Week 10 Flashcards
What are the 4 types of strategic alliances?
- cross-shareholding deals
- licensing arrangements
- formal joint ventures
- informal cooperative arrangements
What are the criteria to assess a nation’s long-run profit potential? (3)
- Size of the market,
- Present and likely future wealth of consumers,
- Costs and risks - think political economy
On what depends the value an international business can create in a foreign market?
suitability of its products to that market and the nature of indigenous competition
What are the first-mover advantages? (3)
- Preempt rivals and capture demand by establishing a strong brand name and customer satisfaction
- Build sales volume in that country
- Create switching costs
What are the first-mover disadvantages (5)
- The enterprise devotes effort, time, and expense to learning the rules of the game
- Costs of business failure
- Pioneering costs
- Regulations that change in a way that diminishes the value of an early entrant’s investments (e.g. uber)
- Need to educate customers about your company’s products
Who am I? Scale of expansion and commitment
a) ____ market entry can influence the nature of market competition
b) ___ must be balanced against the resulting risks and lack of flexibility associated with significant commitments
c) ___ entry allows a firm to learn about a foreign market while limiting the firm’s exposure to that market
a) Rapid large scale
b) Rapid-scale
c) Small-scale
What are the entry modes? (5)
- Exporting
- Turnkey projects
- Licensing
- Franchising
- Joint ventures
What are the advantages of exporting? (2)
- Avoids the often-substantial costs of establishing manufacturing operations in host country
- May help firm achieve experience curve and location economies
What are the disadvantages of exporting? (4)
- May not be appropriate if lower-cost locations for manufacturing the product can be found abroad
- High transport costs can make exporting uneconomical, particularly for bulk products
- Tariff barriers can make exporting uneconomical
- Local agents for marketing, sales and service may have divided loyalties
What are the advantages of Turnkey projects? (2)
- Can earn great economic returns
- Can be less risky than conventional FDI
What are the disadvantages of Turnkey projects? (2)
- Firm will have no long-term interest in the foreign country
- Selling a technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors
What are the advantages of licensing? (3)
- No development costs and risks associated with entering a foreign market
- Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment
- When a firm possesses intangible property that have business applications but does not want to develop those applications
What are the disadvantages of licensing? (3)
- Doesn’t give tight control over manufacturing, marketing, and strategy
- Limits ability to coordinate strategic moves across countries by using profits earned in one country to support competitiveness
- Risks associated with licensing technological know-how to.
What are the advantages of franchising? (2)
- Firm experiences lower costs and risks than opening a foreign market on its own
- Helps build a global presence quickly
What are the disadvantages of franchising? (2)
- May inhibit firm’s ability to take profits out of one country to support competitive attacks in another
- Quality control
What are the advantages of joint ventures? (3)
- Local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business
- Shared costs and risks
- Political considerations (government interference, nationalism, etc. )
What are the disadvantages of joint ventures? (3)
- Loss of technology control
- Lack of control over subsidiaries that it might need to realize experience curve or location economies
- Can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be
What are the advantages of wholly owned subsidiaries? (4)
- Reduces the risk of losing control over technology
- Can tightly control operations in different countries
- Location and experience curve economies
- 100% share of profits
What are the disadvantages of wholly owned subsidiaries? (3)
- Bear full cost and risk of establishing new market
- Risks with conducting business in a new culture
- Can be other problems associated with acquisitions that outweigh the benefits
Why do acquisitions fail? (4)
- Overpaying => Hubris hypothesis of why acquisitions fail (see book)
- Culture clash
- Integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast
- Inadequate pre-acquisition screening
What are the advantages of strategic alliances? (4)
- May facilitate entry into a foreign market
- Allow firms to share the fixed costs ( and associated risks) of developing new products or processes
- Brings together complementary skills and assets that neither company could easily develop on its own
- May help the firm establish technological standards for the industry that will benefit the firm
What are the disadvantages of strategic alliances? (2)
- May give competitors a low-cost route to new technology and markets
- May generate short-term profits, but the result is to “hollow-out” US firms, leaving them with no competitive advantage in the global marketplace
T/F and FITB: promise and pitfalls of exporting
a) T/F: most firms have large revenue and profit opportunities in foreign markets
b) Economies of ___
c) ___ firms tend to be proactive about exporting; ____ sized and ____ firms reactive (small, medium, large)
a) True
b) scale
c) Large; medium, small
Why are small and medium-sized firms more reactive to exporting? (2)
- Unfamiliar or intimidated by foreign market opportunities
- Initial efforts may run into problems, sours companies on future ventures
What are challenges to exporting? (4)
- Voluminous paperwork
- Complex formalities
- Potential delays and errors
- Time and costs are daunting to inexperienced exporters (documentary compliance, border compliance)
What are the service providers to improve export performance? (6)
- Freight forwarders
- Export management companies
- Export trading companies
- Export packaging companies
- Custom brokers
- Confirming houses (buying agents)
Who am I?
States that the bank will pay a specified sum to a beneficiary, normally the exporter, upon presentation of specified documents
Letter of credit
Who issues letter of credits?
a bank at the request of the importer
T/F: Letter of credit
a) Companies usually go for smaller banks to save on costs and fees
b) It is free of charge for the importer, only the exporter pays
a) False: companies are likely to trust reputable banks
b) False: The importer must pay a fee
Who am I?
Used in international commerce to effect payment. Indicated specified amount of money to be paid at a specified time. Used to settle trade transactions
Draft (Bill of exchange)
Who am I: Draft types
a) Payable on presentation to the drawee
b) Promise to pay by the accepting party at some future date
a) Sight draft
b) Time draft
What are the 3 purposes of a bill of lading?
a receipt, a contract, and a document of title
T/F: Bills of lading can be used as a collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer
True
What are the types of countertrade? (5)
- Barter
- Counterpurchase
- Offset
- Switch trading
- Compensation or buybacks
What are the pros of countertrade? (3)
- Can give a firm a way to finance an export deal when other means are not available
- A countertrade agreement may be required by the government of a country to which a firm is exporting goods or services
- Can become a strategic marketing weapon
What are the cons of countertrade? (3)
- Firms would normally prefer to be paid in hard currency
- May involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably
- Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading
