuses on producer and brings you closer to the producer (acquiring a factory)
Main reason for horizontal FDI
to overcome protectionist barriers and tariffs
Liability of outsidership in terms of costs
All additional costs that foreign firms pay but home firms don’t
Is culture an informal institution?
YES it is!
ethocentrism
approval of behavior only consistent to our norm
Who quantified cultures?
Hofstede by giving value to certain 5 cultural categories power distance collectivism vs. individualism masculinity vs. femininity uncertainty avoidance long term vs short term orientation
When should a firm not engage in licensing but rather internalize?
When dissemination fear is very high and knowledge is tacit
Asset specificity (reasons to internalize) 4 types of asset specificity
Physical asset specificity
Site specificity
Human asset specificity
Dedicated assets
Physical asset specificity
equipment or machinery that produces inputs to a specific customer’s demand or are specialized to use an input of a particular supplier
Site specificity
occurs when investments in productive assets are made in close physical proximity to each other. Geographical proximity of assets for different stages of production reduces inventory, transportation and sometimes processing costs
Specificity arises, however, because in many instances the assets are not likely to
be mobile - they cannot be relocated at all or without incurring substantial cost.
Human asset specificity
refers to the accumulation of knowledge and expertise that is specific to one trading partner
Dedicated assets
these are investments in general capital to meet the demand of a specific buyer. The assets are not specific to the buyer, except that if the specific customer decided not to purchase, the input supplier would have substantial excess capacity.
