Ibus Concept Check 3

international trade theory and FDI

International trade theory tells us that home-country concerns about the negative economic effects of offshore production may be misplaced. The term offshore production refers to FDI undertaken to serve the home market. Far from reducing home-country employment, such FDI may actually stimulate economic growth (and hence employment) in the home country by freeing homecountry resources to concentrate on activities where the home country has a comparative advantage. In addition, home-country consumers benefit if the price of the particular product falls as a result of the FDI.

competition policy

Most developed nations have regulations designed to promote competition and to restrict monopoly practices. These regulations can be used to limit the prices a firm can charge in a given country.

multipoint pricing strategy

Occurs when a pricing strategy in one market may have an impact on a rival's pricing strategy in another market. - Multipoint pricing becomes an issue when two or more international businesses compete against each other in two or more national markets. - Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. - A second aspect of multipoint pricing arises when two or more global companies focus on particular national markets and launch vigorous price wars in those markets in an attempt to gain market dominance.

Theories of direct investment

One set of theories seeks to explain why a firm will favor direct investment as a means of entering a foreign market when two other alternatives, exporting and licensing, are open to it. Another set of theories seeks to explain why firms in the same industry often undertake foreign direct investment at the same time and why they favor certain locations over others as targets for foreign direct investment. Put differently, these theories attempt to explain the observed pattern of foreign direct investment flows. A third theoretical perspective, known as the eclectic paradigm, attempts to combine the two other perspectives into a single holistic explanation of foreign direct investment (this theoretical perspective is eclectic because the best aspects of other theories are taken and combined into a single explanation).

the location of R&D

Other things being equal, the rate of new-product development seems to be greater in countries where: ∙ More money is spent on basic and applied research and development. ∙ Underlying demand is strong. ∙ Consumers are affluent. ∙ Competition is intense. - Basic and applied research and development discovers new technologies and then commercializes them. Strong demand and affluent consumers create a potential market for new products. Intense competition among firms stimulates innovation as the firms try to beat their competitors and reap potentially enormous first-mover advantages that result from successful innovation. - For most of the post-World War II period, the country that ranked highest on these criteria was the United States. - Over the past 25 years, things have been changing quickly. The U.S. monopoly on new product development has weakened considerably. Although U.S. firms are still at the leading edge of many new technologies, Asian and European firms are also strong players. - As a result, it is often no longer appropriate to consider the United States as the lead market. - Because leading-edge research is now carried out in many locations around the world, the argument for centralizing R&D activity in the United States is not as strong as it was three decades ago.

the global marketing mix

Product, promotion, price (distribution channel), and place

advantages of standardized marketing mix

Reduces marketing costs Facilitates centralized control of marketing Promotes efficiency in R&D Results in economies of scale—production Reflects globalization trends Country of origin effect

predatory pricing

Reducing prices below fair market value as a competitive weapon to drive weaker competitors out of the market ("fair" being cost plus some reasonable profit margin). - Once the competitors have left the market, the firm can raise prices and enjoy high profits. For such a pricing strategy to work, the firm must normally have a profitable position in another national market, which it can use to subsidize aggressive pricing in the market it is trying to monopolize.

advantages in customized marketing mix

Reflects different conditions of product use Acknowledges local legal differences Accounts for differences in buyer behavior patterns Accounts for other differences in markets

reducing the risks of failure

Screening of the foreign enterprise to be acquired, including a detailed auditing of operations, financial position, and management culture, can help to make sure the firm (1) does not pay too much for the acquired unit, (2) does not uncover any nasty surprises after the acquisition, and (3) acquires a firm whose organization culture is not antagonistic to that of the acquiring enterprise. It is also important for the acquirer to allay any concerns that management in the acquired enterprise might have. The objective should be to reduce unwanted management attrition after the acquisition. Finally, managers must move rapidly after an acquisition to put an integration plan in place and to act on that plan.

The source of FDI

Since World War II, the United States has consistently been the largest source country for FDI. Other important source countries include the United Kingdom, France, Germany, the Netherlands, and Japan. Collectively, these six countries accounted for 60 percent of all FDI outflows for 1998-2014 (see Figure 8.3). As might be expected, these countries also predominate in rankings of the world's largest multinationals.8 These nations dominate primarily because they were the most developed nations with the largest economies during much of the postwar period and therefore home to many of the largest and best-capitalized enterprises.- Chinese firms have started to emerge as major foreign investors

singapore

Singapore is a huge trade hub, they like to be the best at what they do

dealing with country differences

Some firms are experimenting with capturing some benefits of global standardization while recognizing differences in countries' cultural and legal environments. A firm may select some features to include in all its advertising campaigns and localize other features. By doing so, it may be able to save on some costs and build international brand recognition and yet customize its advertisements to different cultures.

possible effects on national sovereignty and autonomy

Some host governments worry that FDI is accompanied by some loss of economic independence.

pricing policies

Standardized Pricing: Walmart Differential Pricing: Toys R Us

Management Know-How

The competitive advantage of many service firms is based on management know-how (e.g., McDonald's, Starbucks). For such firms, the risk of losing control over the management skills to franchisees or joint-venture partners is not that great. These firms' valuable asset is their brand name, and brand names are generally well protected by international laws pertaining to trademarks. Given this, many of the issues arising in the case of technological know-how are of less concern here. As a result, many service firms favor a combination of franchising and master subsidiaries to control the franchises within particular countries or regions.

barriers to internal communication

The effectiveness of a firm's international communication can be jeopardized by three potentially critical variables: cultural barriers, source effects, and noise levels.

channel quality

The expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. - Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. - The lack of a high-quality channel may impede market entry, particularly in the case of new or sophisticated products that require significant point-of-sale assistance and after-sales services and support. When channel quality is poor, an international business may have to devote considerable attention to upgrading the channel, for example, by providing extensive education and support to existing retailers and, in extreme cases, by establishing its own channel.

advantages of franchising

The firm is relieved of many of the costs and risks of opening a foreign market on its own. Instead, the franchisee typically assumes those costs and risks. This creates a good incentive for the franchisee to build a profitable operation as quickly as possible.

differences between countries

The four main differences between distribution systems worldwide are retail concentration, channel length, channel exclusivity, and channel quality.

the free market view

The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently. Within this framework, the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. Viewed this way, FDI by the MNE increases the overall efficiency of the world economy. Imagine that Dell decided to move assembly operations for many of its personal computers from the United States to Mexico to take advantage of lower labor costs in Mexico. According to the free market view, moves such as this can be seen as increasing the overall efficiency of resource utilization in the world economy. Mexico, due to its lower labor costs, has a comparative advantage in the assembly of PCs.

pressures for cost reductions and entry mode

The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. By manufacturing in those locations where factor conditions are optimal and then exporting to the rest of the world, a firm may be able to realize substantial location and experience curve economies.

channel length

The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. Using direct selling to push a product through many layers of a distribution channel can be expensive. In such circumstances, a firm may try to pull its product through the channels by using mass advertising to create consumer demand; once demand is created, intermediaries will feel obliged to carry the product.

Channel Length

The number of intermediaries that a product has to go through before it reaches the final consumer. - Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists. The choice of a short or long channel is, in part, a strategic decision for the producing firm. However, some countries have longer distribution channels than others. The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. - The more fragmented the retail system, the more expensive it is for a firm to make contact with each individual retailer. - Because of such factors, countries with fragmented retail systems also tend to have long channels of distribution, sometimes with multiple layers. - Because of such factors, countries with fragmented retail systems also tend to have long channels of distribution, sometimes with multiple layers.

the push pull mix

The optimal mix between push and pull strategies depends on product type and consumer sophistication, channel length, and media sophistication. Push strategies tend to be emphasized: ∙ For industrial products or complex new products. ∙ When distribution channels are short. ∙ When few print or electronic media are available. Pull strategies tend to be emphasized: ∙ For consumer goods. ∙ When distribution channels are long. ∙ When sufficient print and electronic media are available to carry the marketing message.

choosing a distribution strategy

The optimal strategy is determined by the relative costs and benefits of each alternative, which vary from country to country, depending on the four factors we have just discussed: retail concentration, channel length, channel exclusivity, and channel quality. - Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. To ensure that prices do not get too high as a result of markups by multiple intermediaries, a firm might be forced to operate with lower profit margins. Thus, if price is an important competitive weapon, and if the firm does not want to see its profit margins squeezed, other things being equal, the firm would prefer to use a shorter channel. - However, the benefits of using a longer channel may outweigh these drawbacks. As we have seen, one benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Thus, it makes sense for an international business to use longer channels in countries where the retail sector is fragmented and shorter channels in countries where the retail sector is concentrated. Another benefit of using a longer channel is market access—the ability to enter an exclusive channel. Import agents may have long-term relationships with wholesalers, retailers, or important consumers and thus be better able to win orders and get access to a distribution system. - Finally, if channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel, including establishing its own distribution channel.

The radical view

The radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.- FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment, jobs, and technology. Thus, according to the extreme version of this view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination. Where MNEs already exist in a country, they should be immediately nationalized.- By the early 1990s, the radical position was in widespread retreat. There seem to be three reasons for this: (1) the collapse of communism in eastern Europe; (2) the generally abysmal economic performance of those countries that embraced the radical position, and a growing belief by many of these countries that FDI can be an important source of technology and jobs and can stimulate economic growth; and (3) the strong economic performance of those developing countries that embraced capitalism rather than radical ideology (e.g., Singapore, Hong Kong, and Taiwan). Despite this, the radical view lingers on in some countries, such as Venezuela

Host countries restricting inward FDI

The two most common are ownership restraints and performance requirements. Ownership restraints can take several forms. In some countries, foreign companies are excluded from specific fields. They are excluded from tobacco and mining in Sweden and from the development of certain natural resources in Brazil, Finland, and Morocco.- Performance requirements can also take several forms. Performance requirements are controls over the behavior of the MNE's local subsidiary. The most common performance requirements are related to local content, exports, technology transfer, and local participation in top management.

