Why do companies go international? Flashcards
What are the 3 eras of globalisation?
- Globalisation 1.0
- Globalisation 2.0
- Globalisation 3.0
What was the focus of globalisation 1.0?
The focus was set on competition on a country level.
The question that was faced was: how can I collaborate through my country?
What was the focus of globalisation 2.0?
The focus was set on competition on a company level.
How can I go global with others through my company?
What was the focus of globalisation 3.0?
Focus was set on competition on an individual level.
How can I collaborate globally on my own?
What are 2 performance indicators for countries?
What do they fail to measure
GDP (Gross Domestic Product - BIP)
GNP (Gross National Product - BNE)
–> They both fail to measure quality of life
What is a measurement for economic and social wealth?
The Better Life Index
What is the Better Life Index based on?
- Individual well-being–> Quality of life (work/life-balance, health status) AND Material conditions (income/jobs/housing)
- Sustainibility of well being over time (Nature Capital, Human Capital, Economic Capital)
What is the relationship between life satisfaction and the GDP
There is a positive relationship between the two, yet the GDP does not include any measure for life satisfaction
What is the definition of international trade
International trade its the exchange of goods and services across international borders
How can globalisation be defined
Globalisation is the process of social, political, economic, cultural and technological integration among countries around the world
What are some organisations or agreements that implement regulation through global and international integration?
- WTO (World Trade Organisation)
- TTIP (Transantlantic Trade and Investment Partnership)
- CETA (Comprehensive Economic and Trade Agreement)
How does the WTO establish regulation through global and regional intergration?
- consists of agreements that cover goods, services and intellectual property
- Include commitments by countries to lower tariffs & other trade barriers
- Require governments to make their trade policies transparent
- Prescribe special treatment for developing countries
How does TTIP establish regulation through global and regional integration?
TTIP helps individuals as well as large/small businesses by:
- creating access to overseas markets
- making exports to EU/US easier and cheaper by decreasing regulations
- setting new rules to make overseas investments, imports/exports easier and fairer
How does CETA establish regulation through global and regional integration?
CETA is a trade agreement between Germany and Canada
- Cuts 99% of tariffs in order to increase investments & trade
What are some Pros and Cons of globalisation
Pros
- brings wealth/jobs/tech. to many regions of world
- increases availability of goods and decreases prices
- forces companies to be more competitive
Cons
- is not responsive to needs of developing countries
- off shoring to low wage countries
- possible downward pressure on wages and working conditions
What are effects of protectionism and deglobalisation?
What is a possible way to persue protectionism?
- Slow down the trade within and thereby the growth of the global economy
- A way of achieving protectionism/deglobalisation is through taxes and tariffs on imports
What are some benefits of global market expansion?
And what are the advantages for firms that engage in international Marketing?
Benefits are higher performance through indepedence, lower costs, higher profits.
These firms:
- outperform domestic counterparts
- grow more than twice as fast in sales
- have high ROE & ROA
What is FDI (Foreign Direct Investment)?
FDI is making an investment to create direct, stable and long-lasting links between econmies
- FDI is a key element of globalisation
- FDI can be beneficial for both the receiving and investing economy
What are 4 types of FDI (reasons for going global)?
- ) Market Seeking FDI
- ) Efficiency Seeking FDI
- ) Resource Seeking FDI
- ) Strategic Asset Seeking FDI
How can Market seeking FDI be characterised?
What is trade-off faced with variety seeking FDI?
Also called horizontal FDI
- leads to proximity to customers –> therewitw savings in transport and tariffs
Proximity-Concentration Trade-Off
- firms might decide against FDI and rather export due to benefits from concentration in production
How can efficiency seeking FDI be characterised?
- is manufacturing different products in different locations
- -> goal of seeking aboslute and comparative cost advantages
How can resource seeking FDI be characterised?
- seeking to get access to scarce resources (ex. Siemens in Australia to get magnets)
How can strategic asset-seeking FDI be characterised?
- getting links to strategically important information & communication networks
ANDS - achieve cross investment –> reward foreign investor for investment in local market (ex. Renault Nissan/Daimler)
What are Pros of FDIs for the host countries?
In what categories can these pros and cons be distinguished
Pros
Capital Market Effects
–> broader access to outside capital
–> risk sharing
Technology & Production Effects
- -> Access to new tech and development of R&D
- -> Support & development of infrastructure
- -> Export diversification
Employement Effects
- -> Creation of new jobs
- -> income multiplier effects
What Internationalisation Theories exist?
- ) Trade Theories
- ) Theories of FDI
- ) Across the board theories
What are the different trade theories?
- ) New Trade Theories
- ) Ultra-Classical Trade Theories
- ) Classical Trade Theories
What are the basic assumptions, the types of trade and the effects of the New Trade Theory?
Basic assumptions:
–>firms offer horizontally differentiated goods/have increasing returns to scale
Type of trade:
–>Intra trade = trade of similar goods within an industry (ex. BMW & Toyota)
Effects of trade:
- -> lower prices through increasing competition
- -> emphasis on horizontal differentiation
- -> More choices for consumers (through more horizontal differentiation)
What are the different theories within the Ultra-Classical Trade Theories?
- ) Mercantilism –> trade arises because countries want to generate wealth
- ) Theory of absolute (cost) advantage –> trade arises because countries specialize in production of goods where they have abs. cost adv.
- ) Theory of comparative (cost) advantage –> -“- specialize in goods where they have comp. cost advantage
- ) Factor proportions trade Theory –> country that is wealthy in factor should export goods that use a lot of that factor
What are different approaches of the Classical Trade Theory?
- ) (Non-) Availibility Approach –> trade arises because products not available in other countries
- ) Lindner Hypothesis on Demand Structure –> trade arises between countries with similar demand structures - similar wealth (ex. specialise in certain product qualities (high/low) then trade between each other)
- ) Technology Gap Theory –> trade arises because countries display different levels of tech capabilities (time lag between invention in one country and imitaion in other)
What two approaches belong to the Theories of FDI?
- Trade Barrier Approach
- Theories of oligopolistic parallel behaviour
Explain the Trade Barrier Approach (Theories of FDI)
Name examples of trade barriers
- FDIs arise due to prevention of other trade forms through barriers
- FDI sometimes only possibility to enter foreign market due to regulations
Examples of trade barriers:
- Tariff barriers (duties)
- Non tariff barriers (import/export license quotas, “buy national” policies
Explain the Theories of Oligopolistic Parallel Behaviour (Theories of FDI)
- ) Follow the leader thesis –> investment in countries where leaders have already inversted
- ) Cross investment thesis –> investment in leader’s home country
What Models belong to “across the board theories” and what do these types of theories explain
- ) Uppsala Model
- ) Porter’s Diamond Model
- -> They both explain forms of internationalisation
What does the Uppsala Model say?
What types of firms do not go a long with this model
Uppsala Model says:
- companies gain experience in home market and then start to export
- after this, creation of subsidiaries in foreign countries that are most like own
–> Born global firms are not congruent with Uppsala Model
What are the components that are taken into account with Porter’s Diamond Model? Explain them and their implications briefly
- ) Strategy, Structure, Rivalry
- high local rivalry –> less global rivalry
- high local rivalry –> creates pressure to innovate and improve - ) Demand Conditions
- trend setting markets –> allow firms to anticipate global trends
- demanding local markets –> lead to international adv. for firms - ) Related & Supporting Industries (clusters)
- Presence of clusters –> drives growth/innovation within specific industry - ) Factor Conditions
- value creating factors (skilled resources) –> support founding of clusters/innovativeness
- adverse conditions (labour shortage) –> force firms to seek innovative solutions leading to national comparative advantages
What are Cons of FDIs for the host countries?
In what categories can these pros and cons be distinguished
Cons Capital Market Effects --> higher competition for scarce local capital --> increasing interest rates --> unequal balance of payments
Tech & Production Effects
- -> Tech not always appropriate
- -> Govt. investment in infrastructure higher than benefits
Employement Effects
- -> Limited skill development/creation
- -> Competition for scarce skills
- -> Unstable employement (possibility to easily move production)
