Why firms internationalize

Question 1

international business

Answer 1

consists of all commercial transaction that take place between two or more countries

Question 2

7 forces drive globalization

Answer 2

1. increase in appliction of technology
2. liberalization of cross border trade and resource movement
3. development of services that support international business
4. growth of consumer pressures
5. increase in global competition
6. changes in political situation and government policies
7. expansion of cross-national cooperation

Question 3

why do firm internationalize

Answer 3

1. seeking markets
2. seeking resources
3. diversifying/ reducing risk
4. learning (acquiring, transferring, applying knowledge)

Question 4

seek market advantage

Answer 4

large size and economies of scale
lower input cost due to large size
scale economies in shipment, distribution and promotion
access to low cost financing

Question 5

seek resources

Answer 5

ability to access raw materials overseas

ability to shift production overseas

Question 6

reduce risk

Answer 6

financial flexibility

ability to shift production overseas

Question 7

learn

Answer 7

information advantages

managerial experience and expertise

Question 8

MNC advantages (8)

Answer 8

1.superior tech, marketing, resource extraction
2.ability to leverage existing reputation, brand image
3.large size & scale economies: increases bargaining power,
cover high fixed cost in capital intensive.
lower input costs.
logistics, distribution.
lower credit risk .
4. managerial experience
5. ability to locate raw materials/ production facilities
6. tax inversion
7. information advantages
8. risk diversification

Question 9

tax inversion

Answer 9

firms move to country where corporate income taxes are low or nonexistent
bermuda was the destination
ireland is now the go to

Question 10

liability of foreigness

Answer 10

cost that MNC has to face compare to domestic firms

domestic firms have advantage of lower CAGE distance and knowledge to local market

Question 11

internalization theory of internationalization: general

Answer 11

firms internalixes activites under commone owneship when transaction costs of coordinating through the market are too high

Question 12

internalization theory of internationalization: pre WWII

Answer 12

firms involved in multi-stage production proccess–> each component is separately owned
incentive to internalize value chaain through veritcal integration under common ownership
less transaction cost and risk of oportunism by other firms

Question 13

internalization theory of internationalization: post-world war II

Answer 13

firms with IP–> uncertainty with licensing and skills (IP leakes, high transaction cost)
incentive to internalize application of brank and marketing across multiple products
horizontal scope: diversifying by applying IP, brand & skills across product markets

Question 14

internalization theory of internationalization: post 2000

Answer 14

firms with network platforms: risk IP leaks, buyer uncertainty
incentive to internalize ownership and application of network platform across multiple markets

Question 15

network effects

Answer 15

greater number of users/ buyers the higher value to each user

Question 16

learning model

Answer 16

initially no regular export
export via third parties
estabilishment of own foreign production facilities

Question 17

born global

Answer 17

entrepenurial vision
mobile knowledge- intensive resources
network platform

Question 18

non- equity

Answer 18

exporting
licensing 
franchising 
contract manufacturing 
managment contract 
turnkey operation
strategic alliance (somtimes lead to acquisition)

Question 19

equity

Answer 19

equity alliance (minority stake in alliance partner)
joint venture
wholly-owned subsidaries
(acquisition vs. greenfield)

Question 20

choice of entry mode if firm has low experience or low resources

Answer 20

exporting, leasing, licensing, management contract, contrac manufacturing, strategic alliance

Question 21

choice of entry for learning goals

Answer 21

strategic alliance 
equity alliance
joint venture
management contract
licensing

Question 22

choice of entry mode if firms has distinctive competencies

technological

Answer 22

wholly owned subsidary is prefered over licensing, strategic alliance and joint venture

Question 23

choice of entry mode if firms has management competency

Answer 23

franchising, licensing, management contract, joint venture, equity alliance, wholly owned subsidary

Question 24

choice of entry mode if firm need control

Answer 24

wholly-owned subsidary

Question 25

greenfield investment

Answer 25

build new facilities

Question 26

appropriability

Answer 26

capacity of firm to retain for itself the added value it creates
denying rivals access to resources
reduce IP leaks that are possible in alliances/ joint ventures

Question 27

strategic alliance

Answer 27

business arrangement in which two or more firms choose to cooperate for their mutual benefit

Question 28

joint venture

Answer 28

arrangement in which two or more firm set up another entity

jointly owned subsidary firm, for a common purpose

Question 29

equity alliance

Answer 29

business arrangement in which cooperating company takes an equity postion (usually minority)
used to solidify alliance or supplier and buyer relationship

Question 30

joint venture advantage

Answer 30

benefit from partner’s knowledge
shared costs/risks with partner
reduced political risk

Question 31

joint venture disadvantages

Answer 31

risk giving control of techology to partner
may not realize experience curve or location economies
shared ownership& divergent goals can lead to conflict