Week 1 Flashcards
What are the 2 types of FDI?
- Greenfield Investments — launching a new subsidiary in another country from ground level
- Brownfield Investments — M&A, purchase or lease an existing facility
Explain resource/asset seeking motivations for firms to internationalise
- Access raw materials (tangible)
- Gain access to knowledge (intangible) or other assets
- Access technological and managerial know-how available in a key market
- Diversification
Explain efficiency seeking motivations for firms to internationalise
- Reduce sourcing and production costs
- Locate production near customers
- Take advantage of government incentives
- Avoid trade barriers
What are the risks of Internationalization?
- Cross-Cultural Risks
- Country Risks
- Commercial Risks
- Currency (Financial) Risks
What are some Cross-Cultural Risks?
- Cultural difference
- Negotiation patterns
- Decision making styles
- Ethical practices
What are some Country Risks?
- Laws and regulations unfavourable to foreign firms
- Inadequate legal system
- Bureaucracy & red tape, admin delays, corruption
What are some Commercial Risks?
- Operational problems
- Competitive intensity
- Poor execution of strategy
What are some Currency (Financial) Risks?
- Currency Exposure
- Asset Valuation
- Foreign taxation
- Inflation
What is Liability of Foreignness?
Refers to the economic and social costs that firms face when they do business overseas
What is Psychic Distance?
Factors that make it difficult to understand foreign environments
What are the 2 changes internationalisation will undergo?
- Learning
2. Commitment — dependent on size of investment and degree of inflexibility
Should companies pursue internationalisation at all costs?
The greater the degree of internationalisation, the greater the complexity of managing foreign operations, which could result in costs outweighing the benefits.
Countries that first enter usually have a shorter psychic distance as compared to its parent company. But overtime, when firms internationalist too much, they have to go to markets that are significantly different from themselves, resulting in greater psychic distance.
Explain market seeking motivations for firms to internationalise
- Gain access to new markets of opportunities
- Follow key customers
- Compete with key rivals in their own markets
What are the 4 components of FDI?
Ownership, Control of Productive Assets in a Foreign country