Rights Theory

Twentieth-century theories that recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. - rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. Rights establish a minimum level of morally acceptable behavior. One well-known definition of a fundamental right construes it as something that takes precedence over or "trumps" a collective good. Thus, we might say that the right to free speech is a fundamental right that takes precedence over all but the most compelling collective goals and overrides, for example, the interest of the state in civil harmony or moral consensus.32 Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component. - The notion that there are fundamental rights that transcend national borders and cultures was the underlying motivation for the United Nations Universal Declaration of Human Rights, adopted in 1948, which has been ratified by almost every country on the planet and lays down basic principles that should always be adhered to irrespective of the culture in which one is doing business.

Product Design Considerations

When you're looking at the product and designing the product you want to look at these 5 issues: - infrastructure needs, culture, legal requirements, religious customs, economic development level

price elasticiy of demand

a measure of how responsive demand for a product is to changes in price

concentrated retail system

a retail system in which a few retailers supply most of the market - There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, the number of households with refrigerators and freezers, and the number of two-income households. All these factors have changed shopping habits and facilitated the growth of large retail establishments sited away from traditional shopping areas.

fragmented retail system

a retail system in which there are many retailers, no one of which has a major share of the market

Intermarket Segment

a segment of customers that spans multiple countries, transcending national borders

Ethical dilemmas

a situation in which there is no ethically acceptable solution - businesses are feeling more and more of the marketplace pressures from customers and other stakeholders to be transparent in their ethical decision making and operations. At the same time, there are no universal worldwide agreement about what constitutes accepted ethical principles.

elastic

a small change in price produces a large change in demand

wholly owned subsidiaries

a subsidiary in which the firm owns 100% of the stock - In a wholly owned subsidiary, the firm owns 100 percent of the stock. Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm either can set up a new operation in that country, often referred to as a greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products.23

first-mover advantage

advantages accruing to the first to enter a market

promotion

advertising, personal selling, sales promotion

Ibus ethics cases

are in files under "Ibus ethics case 1,2,...6"

licensing agreement

arrangement in which a licensor grants the rights to intangible property to the licensee for a specified period and receives a royalty fee in return - A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee.

market entry summary

companies based in emerging countries should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them. Furthermore, a local company may be able to find ways to differentiate itself from a foreign multinational, for example, by focusing on market niches that the multinational ignores or is unable to serve effectively if it has a standardized global product offering.

product and technical standards

differing government-mandated product standards can often result in companies ruling out mass production and marketing of a fully global and standardized product. Differences in technical standards also constrain the globalization of markets.

timing of entry

entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves. - Once attractive markets have been identified, it is important to consider the timing of entry. Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international businesses have already established themselves. The advantages frequently associated with entering a market early are commonly known as first-mover advantages. 3 One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. - A second advantage is the ability to build sales volume in that country and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants. This cost advantage may enable the early entrant to cut prices below that of later entrants, thereby driving them out of the market. A third advantage is the ability of early entrants to create switching costs that tie customers into their products or services. Such switching costs make it difficult for later entrants to win business. - There can also be disadvantages associated with entering a foreign market before other international businesses. These are often referred to as first-mover disadvantages. 4 These disadvantages may give rise to pioneering costs, costs that an early entrant has to bear that a later entrant can avoid. Pioneering costs arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game. Pioneering costs include the costs of business failure if the firm, due to its ignorance of the foreign environment, makes major mistakes. - Pioneering costs also include the costs of promoting and establishing a product offering, including the costs of educating customers. - An early entrant may be put at a severe disadvantage, relative to a later entrant, if regulations change in a way that diminishes the value of an early entrant's investments. This is a serious risk in many developing nations where the rules that govern business practices are still evolving.

entry modes

exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country.

Host countries encouraging inward FDI

governments to offer incentives to foreign firms to invest in their countries. Such incentives take many forms, but the most common are tax concessions, low-interest loans, and grants or subsidies.

market segmentation

identifying groups of consumers whose purchasing behavior differs from others in important ways - Market segmentation refers to identifying distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways. Markets can be segmented in numerous ways: by geography, demography (e.g., gender, age, income, race, education level), sociocultural factors (e.g., social class, values, religion, lifestyle choices), and psychological factors (e.g., personality). Because different segments exhibit different needs, wants, and patterns of purchasing behavior, firms often adjust their marketing mix from segment to segment. Thus, the precise design of a product, the pricing strategy, the distribution channels used, and the choice of communication strategy may all be varied from segment to segment. - When managers in an international business consider market segmentation in foreign countries, they need to be cognizant of two main issues: the differences between countries in the structure of market segments and the existence of segments that transcend national borders. - A segment that spans multiple countries, transcending national boarders, is often called an intermarket segment. - Targeting one country and its multiple potential market segments with multiple marketing mixes allows a company to focus on the cultural characteristics of one country (or the characteristics of a manageable set of countries). Targeting many countries and the intermarket segment that has characteristics that are largely the same across countries allows a company to focus on the cultural characteristics that are universal for certain customers across countries. - the existence of market segments that transcend national borders clearly enhances the ability of an international business to view the global marketplace as a single entity and pursue a global strategy—selling a standardized product worldwide and using the same basic marketing mix to help position and sell that product in a variety of national - The forecast, however, is that these intermarket segments will become more and more common with the increased globalization among younger consumers (40 years and younger) in the developed- and emerging-country markets.

current account

in the balance of payments, records transactions involving the export or import of goods and services

externalities

knowledge spillovers

Pragmatic Nationalism

many countries have adopted neither a radical policy nor a free market policy toward FDI but instead a policy that can best be described as pragmatic nationalism.26 The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost. When a foreign company rather than a domestic company produces products, the profits from that investment go abroad. Many countries are also concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's balance-of-payments position. - FDI should be allowed so long as the benefits outweigh the costs - Another aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.

Balance of payments accounts

national accounts that track both payments to and receipts from foreigners

Noise levels

noise: The number of other messages competing for a potential consumer's attention. - Noise tends to reduce the probability of effective communication. Noise refers to the number of other messages competing for a potential consumer's attention, and this too varies across countries. In highly developed countries such as the United States, noise is extremely high. Fewer firms vie for the attention of prospective customers in developing countries; thus, the noise level is lower.

entry mode advantages and disadvantages chart

on page 370

product design: culture

packaging and labeling: Frito-Lay (flavors): paprika-flavored chips: Hungary and Poland; shrimp-flavored chips: South Korea; squid-peanut snack food: SE Asia - Something as simple as a label can impact if you're successful -Chip flavors -Skin whitening cream in Asia - Coke bottles in the shape of a soccer balls for the world cup -Green tea flavored kit kat

Corporate Social Responsibility (CSR)

refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions and that there should be a presumption in favor of decisions that have both good economic and social consequences

exporting

sale of products produced in one country to residents of another country

product standardized vs customized

standardized: •Same product design across all international markets •Industrial products have a tendency to be standardized Customized: •Product localized for each international market •Consumer products have a tendency to be customized - The closer it is to a persons body the more customized it is

International Institutions and the Liberalization of FDI

the WTO has become involved in regulations governing FDI.- the thrust of the WTO's efforts has been to push for the liberalization of regulations governing FDI, particularly in services. Under the auspices of the WTO, two extensive multinational agreements were reached in 1997 to liberalize trade in telecommunications and financial services. Both these agreements contained detailed clauses that require signatories to liberalize their regulations governing inward FDI, essentially opening their markets to foreign telecommunications and financial services companies.

strategic pricing

the concept containing the three aspects: predatory pricing, multipoint pricing, and experience curve pricing

international market research

the systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company - International market research is defined as the systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company. Compared with market research that is domestic only, international market research involves additional issues such as (1) translation of questionnaires and reports into appropriate foreign languages and (2) accounting for cultural and environmental differences in data collection. - International market research is one of the most critical aspects of understanding the global marketplace. Given this importance, global companies often have their own in-house marketing research department to continually assess customers' needs, wants, and purchasing behavior. - Nielsen, Kantar, Ipsos, and the NPD Group, along with many other market research firms, follow a similar process when conducting international market research. The basic data that companies want collected in international market research include (1) data on the country and potential market segments (geography, demography, sociocultural factors, and psychological factors); (2) data to forecast customer demands within specific country or world region (social, economic, consumer, and industry trends); and (3) data to make marketing mix decisions (product, distribution, communication, and price). - The process, however, is somewhat universal across both domestic and international settings and includes (1) defining the research objectives, (2) determining the data sources, (3) assessing the costs and benefits of the research, (4) collecting the data, (5) analyzing and interpreting the research, and (6) reporting the research findings.24 - Defining the research objectives includes both (1) defining the research problem and (2) setting objectives for the international market research. At the outset of any international market research project, one of the problem areas is to have a baseline understanding of a country market or target segment that is sufficient enough to properly capture what should be done and what can be accomplished with the research. - Determining the data sources that will address specific research problems and ultimately achieve the objectives is often not an easy task, especially if the international market research spans more than one country market. In market research, we talk about two forms of data that can be used: primary and secondary data.27 Primary data refers to data collected by the global company and/or its recruited international market research agency for the purpose of addressing the research problem and objectives defined by the company. - for more than half of the world's countries, so-called secondary data that can be helpful can be tough to come by, are often unreliable, and typically do not address what global companies require to better understand the needs, wants, and purchasing behaviors of targeted customers. Secondary data refers to data that have been collected previously by organizations, people, or agencies for purposes other than specifically addressing the research problem and objectives at hand. Overall, the data used in international market research should be evaluated based on (1) availability, (2) comparability across countries and potential market segments, (3) reliability (whether the research produces consistent results), and (4) validity (whether the research measures what it set out to measure). - Assessing the costs and benefits of the research often relates to the cost of collecting primary data that can address the research problem and objectives directly versus using available secondary data. If secondary data are available, such data are typically available as a less costly alternative to collecting primary data. The costs that drive up the spending in primary data collections broadly include survey development and sampling frame issues. - Collecting the data simply refers to gathering data via primary or secondary methods that address the research problem and objectives that the global company has established. The two mechanisms to collect data are quantitative and qualitative data collection. Quantitative methods include experiments, clinical trials, observing and recording events, and administering surveys with closed-end questions. The goal of quantitative methods is to systematically gain an understanding of customers' needs, wants, and purchase behavior via numerical data and computational techniques. - Qualitative methods include in-depth interviews, observation methods, and document reviews. Here, the focus is broad-based questions aimed at gaining a depth understanding of customers' needs, wants, and purchase behaviors. Analyzing and interpreting the research begins when the data have been collected. Assuming the survey is reliable and valid, whether the data come from primary or secondary data collection methods, analyzing and interpreting the data is an important step in the international market research process. It takes a fairly high degree of knowledge—both statistically and culturally—to analyze and interpret international market research. First, statistically the goal should be to use the technique that best addresses the research problem—often stated in the form of research questions or hypothesis - Second, the researcher interpreting the findings must be in tune culturally with the values, beliefs, norms, and artifacts that affect a respondent's answers in a certain world region, country, and/or subculture. If possible, it is always advisable to include at least one native of the country being researched to add to the understanding of the research findings, social customs, semantics, attitudes, and business customs. - Reporting the research findings is a way to communicate the overall results of the international market research project. - Ideally, top executives who receive the report should have been part of the formulation of the research problem and objectives earlier on in the international market research process. Preferably, they should also take part in some of the fieldwork to collect the data to better understand the voices of customers.

localized advertising

the use of promotions that are customized for various target markets - In a lot of countries, companies take advantage of outdoor advertising

Inelastic

when a large change in price produces only a small change in demand

branding: modified trademarked brands

•Corona Beer is Coronitain Spain •Target retailer in Australia •Coca-Cola Light vs. Diet Coke - Do they keep the same brand or different brand in different countries - Knock off target - Brand equity: value of the brand (when you see it, hear it, what that brand is worth) - Top 5 brands in terms of brand equity from the US: Apple, google, coke, starbucks, nike, amazon, Microsoft, Disney - From asia: Alibaba, Nintendo, bathing ape, Nissan, Honda, Samsung, Toyota - From Europe: volvo, Gucci, channel, addias, louis voutton, rolex, hermes

global market opportunities

•Decide which market to enter •Screen countries to identify target markets •Identify candidate countries that hold the best potential by assessing each country according to: -Size and growth rate (is there enough demand?) (is the country you're entering into growing rapidly?) -Market intensity (can they afford your product?) -Country's receptivity to imports (is there a buy local feeling or are they open to imports from other countries?) (with coronavirus, a lot of companies are pulling back to localization a little bit especially with PPE equipment) -Infrastructure for doing business: (can you get your product to the customer?) -Economic freedom and country risk

Product Design: infrastructure needs

•Electrical current / plug outlets •Side of the road to drive - Outlets tend to be different in different countries and even cities

formal and informal barriers

•Establishing overseas operations can be complex due to regulations •Registration, licensing, taxation, reporting, inspections... •Managers themselves face considerable uncertainty: •Lack of local market knowledge •Lack of international experience •Perceptions of risk in dealing with foreign business partners - As a company you want to have your managers as much as they can

Transparency International

•Global Corruption Barometer •Corruption Perception Index(CPI) •Bribe Payers Index (BPI) •Propensity to pay bribes abroad •28 leading export countries •Most likely to offer bribes: •Russia •China •Mexico Indonesia

licensing

•Licensor grants the rights to intangible property to the licensee for a royalty fee - Example - Hello Kitty •Japanese company Sanrio has licensed Hello Kitty to many manufacturers of cosmetics, food, calendars, toys, clothing, and numerous other products. - Mattel discovered when it granted a license to a Brazilian firm to market Barbie dolls. The latter firm went on to create a competitor to Barbie, the Susi doll.

disadvantages of licensing/franchising

•May lose control of IP •Maylosecontrol of product/service quality •May create potential competitor •Not realizing full benefit of sales (vs. FDI)

franchising

•Offers a total business method - McDonalds! "In Chinawe have several companies that operate restaurants and we are seeking franchisees. Candidates must have integrity, business experience in the market, a history of success, ability to work well with a franchisor, willingness to complete a training programthat will take about nine months, willingness to devote full timeto the McDonald's restaurant business, retail experienceand significant capital." - Franchising you get the complete package of operating, not just the name

branding: new brand names

•Proctor & Gamble's Fairy (Dreft) dishwashing detergent •Unilever's Rexona (Degree) deodorant

product design: economical considerations

•Size: Smaller cars in Europe •Location: Costco in Japan •Design: Gillette in India - Costco in japan is very successful especially in toykyo where space is a premium but Costco doesn't change their size of stuff (still get 20 rolls of toilet paper), they'll go with their families and split the pack in the parking lot to save money

product design: religion

•Women's Apparel in the Middle East •Vegetarian McDonald's in India

Product attributes

- A product can be viewed as a bundle of attributes.8 For example, the attributes that make up a car include power, design, quality, performance, fuel consumption, and comfort; - Products sell well when their attributes match consumer needs (and when their prices are appropriate). BMW cars sell well to people who have high needs for luxury, quality, and performance precisely because BMW builds those attributes into its cars. - A firm's ability to sell the same product worldwide is further constrained by countries' differing product standards.

media availability

- A pull strategy relies on access to advertising media. In the United States, a large number of media are available, including print media (newspapers and magazines), broadcasting media (television and radio), and the Internet. The rise of cable television in the United States has facilitated extremely focused advertising (e.g., MTV for teens and young adults, Lifetime for women, ESPN for sports enthusiasts). The same is true of the Internet, with different websites attracting different kinds of users, and companies such as Google transforming the ability of companies to do targeted advertising. While this level of media sophistication is now found in many other developed countries, it is still not universal. Even many advanced nations have far fewer electronic media available for advertising than the United States. - limited. A firm's ability to use a pull strategy is limited in some countries by media availability. In such circumstances, a push strategy is more attractive.

Country of Origin Effects

- A subset of source effects is referred to as country of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he or she lacks more detailed knowledge of the product. - Source effects and country of origin effects are not always negative. French wine, Italian clothes, and German luxury cars benefit from nearly universal positive source effects.

why do acquisitions fail

- Acquisitions fail for several reasons. First, the acquiring firms often overpay for the assets of the acquired firm. The price of the target firm can get bid up if more than one firm is interested in its purchase, as is often the case. In addition, the management of the acquiring firm is often too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm's market capitalization. This is called the "hubris hypothesis" of why acquisitions fail. The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities. - Second, many acquisitions fail because there is a clash between the cultures of the acquiring and acquired firms. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company's way of doing things. - The loss of management talent and expertise can materially harm the performance of the acquired unit.39 This may be particularly problematic in an international business, where management of the acquired unit may have valuable local knowledge that can be difficult to replace. - Third, many acquisitions fail because attempts to realize gains by integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast. Differences in management philosophy and company culture can slow the integration of operations - Finally, many acquisitions fail due to inadequate preacquisition screening.40 Many firms decide to acquire other firms without thoroughly analyzing the potential benefits and costs. They often move with undue haste to execute the acquisition, perhaps because they fear another competitor may preempt them. After the acquisition, however, many acquiring firms discover that instead of buying a well-run business, they have purchased a troubled organization. This may be a particular problem in cross-border acquisitions because the acquiring firm may not fully understand the target firm's national culture and business system.

pros and cons of acquisitions

- Acquisitions have three major points in their favor. First, they are quick to execute. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. - Second, in many cases, firms make acquisitions to preempt their competitors. The need for preemption is particularly great in markets that are rapidly globalizing, such as telecommunications, where a combination of deregulation within nations and liberalization of regulations governing cross-border foreign direct investment has made it much easier for enterprises to enter foreign markets through acquisitions. - Third, managers may believe acquisitions to be less risky than greenfield ventures. When a firm makes an acquisition, it buys a set of assets that are producing a known revenue and profit stream. In contrast, the revenue and profit stream that a greenfield venture might generate is uncertain because it does not yet exist. - Despite the arguments for engaging in acquisitions, many acquisitions often produce disappointing results.

Integrating R&D, Marketing and Production

- Although a firm that is successful at developing new products may earn enormous returns, new-product development has a high failure rate. One study of product development in 16 companies in the chemical, drug, petroleum, and electronics industries suggested that only about 20 percent of R&D projects result in commercially successful products or processes. - The reasons for such high failure rates are various and include development of a technology for which demand is limited, failure to adequately commercialize promising technology, and inability to manufacture a new product cost effectively. Firms can reduce the probability of making such mistakes by insisting on tight cross-functional coordination and integration among three core functions involved in the development of new products: R&D, marketing, and production.40 Tight cross-functional integration among R&D, production, and marketing can help a company ensure that: 1. Product development projects are driven by customer needs. 2. New products are designed for ease of manufacture. 3. Development costs are kept in check. 4. Time to market is minimized. - Close integration between R&D and marketing is required to ensure that product development projects are driven by the needs of customers. A company's customers can be a primary source of new-product ideas. - Integration between R&D and production can help a company design products with manufacturing requirements in mind. Designing for manufacturing can lower costs and increase product quality. Integrating R&D and production can also help lower development costs and speed products to market.

Scale of Entry and Strategic Commitments

- Another issue that an international business needs to consider when contemplating market entry is the scale of entry. Entering a market on a large scale involves the commitment of significant resources and implies rapid entry. - Not all firms have the resources necessary to enter on a large scale, and even some large firms prefer to enter foreign markets on a small scale and then build slowly as they become more familiar with the market. - The consequences of entering on a significant scale— entering rapidly—are associated with the value of the resulting strategic commitments.7 A strategic commitment has a long-term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. Strategic commitments, such as rapid large-scale market entry, can have an important influence on the nature of competition in a market. - On the positive side, it will make it easier for the company to attract customers and distributors (such as insurance agents). - On the negative side, by committing itself heavily to one country, the United States, ING may have fewer resources available to support expansion in other desirable markets, such as Japan. The commitment to the United States limits the company's strategic flexibility. - Of particular relevance is trying to identify how actual and potential competitors might react to large-scale entry into a market. Also, the large-scale entrant is more likely than the smallscale entrant to be able to capture first-mover advantages associated with demand preemption, scale economies, and switching costs. - Balanced against the value and risks of the commitments associated with large-scale entry are the benefits of a small-scale entry. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter. - the lack of commitment associated with smallscale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages.

antidumping regulations

- Both predatory pricing and experience curve pricing can run afoul of antidumping regulations. - a country is allowed to bring antidumping actions against an importer under Article 6 of GATT as long as two criteria are met: sales at "less than fair value" and "material injury to a domestic industry." The problem with this terminology is that it does not indicate what a fair value is. The ambiguity has led some to argue that selling abroad at prices below those in the country of origin, as opposed to below cost, is dumping.

economic development

- Consumer behavior is influenced by the level of economic development of a country. Firms based in highly developed countries such as the United States tend to build a lot of extra performance attributes into their products. These extra attributes are not usually demanded by consumers in less developed nations, where the preference is for more basic products. - consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind. They are willing to pay more for products that have additional features and attributes customized to their tastes and preferences.

cultural differences

- Countries differ along a whole range of dimensions, including social structure, language, religion, and education. These differences have important implications for marketing strategy. - Countries differ along a whole range of dimensions, including social structure, language, religion, and education. These differences have important implications for marketing strategy. - For historical and idiosyncratic reasons, a range of other cultural differences exist among countries. For example, scent preferences differ from one country to another. - Tastes and preferences are becoming more cosmopolitan.

cultural barriers

- Cultural barriers can make it difficult to communicate messages across cultures. - The best way for a firm to overcome cultural barriers is to develop cross-cultural literacy (see Chapter 4). In addition, it should use local input, such as a local advertising agency, in developing its marketing message. If the firm uses direct selling rather than advertising to communicate its message, it should develop a local sales force whenever possible. Cultural differences limit a firm's ability to use the same marketing message and selling approach worldwide.

Product type and consumer sophistication

- Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms; thus, they rarely use direct selling. - Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product.

Which choice?

- In general, the choice will depend on the circumstances confronting the firm. If the firm is seeking to enter a market where there are already well-established incumbent enterprises and where global competitors are also interested in establishing a presence, it may pay the firm to enter via an acquisition. - If the firm is considering entering a country where there are no incumbent competitors to be acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield venture.

product development

- In today's world, competition is as much about technological innovation as anything else. The pace of technological change has accelerated since the Industrial Revolution in the eighteenth century, and it continues to do so today. The result has been a dramatic shortening of product life cycles. Technological innovation is both creative and destructive.31 An innovation can make established products obsolete overnight. But an innovation can also make a host of new products possible. - This "creative destruction" unleashed by technological change makes it critical that a firm stay on the leading edge of technology, lest it lose out to a competitor's innovations.

Licensing disadvantages

- Licensing has three serious drawbacks. First, it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing typically involves each licensee setting up its own production operations. This severely limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location. - Second, competing in a global market may require a firm to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another. By its very nature, licensing limits a firm's ability to do this. A licensee is unlikely to allow a multinational firm to use its profits (beyond those due in the form of royalty payments) to support a different licensee operating in another country. - A third problem with licensing is one that we encountered in Chapter 8 when we reviewed the economic theory of foreign direct investment (FDI). This is the risk associated with licensing technological know-how to foreign companies. Technological know-how constitutes the basis of many multinational firms' competitive advantage. Most firms wish to maintain control over how their know-how is used, and a firm can quickly lose control over its technology by licensing it. - There are ways of reducing this risk. One way is by entering into a cross-licensing agreement with a foreign firm. Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. - Another way of reducing the risk associated with licensing is to follow the Fuji Xerox model and link an agreement to license know-how with the formation of a joint venture in which the licensor and licensee take important equity stakes.

Gov. encouraging outward FDI

- Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk. The types of risks insurable through these programs include the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.- special funds or banks that make government loans to firms wishing to invest in developing countries - eliminated double taxation of foreign income (i.e., taxation of income in both the host country and the home country). - Last, and perhaps most significant, a number of investor countries (including the United States) have used their political influence to persuade host countries to relax their restrictions on inbound FDI.

Cross-Functional teams

- One way to achieve cross-functional integration is to establish cross-functional product development teams composed of representatives from R&D, marketing, and production. Because these functions may be located in different countries, the team will sometimes have a multinational membership. The objective of a team should be to take a product development project from the initial concept development to market introduction. A number of attributes seem to be important for a product development team to function effectively and meet all its development milestones. - First, the team should be led by a "heavyweight" project manager who has high status within the organization and who has the power and authority required to get the financial and human resources the team needs to succeed. - Second, the team should be composed of at least one member from each key function. - Third, the team members should physically be in one location if possible to create a sense of camaraderie and to facilitate communication. - Fourth, the team should have a clear plan and clear goals, particularly with regard to critical development milestones and development budgets. - Fifth, each team needs to develop its own processes for communication and conflict resolution.

price discrimination

- Price discrimination exists whenever consumers in different countries are charged different prices for the same product or for slightly different variations of the product.17 Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. Price discrimination can help a company maximize its profits. It makes economic sense to charge different prices in different countries. - Two conditions are necessary for profitable price discrimination. First, the firm must be able to keep its national markets separate. If it cannot do this, individuals or businesses may undercut its attempt at price discrimination by engaging in arbitrage. Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. - The second necessary condition for profitable price discrimination is different price elasticities of demand in different countries. The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. - The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels. Consumers with limited incomes tend to be very price conscious; - In general, the more competitors there are, the greater consumers' bargaining power will be and the more likely consumers will be to buy from the firm that charges the lowest price. Thus, many competitors cause high elasticity of demand.

Country of origin effect

- Products or services from a certain country that either give a positive or neg country of origin effect - This is the asset of foreigness Plays a big role when looking at products or services from diff countries -Positive ex: wine from France, German engenering -Negative ex: chocolate from the US -Positive or negative feeling you have about a specific product that comes from a country

Disadvantages of franchising

- Since franchising is often used by service companies, there is no reason to consider the need for coordination of manufacturing to achieve experience curve and location economies. But franchising may inhibit the firm's ability to take profits out of one country to support competitive attacks in another. A more significant disadvantage of franchising is quality control. - foreign franchisees may not be as concerned about quality as they are supposed to be, and the result of poor quality can extend beyond lost sales in a particular foreign market to a decline in the firm's worldwide reputation. - One way around this disadvantage is to set up a subsidiary in each country in which the firm expands. The subsidiary might be wholly owned by the company or a joint venture with a foreign company. The subsidiary assumes the rights and obligations to establish franchises throughout the particular country or region. - In addition, because the subsidiary (or master franchisee) is at least partly owned by the firm, the firm can place its own managers in the subsidiary to help ensure that it is doing a good job of monitoring the franchises.

social culture

- Societal culture may well have an impact on the propensity of people and organizations to behave in an unethical manner. One study of 2,700 firms in 24 countries found that there were significant differences among the ethical policies of firms headquartered in different countries. - headquartered in cultures where individualism and uncertainty avoidance are strong were more likely to emphasize the importance of behaving ethically than firms headquartered in cultures where masculinity and power distance are important cultural attributes.

pros and cons of Greenfield ventures

- The big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. For example, it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. Similarly, it is much easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit. This is a very important advantage for many international businesses, where transferring products, competencies, skills, and know-how from the established operations of the firm to the new subsidiary are principal ways of creating value. - Set against this significant advantage are the disadvantages of establishing a greenfield venture. Greenfield ventures are slower to establish. They are also risky. As with any new venture, a degree of uncertainty is associated with future revenue and profit prospects. However, if the firm has already been successful in other foreign markets and understands what it takes to do business in other countries, these risks may not be that great.

turnkey advantages

- The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset. Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly useful where foreign direct investment (FDI) is limited by host-government regulations. For example, the governments of many oil-rich countries have set out to build their own petroleum-refining industries, so they restrict FDI in their oil-refining sectors. - A turnkey strategy can also be less risky than conventional FDI. In a country with unstable political and economic environments, a longer-term investment might expose the firm to unacceptable political and/or economic risks

Home-country costs

- The most important concerns center on the balance-of payments and employment effects of outward FDI. The home country's balance of payments may suffer in three ways. First, the balance of payments suffers from the initial capital outflow required to finance the FDI.- Second, the current account of the balance of payments suffers if the purpose of the foreign investment is to serve the home market from a low-cost production location. Third, the current account of the balance of payments suffers if the FDI is a substitute for direct exports.- With regard to employment effects, the most serious concerns arise when FDI is seen as a substitute for domestic production.

Building Global R&D Capabilities

- The need to integrate R&D and marketing to adequately commercialize new technologies poses special problems in the international business because commercialization may require different versions of a new product to be produced for various countries.45 To do this, the firm must build close links between its R&D centers and its various country operations. - While there is no one best model for allocating product development responsibilities to various centers, one solution adopted by many international businesses involves establishing a global network of R&D centers. Within this model, fundamental research is undertaken at basic research centers around the globe. These centers are normally located in regions or cities where valuable scientific knowledge is being created and where there is a pool of skilled research talent (e.g., Silicon Valley in the United States, Cambridge in England, Kobe in Japan, Singapore). These centers are the innovation engines of the firm. Their job is to develop the basic technologies that become new products. -

for standardized advertising

- The support for global advertising is threefold. First, it has significant economic advantages. Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. - Second, there is the concern that creative talent is scarce, so one large effort to develop a campaign will produce better results than 40 or 50 smaller efforts. A third justification for a standardized approach is that many brand names are global.

Against Standardized Advertising

- There are two main arguments against globally standardized advertising. First, as we have seen repeatedly in this chapter and in Chapter 4, cultural differences among nations are such that a message that works in one nation can fail miserably in another. Cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. Messages directed at the culture of a given country may be more effective than global messages. - Second, advertising regulations may block implementation of standardized advertising.

Turnkey Disadvantages

- Three main drawbacks are associated with a turnkey strategy. First, the firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation. Second, the firm that enters into a turnkey project with a foreign enterprise may inadvertently create a competitor. - Third, if the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.

which foreign markets?

- Ultimately, the choice must be based on an assessment of a nation's long-run revenue potential. - The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. - benefits of doing business in a country are a function of factors such as the size of the market (in terms of demographics), the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers, which depends on economic growth rates. - the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations, and they are greater in less developed and politically unstable nations. - other things being equal, the benefit-cost- risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and where there is not a dramatic upsurge in either inflation rates or private-sector debt. The trade-off is likely to be least favorable in politically unstable developing nations that operate with a mixed or command economy or in developing nations where speculative financial bubbles have led to excess borrowing. - Another important factor is the value an international business can create in a foreign market.

disadvantages of joint ventures

- a firm that enters into a joint venture risks giving control of its technology to its partner. - However, joint-venture agreements can be constructed to minimize this risk. One option is to hold majority ownership in the venture. This allows the dominant partner to exercise greater control over its technology. But it can be difficult to find a foreign partner who is willing to settle for minority ownership. Another option is to "wall off" from a partner technology that is central to the core competence of the firm, while sharing other technology. - A second disadvantage is that a joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Nor does it give a firm the tight control over a foreign subsidiary that it might need for engaging in coordinated global attacks against its rivals. - A third disadvantage with joint ventures is that the shared ownership arrangement 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. - much research indicates that conflicts of interest over strategy and goals often arise in joint ventures. These conflicts tend to be greater when the venture is between firms of different nationalities, and they often end in the dissolution of the venture.21 Such conflicts tend to be triggered by shifts in the relative bargaining power of venture partners.

licensing advantages

- a primary advantage of licensing is that the firm does not have to bear the development costs and risks associated with opening a foreign market. Licensing is very attractive for firms lacking the capital to develop operations overseas. In addition, licensing can be attractive when a firm is unwilling to commit substantial financial resources to an unfamiliar or politically volatile foreign market. Licensing is also often used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment. - Similarly, Coca-Cola has licensed its famous trademark to clothing manufacturers, which have incorporated the design into clothing.

exporting disadvantages

- exporting from the firm's home base may not be appropriate if lower-cost locations for manufacturing the product can be found abroad - it may be preferable to manufacture where the mix of factor conditions is most favorable from a value creation perspective and to export to the rest of the world from that location. This is not so much an argument against exporting as an argument against exporting from the firm's home country. - A second drawback to exporting is that high transportation costs can make exporting uneconomical, particularly for bulk products. One way of getting around this is to manufacture bulk products regionally. This strategy enables the firm to realize some economies from large-scale production and at the same time to limit its transportation costs. - tariff barriers can make exporting uneconomical. - A fourth drawback to exporting arises when a firm delegates its marketing, sales, and service in each country where it does business to another company. - The way around such problems is to set up wholly owned subsidiaries in foreign nations to handle local marketing, sales, and service. By doing this, the firm can exercise tight control over marketing and sales in the country while reaping the cost advantages of manufacturing the product in a single location or a few choice locations.

technological know how

- if a firm's competitive advantage (its core competence) is based on control over proprietary technological know-how, licensing and joint-venture arrangements should be avoided if possible to minimize the risk of losing control over that technology. Thus, if a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, it will probably do so through a wholly owned subsidiary.

Gov. restricting outward FDI

- limit capital outflows out of concern for the country's balance of payments.- countries have occasionally manipulated tax rules to try to encourage their firms to invest at home. The objective behind such policies is to create jobs at home rather than in other nations.- countries sometimes prohibit national firms from investing in certain countries for political reasons.

advantages of wholly owned subsidiaries

- when a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. - Many high-tech firms prefer this entry mode for overseas expansion - Second, a wholly owned subsidiary gives a firm tight control over operations in different countries. - Third, a wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies - Finally, establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market.

customized products

-Shampoo -Eddie bower -Mcdonalds -Food products

standardized products

-Walmart -Apple -Luxury goods -Music and movies -Microsoft

host country benefits

1. Resource Transfer Effects 2. Employment Effects 3. Balance-of-Payments Effects 4. Effect on Competition and Economic Growth

home-country benefits

1. The home country's balance of payments benefits from the inward flow of foreign earnings. 2. benefits to the home country from outward FDI arise from employment effects. 3. benefits arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country.

Marketing mix approach

3 different approaches that companies can utilize with their marketing mix -Ethnocentric approach: adopt the domestic marketing mix and apply to the country your operating with. Usually see this with companies already established (standardized approach). Often challenging because you're not meeting needs of customers but can save a lot of money if you are successful -Polycentric approach: customized as apposed to standardized, but will cost a lot more money -Geocentric approach: standardized as well, but the difference is for born global companies. They know right off the bat they will be going global so they try and create a standardized approach right off the back to appeal to different countries

distribution strategy

A critical element of a firm's marketing mix is its distribution strategy: the means it chooses for delivering the product to the consumer.

core competencies and entry mode

A distinction can be drawn between firms whose core competency is in technological know-how and those whose core competency is in management know-how.

Exclusive Distribution Channel

A distribution channel that outsiders find difficult to access. - This occurs because retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms. The exclusivity of a distribution system varies among countries. Japan's system is often held up as an example of a very exclusive system.

Greenfield venture or acquisition

A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, the so-called greenfield strategy, or by acquiring an enterprise in the target market.

basic entry decisions

A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale.

configuring the marketing mix

A firm might vary aspects of its marketing mix from country to country to take into account local differences in culture, economic conditions, competitive conditions, product and technical standards, distribution systems, government regulations, and the like. Such differences may require variation in product attributes, distribution strategy, communication strategy, and pricing strategy. - The cumulative effect of these factors made it rare that a firm would adopt the same marketing mix worldwide just a few years ago, and it holds true in many cases still. But we are also seeing a new generation of customers—younger customers—worldwide who appear more and more willing to engage in a "global" way in what they want, need, and use in their daily lives. - Basically, there are significant opportunities for standardization along one or more elements of the marketing mix.23 Firms may find that it is possible and desirable to standardize their global advertising message or core product attributes to realize substantial cost economies. - reality, the "customization versus standardization" debate is not an all-or-nothing issue; it frequently makes sense to standardize some aspects of the marketing mix and customize others, depending on conditions in various national marketplaces.

pull strategy

A marketing strategy emphasizing mass media advertising as opposed to personal selling. - A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers. - Although some firms employ only a pull strategy and others only a push strategy, still other firms combine direct selling with mass advertising to maximize communication effectiveness. Factors that determine the relative attractiveness of push and pull strategies include product type relative to consumer sophistication, channel length, and media availability.

push strategy

A marketing strategy emphasizing personal selling rather than mass media advertising - The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. Although effective as a promotional tool, personal selling requires intensive use of a sales force and is relatively costly.

turnkey projects

A project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational. - In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. At completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation—hence, the term turnkey. This is a means of exporting process technology to other countries. Turnkey projects are most common in the chemical, pharmaceutical, petroleum-refining, and metal-refining industries, all of which use complex, expensive production technologies.

global marketing defined

A social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others in a global environment - When you're talking about marketing, someone has something of value that someone else wants, and when the exchange takes place, value is created

franchising

A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business - franchising tends to involve longer-term commitments than licensing. Franchising is basically a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchiser will also often assist the franchisee to run the business on an ongoing basis. As with licensing, the franchiser typically receives a royalty payment, which amounts to some percentage of the franchisee's revenues. Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by service firms.

location-specific advantages

Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management know-how).

experience curve pricing

Aggressive pricing designed to increase volume and help the firm realize experience curve economies. - Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially.

communication strategy

Another critical element in the marketing mix is communicating the attributes of the product to prospective customers. A number of communication channels are available to a firm, including direct selling, sales promotion, direct marketing, and advertising.

BOT

BOT: Power plants! - This one, built by Enron (1999) on BOT basis, contracted by the Turkish Ministry of Energy. - To be operated first by Enron for 10 yrs, then by Turkish electric company Trakya until 2019; finally by the Ministry of Energy...

How are ethics relevant to human rights?

Basic human rights are taken for granted in developed countries •freedom of speech •freedom of assembly •freedom of movement - in doha it's illegal to protest

The marketing mix

Choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets. - The marketing mix is the set of choices the firm offers to its targeted markets. Many firms vary their marketing mix from country to country, depending on differences in national culture, economic development, product standards, distribution channels, and so on. The best way to think about the marketing mix is that it represents the tactical activities and behaviors that are implemented by a global company based on its international marketing strategy - to offer the best possible "mix" of product, distribution, communication, and price to a specific target market in a country or region.

joint ventures

Cooperative arrangements between two or more firms - A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Fuji Xerox, for example, was set up as a joint venture between Xerox and Fuji Photo. - The most typical joint venture is a 50-50 venture, in which there are two parties, each of which holding a 50 percent ownership stake and contributing a team of managers to share operating control. - Some firms, however, have sought joint ventures in which they have a majority share and thus tighter control.17

pioneering costs

Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.

Place (Distribution)

Direct Marketing Direct Exporting Using an intermediary FDI

First Mover Disadvantages

Disadvantages associated with entering a foreign market before other international businesses.

effect on competition and economic growth

Economic theory tells us that the efficient functioning of markets depends on an adequate level of competition between producers. When FDI takes the form of a greenfield investment, the result is to establish a new enterprise, increasing the number of players in a market and thus consumer choice. In turn, this can increase the level of competition in a national market, thereby driving down prices and increasing the economic welfare of consumers. Increased competition tends to stimulate capital investments by firms in plant, equipment, and R&D as they struggle to gain an edge over their rivals.

source effects

Effects that occur when the receiver of the message (i.e., a potential consumer) evaluates the message on the basis of status or image of the sender. - Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. - Many international businesses try to counter negative source effects by deemphasizing their foreign origins.

disadvantages of wholly owned subsidiaries

Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting up overseas operations. The risks associated with learning to do business in a new culture are less if the firm acquires an established host-country enterprise.

exporting advantages

Exporting has two distinct advantages. First, it avoids the often substantial costs of establishing manufacturing operations in the host country. Second, exporting may help a firm achieve experience curve and location economies - the firm may realize substantial scale economies from its global sales volume.

offshore production

FDI undertaken to serve the home market

Balance of payment effects

FDI's effect on a country's balance-of-payments accounts is an important policy issue for most host governments. A country's balance-of-payments accounts track both its payments to and its receipts from other countries. Governments normally are concerned when their country is running a deficit on the current account of their balance of payments. The current account tracks the export and import of goods and services. A current account deficit, or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting. Governments typically prefer to see a current account surplus than a deficit. The only way in which a current account deficit can be supported in the long run is by selling off assets to foreigners- For example, the persistent U.S. current account deficit since the 1980s has been financed by a steady sale of U.S. assets (stocks, bonds, real estate, and whole corporations) to foreigners.- they prefer their nation to run a current account surplus. There are two ways in which FDI can help a country achieve this goal. First, if the FDI is a substitute for imports of goods or services, the effect can be to improve the current account of the host country's balance of payments.- A second potential benefit arises when the MNE uses a foreign subsidiary to export goods and services to other countries.

advantages of joint ventures

First, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business. Thus, for many U.S. firms, joint ventures have involved the U.S. company providing technological know-how and products and the local partner providing the marketing expertise and the local knowledge necessary for competing in that country. Second, when the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner. Third, in many countries, political considerations make joint ventures the only feasible entry mode. Research suggests joint ventures with local partners face a low risk of being subject to nationalization or other forms of adverse government interference.18 This appears to be because local equity partners, who may have some influence on host-government policy, have a vested interest in speaking out against nationalization or government interference.

Inflows of FDI

Flow of foreign direct investment into a country

Outflows of FDI

Flow of foreign direct investment out of a country

FDI

Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a good or service in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. Once a firm undertakes FDI, it becomes a multinational enterprise.

resource transfer effects

Foreign direct investment can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate. With regard to capital, many MNEs, by virtue of their large size and financial strength, have access to financial resources not available to host-country firms.- Research supports the view that multinational firms often transfer significant technology when they invest in a foreign country.- Also, a study of FDI by the Organisation for Economic Cooperation and Development (OECD) found that foreign investors invested significant amounts of capital in R&D in the countries in which they had invested, suggesting that not only were they transferring technology to those countries but they may also have been upgrading existing technology or creating new technology in those countries.30 Foreign management skills acquired through FDI may also produce important benefits for the host country.

promotion: advertising

Global vs. Local (message and medium) •Can the advertising be the same everywhere or must it be tailored to each local market? - If you can get away with a standardized ad, it'd be cheeper - ex: coke, levis 501 jeans, united colors of benetton

The Direction of FDI

Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in the others' markets (see Figure 8.2). During the 1980s and 1990s, the United States was often the favorite target for FDI inflows. The United States has been an attractive target for FDI because of its large and wealthy domestic markets, its dynamic and stable economy, a favorable political environment, and the openness of the country to FDI.- Even though developed nations still account for the largest share of FDI inflows, FDI into developing nations and the transition economies of eastern Europe and the old Soviet Union has increased markedly

Political ideology and FDI

Historically, political ideology toward FDI within a nation has ranged from a dogmatic radical stance that is hostile to all inward FDI at one extreme to an adherence to the noninterventionist principle of free market economics at the other. Between these two extremes is an approach that might be called pragmatic nationalism.

Utilitarian and Kantian Ethics

In contrast to the straw men just discussed, most moral philosophers see value in utilitarian and Kantian approaches to business ethics. These approaches were developed in the eighteenth and nineteenth centuries, and although they have been largely superseded by more modern approaches, they form part of the tradition on which newer approaches have been constructed.

benefits of alliances

- Create value by reducing costs, risks, and uncertainty - Can help in the case of 'resource dependency', e.g. through connection to governments - Reduce transaction costs by establishing mutual tolerance - Enable knowledge transfer from both partners - combo of best 'complementary assets'

environmental pollution

- Ethical issues arise when environmental regulations in host nations are inferior to those in the home nation. - regulations are often lacking in developing nations, and, according to critics, the result can be higher levels of pollution from the operations of multinationals than would be allowed at home. - What is the right and moral thing to do in such circumstances: pollute to gain an economic advantage, or make sure that foreign subsidiaries adhere to common standards regarding pollution controls? - a phenomenon known as the tragedy of the commons becomes applicable. The tragedy of the commons occurs when a resource held in common by all but owned by no one is overused by individuals, resulting in its degradation. - Corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. While such action may be legal, is it ethical? Again, such actions seem to violate basic societal notions of ethics and corporate social responsibility. - societies around the world are starting to restrict the amount of carbon dioxide that can be emitted into the atmosphere as a by-product of industrial and commercial activity. However, regulations differ from nation to nation.

Why do firms go to the trouble of establishing operations abroad through foreign direct investment when two alternatives, exporting and licensing, are available to them for exploiting the profit opportunities in a foreign market?

- Exporting involves producing goods at home and then shipping them to the receiving country for sale. Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold. The question is important, given that a cursory examination of the topic suggests that foreign direct investment may be both expensive and risky compared with exporting and licensing.- The answer can be found by examining the limitations of exporting and licensing as means for capitalizing on foreign market opportunities.

what do we know about SBUX

- Firm characteristics • Large firm, looking for rapid expansion but needs local product knowledge and societal approval - Industry characteristics • Consumer -oriented; positioning and differentiation difficult to establish as an outsider - Country Characteristics • Rapid growth markets (BRICS); high levels of cultural distance

Exporting Is Often The First Method Firms Use To Enter Foreign Market

- exporting is attractive because •it is relatively low cost •firms may achieve experience curve economies - exporting is not attractive when •lower-cost manufacturing locations exist •transport costs are high •tariff barriers are high •foreign agents fail to work in the exporter's best interest

Exports - direct and indirect

- indirect: You are getting your product to the customer using an intermediary - direct: sells directly to foreign customer

non-equity mode vs equity mode

- non equity mode- exports and contractual agreements - Less costly - Potential for gradual organizational learning - much more like the stages model, target entered into Canada with the stages model and they bombed, their supply chain was terrible, they bought out a failing retail store chain so their locations weren't great. - equity mode - JVs and wholly owned subsidiaries - Demonstrate strategic commitment to certain markets, local customers and suppliers - Deters potential entrants - saying we're here, we're committed and we're here to stay: jumping in with both feet

Personal ethics

- personal ethics, which are the generally accepted principles of right and wrong governing the conduct of individuals. - The personal ethical code that guides our behavior comes from a number of sources, including our parents, our schools, our religion, and the media. Our personal ethical code exerts a profound influence on the way we behave as business people. - It follows that the first step to establishing a strong sense of business ethics is for a society to emphasize strong personal ethics.

Unrealistic performance goals

- pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner. - The combination of an organizational culture that legitimizes unethical behavior, or at least turns a blind eye to such behavior, and unrealistic performance goals may be particularly toxic.

Does corruption impact business?

- Gatekeepers to critical services - Gatekeepers to licenses and registration (permission to operate) - Cost of operations - Inability to operate - Gatekeepers to licenses and registration: -Some companies it's very easy to get a business license and some times it's very hard -Theres a podcast that talks about a taxi cab driver to get a taxi license and he waits all day and the person who makes the decision whether he gets one or not calls him in and he says hmmm I'm looking at your paper work and the taxi shows some money and he gets his license

moral courage

- It is important to recognize that employees in an international business may need significant moral courage. Moral courage enables managers to walk away from a decision that is profitable but unethical. Moral courage gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical. Moral courage gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company. - However, companies can strengthen the moral courage of employees by committing themselves to not retaliate against employees who exercise moral courage, say no to superiors, or otherwise complain about unethical actions. - with power comes the social responsibility for multinationals to give something back to the societies that enable them to prosper and grow. The concept of corporate social responsibility (CSR) refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions and that there should be a presumption in favor of decisions that have both good economic and social consequences.50 - Advocates of this approach argue that businesses, particularly large successful businesses, need to recognize their noblesse oblige and give something back to the societies that have made their success possible. Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth. In a business setting, it is taken to mean benevolent behavior that is the responsibility of successful enterprises.

Oligopolistic industries

- One theory is based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. An early variant of this argument was expounded by F. T. Knickerbocker, who looked at the relationship between FDI and rivalry in oligopolistic industries.14 An oligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). A critical competitive feature of such industries is interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind.- Thus, the interdependence between firms in an oligopoly leads to imitative behavior; rivals often quickly imitate what a firm does in an oligopoly. Imitative behavior can take many forms in an oligopoly. One firm raises prices, and the others follow; one expands capacity, and the rivals imitate lest they be left at a disadvantage in the future. Knickerbocker argued that the same kind of imitative behavior characterizes FDI. Consider an oligopoly in the United States in which three firms—A, B, and C—dominate the market. Firm A establishes a subsidiary in France. Firms B and C decide that if successful, this new subsidiary may knock out their export business to France and give a first-mover advantage to firm A. Furthermore, firm A might discover some competitive asset in France that it could repatriate to the United States to torment firms B and C on their native soil. Given these possibilities, firms B and C decide to follow firm A and establish operations in France.

the roots of unethical behavior

- Personal Ethics - Decision-Making Processes - Organization Culture - Unrealistic Performance Expectations - Leadership - Societal Culture

decision making process

- Several studies of unethical behavior in a business setting have concluded that businesspeople sometimes do not realize they are behaving unethically, primarily because they simply fail to ask, "Is this decision or action ethical?"22 Instead, they apply a straightforward business calculus to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension. The fault lies in processes that do not incorporate ethical considerations into business decision making. - To improve ethical decision making in a multinational firm, the best starting point is to better understand how individuals make decisions that can be considered ethical or unethical in an organizational environment.23 Two assumptions must be taken into account. First, too often it is assumed that individuals in the workplace make ethical decisions in the same way as they would if they were home. Second, too often it is assumed that people from different cultures make ethical decisions following a similar process

How Are Ethics Relevant To Moral Obligations?

- Social responsibility: refers to the idea that managers should consider the social consequences of economic actions when making business decisions - Advocates argue that businesses need to recognize that honorable and benevolent behavior is the responsibility of successful companies •give something back to the societies that have made their success possible •(or not) Friedman Doctrine: Friedman says it's not the responsibility of the company to giveback, it's the responsibility of the company to maximize shareholder wealth and for the shareholders to then give back - Toms shoes is a perfect example of giving back

How Are Ethics Relevant To Environmental Regulations?

- Some parts of the environment are a public good that no one owns, but anyone can spoil - What happens when environmental regulations in host nations are far inferior to those in the home nation? - This is called the tragedy of the commons - Is it permissible for multinationals to pollute in developing countries simply because there are no regulations against it? - legal versus ethical behavior

corruption

- corruption has been a problem in almost every society in history, and it continues to be one today.9 There always have been and always will be corrupt government officials. International businesses can and have gained economic advantages by making payments to those officials. - Carl Kotchian, the president of Lockheed, made a $12.6 million payment to Japanese agents and government officials to secure a large order for Lockheed's TriStar jet from Nippon Air. - such a payment was not an accepted way of doing business in Japan! The payment was nothing more than a bribe, paid to corrupt officials, - Kotchian clearly engaged in unethical behavior

market entry

- cultural similarity with target market - Nature of information sought (varies with product and industry) - Possibly target a region -Culture plays a huge part of whether or not your successful -What kind of info are they looking for? -Maybe you start in a specific region and then expand -What country is similar to the US culturally? - Canada (different language in places, different product competitors, very different labor laws, metric system), England

Human rights

- The apartheid system denied basic political rights to the majority nonwhite population of South Africa, mandated segregation between whites and nonwhites, reserved certain occupations exclusively for whites, and prohibited blacks from being placed in positions where they would manage whites. Despite the odious nature of this system, businesses from developed nations operated in South Africa. - They argued that inward investment by foreign multinationals, by boosting the South African economy, supported the repressive apartheid regime. Several businesses started to change their policies in the 1990s and 2000s - more and more companies are now competing on being ethical as a core philosophy promoted to customers. - GM adopted what came to be called the Sullivan principles, - Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws. - After 10 years, Leon Sullivan concluded that simply following the principles was not sufficient to break down the apartheid regime and that any American company, - Over the next few years, numerous companies divested their South African operations, - many state pension funds signaled they would no longer hold stock in companies that did business in - adopting an ethical stance was argued to have helped improve human rights in South Africa.5 - It is often argued that inward investment by a multinational can be a force for economic, political, and social progress that ultimately improves the rights of people in repressive regimes. - economic progress in a nation could create pressure for democratization. In general, this belief suggests it is ethical for a multinational to do business in nations that lack the democratic structures and human rights records of developed nations. Investment in China, for example, is frequently justified - continuing inward investment will help boost economic growth and raise living standards - There is a limit to this argument. As in the case of South Africa, some regimes are so repressive that investment cannot be justified on ethical grounds. - Myanmar has one of the worst human rights records in the world.

Trends in FDI

- The past 35 years have seen a marked increase in both the flow and stock of FDI in the world economy.- Over the past 30 years, the flow of FDI has accelerated faster than the growth in world trade and world output.- FDI has grown more rapidly than world trade and world output for several reasons. First, despite the general decline in trade barriers over the past 30 years, firms still fear protectionist pressures. Executives see FDI as a way of circumventing future trade barriers. Second, much of the increase in FDI has been driven by the political and economic changes that have been occurring in many of the world's developing nations. The general shift toward democratic political institutions and free market economies that we discussed in Chapter 3 has encouraged FDI. Across much of Asia, eastern Europe, and Latin America, economic growth, economic deregulation, privatization programs that are open to foreign investors, and removal of many restrictions on FDI have made these countries more attractive to foreign multinationals.- The globalization of the world economy is also having a positive effect on the volume of FDI. Many firms see the whole world as their market, and they are undertaking FDI in an attempt to make sure they have a significant presence in many regions of the world.

organizational culture and leadership

- To foster ethical behavior, businesses need to build an organizational culture that values ethical behavior. Three things are particularly important in building an organizational culture that emphasizes ethical behavior. First, the businesses must explicitly articulate values that emphasize ethical behavior. Many companies now do this by drafting a code of ethics, which is a formal statement of the ethical priorities a business adheres to. Often, the code of ethics draws heavily on documents such as the UN Universal Declaration of Human Rights, - Having articulated values in a code of ethics or some other document, leaders in the business must give life and meaning to those words by repeatedly emphasizing their importance and then acting on them. - Many companies have gone a step further by hiring independent auditors to make sure they are behaving in a manner consistent with their ethical codes. Nike, for example, has hired independent auditors - Finally, building an organizational culture that places a high value on ethical behavior requires incentive and reward systems, including promotions that reward people who engage in ethical behavior and sanction those who do not.

employment practices

- When work conditions in a host nation are clearly inferior to those in a multinational's home nation, which standards should be applied? - Nike found itself in the center of a storm of protests when news reports revealed that working conditions at many of its subcontractors were very poor. - Nike and its subcontractors were not breaking any laws, but this report and others like it raised questions about the ethics of using sweatshop labor to make what were essentially fashion accessories. - even though it was breaking no law, its subcontracting policies were perceived as unethical, Nike's management established a code of conduct for Nike subcontractors and instituted annual monitoring by independent auditors of all subcontractors.3 As the Nike case demonstrates, a strong argument can be made that it is not okay for a multinational firm to tolerate poor working conditions in its foreign operations or those of subcontractors. However, this still leaves unanswered the question of which standards should be applied. - note that establishing minimal acceptable standards that safeguard the basic rights and dignity of employees, auditing foreign subsidiaries and subcontractors on a regular basis to make sure those standards are met, and taking corrective action if they are not up to standards are a good way to guard against ethical abuses.

decision making process

- businesspeople must be able to think through the ethical implications of decisions in a systematic way. To do this, they need a moral compass, and both rights theories and Rawls's theory of justice help provide such a compass. - According to these experts, a decision is acceptable on ethical grounds if a businessperson can answer yes to each of these questions: ∙ Does my decision fall within the accepted values or standards that typically apply in the organizational environment (as articulated in a code of ethics or some other corporate statement)? ∙ Am I willing to see the decision communicated to all stakeholders affected by it—for example, by having it reported in newspapers, on television, or via social media? ∙ Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other businesses, approve of the decision? Others have recommended a five-step process to think through ethical problems (this is another example of an ethical algorithm).40 In step 1, businesspeople should identify which stakeholders a decision would affect and in what ways. A firm's stakeholders are individuals or groups that have an interest, claim, or stake in the company, in what it does, and in how well it performs.41 They can be divided into internal stakeholders and external stakeholders. Internal stakeholders are individuals or groups who work for or own the business. They include primary stakeholders such as employees, the board of directors, and shareholders. External stakeholders are all the other individuals and groups that have some direct or indirect claim on the firm. Typically, this group comprises primary stakeholders such as customers, suppliers, governments, and local communities as well as secondary stakeholders such as special-interest groups, competitors, trade associations, mass media, and social media. - Stakeholder analysis involves a certain amount of what has been called moral imagination.45 This means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. - Stakeholder analysis involves a certain amount of what has been called moral imagination.45 This means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. - Managers might also want to ask themselves whether they would allow the proposed strategic decision if they were designing a system under Rawls's veil of ignorance. - The judgment at this stage should be guided by various moral principles that should not be violated. The principles might be those articulated in a corporate code of ethics or other company documents. - The judgment at this stage should be guided by various moral principles that should not be violated. The principles might be those articulated in a corporate code of ethics or other company documents. - Step 4 requires the company to engage in ethical behavior. Step 5 requires the business to audit its decisions, reviewing them to make sure they were consistent with ethical principles, such as those stated in the company's code of ethics. This final step is critical and often overlooked. Without auditing past decisions, businesspeople may not know if their decision process is working and if changes should be made to ensure greater compliance with a code of ethics.

code of ethics

A business's formal statement of ethical priorities

cultural relativism

- the belief that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating.28 This approach is often summarized by the maxim when in Rome, do as the Romans. - At its extreme, cultural relativism suggests that if a culture supports slavery, it is okay to use slave labor in a country. Clearly, it is not! Cultural relativism implicitly rejects the idea that universal notions of morality transcend different cultures, but, as we argue later in the chapter, some universal notions of morality are found across cultures.

Ibus in the news

-Canada will be opening 85% of starbucksby the end of the month. -Corruption around Venezuela -Sweden's take on the coronavirus -US GDP is down about 25% -The breakfast industry has taken a massive hit

The most common ethical issues in business involve...

-Employment practices -Human rights -Environmental regulations -The moral obligation of multinational companies -Corruption

equity modes of entry

-Greenfield: think big open field and you're going to build your company in that space (HP's new plant in china) -Joint venture: often certain countries will require some type of joint venture, if so, you want to make sure you pick the right partner (LG/Philips or Sony/Ericsson, Starbucks/Tata (India)) -Mergers and Acquisition: acquire another company, often times it's not what it seems to be, sometimes there's a real struggle of the two companies mixing together (Mittal Steel acquires Arcelor)

Why do managers behave unethically?

-Personal ethics: if your personal ethics code doesn't lend itself to being ethical, then you will act unethically -Societal culture: do as the romans do (if you're operating in a country where unethical behavior is the norm, it's easy to do what everyone else is doing) -Leadership: it needs to start from the top down. If top management doesn't act ethically, then it will trickle down -Unrealistic performance goals: main reason we see managers acting unethically. If you are in an affiliate office out in the field and someone from headquarters is saying you're not hitting your numbers, people start cutting corners -Organization culture: if the organization doesn't value ethical behavior than neither will the employer -Process: companies need to have something it place that makes it easy to whistle blow without the repercussions

example of born global

-This is an irishcompany, they have come up with a unique forklift -It can go forward, back, side to side, and can change within 3 seconds -The forklift part can retract to go into small places -They new right off the bat they were going to be a global company because there wasn't enough demand in Ireland -They created a standardized approach to marketing and went straight into other countries which is called born global

How can managers make ethical decisions?

1) Hire and promote people with a well grounded sense of personal ethics 2) Build an organizational culture that places a high value on ethical behavior 3) Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric 4) Put decision making processes in place that require people to consider the ethical dimensions of business decisions 5) Develop moral courage - In the end, there are clearly things that an international business should do, and there are things that an international business should not do - But, it is important to remember that not all ethical dilemmas have a clean and obvious solution - in these situations, firms must rely on the decision making ability of its managers

Universal Declaration of Human Rights

A United Nations document that lays down the basic principles of human rights that should be adhered to - The notion that there are fundamental rights that transcend national borders and cultures was the underlying motivation for the United Nations Universal Declaration of Human Rights, adopted in 1948, which has been ratified by almost every country on the planet and lays down basic principles that should always be adhered to irrespective of the culture in which one is doing business.33 - Article 23 of this declaration, which relates directly to employment, states: 1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work, and to protection against unemployment. 2. Everyone, without any discrimination, has the right to equal pay for equal work. 3. Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. 4. Everyone has the right to form and to join trade unions for the protection of his interests. - Such obligations also fall on more than one class of moral agent (a moral agent is any person or institution that is capable of moral action such as a government or corporation).

Internationalization theory

A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets (this approach is also known as the market imperfections approach).12 According to internalization theory, licensing has three major drawbacks as a strategy for exploiting foreign market opportunities. First, licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.- A second problem is that licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. - A third problem with licensing arises when the firm's competitive advantage is based not as much on its products as on the management, marketing, and manufacturing capabilities that produce those products. The problem here is that such capabilities are often not amenable to licensing. While a foreign licensee may be able to physically reproduce the firm's product under license, it often may not be able to do so as efficiently as the firm could itself.- FDI is more profitable than licensing: (1) when the firm has valuable know-how that cannot be adequately protected by a licensing contract, (2) when the firm needs tight control over a foreign entity to maximize its market share and earnings in that country, and (3) when a firm's skills and know-how are not amenable to licensing.

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

An OECD convention that establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. - The convention, which went into force in 1999, obliges member states and other signatories to make the bribery of foreign public officials a criminal offense. The convention excludes facilitating payments made to expedite routine government action from the convention. - While facilitating payments, or speed money, are excluded from both the Foreign Corrupt Practices Act and the OECD convention on bribery, the ethical implications of making such payments are unclear. - Several economists advocate this reasoning, suggesting that in the context of pervasive and cumbersome regulations in developing countries, corruption may improve efficiency and help growth! - Arguments such as this persuaded the U.S. Congress to exempt facilitating payments from the FCPA. - Given the debate and the complexity of this issue, we again might conclude that generalization is difficult and the demand for speed money creates a genuine ethical dilemma. Yes, corruption is bad, and yes, it may harm a country's economic development, but yes, there are also cases where side payments to government officials can remove the bureaucratic barriers to investments that create jobs. - Corruption feeds on itself, and once an individual starts down the road of corruption, pulling back may be difficult, if not impossible. This argument strengthens the ethical case for never engaging in corruption, no matter how compelling the benefits might seem.

multipoint competition definition

Arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

business ethics

the accepted principles of right or wrong governing the conduct of business people - The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of business people

the stages model

Expansion as a process of organizational learning -For countries that want to take little baby steps into new countries Stage 1: Home market only Stage 2: Indirect export: when you use some sort of middlemen to get your product to you to the end customer. Could be a wholesaler or agent Stage 3: Direct export: you sending the product directly Stage 4: Foreign production - Walmart and target use this

Flow of FDI

the amount of FDI undertaken over a given time period (normally a year)

making ethical decision internationally

Here, we focus on seven actions that an international business and its managers can take to make sure ethical issues are considered in business decisions: (1) favor hiring and promoting people with a well-grounded sense of personal ethics; (2) build an organizational culture and exemplify leadership behaviors that place a high value on ethical behavior; (3) put decisionmaking processes in place that require people to consider the ethical dimension of business decisions; (4) institute ethical officers in the organization; (5) develop moral courage; (6) make corporate social responsibility a cornerstone of enterprise policy; and (7) pursue strategies that are sustainable.

born global strategies

If you wait too long, miss the window of opportunity ...Leaving you 'stuck' where you are - The opposite of the stages model -"just do it" - Rapid internationalization can be successful if: •venture capital is present (you have the money), •strong ownership "O" advantages can be exploited (something unique you're bringing thats not already there) and •first mover advantages exist

What does Starbucks say?

International Business Development: "Our development strategy adapts to different markets addressing local needs and requirements. We currently use three business strategies: joint ventures, licenses, and company-owned operations"

hiring and promotion

It seems obvious that businesses should strive to hire people who have a strong sense of personal ethics and would not engage in unethical or illegal behavior. Similarly, you would expect a business to not promote people, and perhaps to fire people, whose behavior does not match generally accepted ethical standards. - Businesses can give potential employees psychological tests to try to discern their ethical predispositions, and they can check with prior employees regarding someone's reputation (e.g., by asking for letters of reference and talking to people who have worked with the prospective employee). - Not only should businesses strive to identify and hire people with a strong sense of personal ethics, but it also is in the interests of prospective employees to find out as much as they can about the ethical climate in an organization.

Justice theories

Justice theories focus on the attainment of a just distribution of economic goods and services. A just distribution is one that is considered fair and equitable. There is no one theory of justice, and several theories of justice conflict with each other in important ways.35 Here, we focus on one particular theory of justice that is both very influential and has important ethical implications. The theory is attributed to philosopher John Rawls.36 Rawls argues that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage. According to Rawls, valid principles of justice are those with which all persons would agree if they could freely and impartially consider the situation. Impartiality is guaranteed by a conceptual device that Rawls calls the veil of ignorance. Under the veil of ignorance, everyone is imagined to be ignorant of all of his or her particular characteristics, for example, race, sex, intelligence, nationality, family background, and special talents. Rawls then asks what system people would design under a veil of ignorance. Under these conditions, people would unanimously agree on two fundamental principles of justice. The first principle is that each person be permitted the maximum amount of basic liberty compatible with a similar liberty for others. Rawls takes these to be political liberty (e.g., the right to vote), freedom of speech and assembly, liberty of conscience and freedom of thought, the freedom and right to hold personal property, and freedom from arbitrary arrest and seizure. The second principle is that once equal basic liberty is ensured, inequality in basic social goods—such as income and wealth distribution, and opportunities—is to be allowed only if such inequalities benefit everyone. - he formulates what he calls the difference principle, which is that inequalities are justified if they benefit the position of the least-advantaged person. So, for example, wide variations in income and wealth can be considered just if the market-based system that produces this unequal distribution also benefits the least-advantaged members of society. - Rawls's theory creates an interesting perspective. Managers could ask themselves whether the policies they adopt in foreign operations would be considered just under Rawls's veil of ignorance. Is it just, for example, to pay foreign workers less than workers in the firm's home country? Rawls's theory would suggest it is, so long as the inequality benefits the least-advantaged members of the global society (which is what economic theory suggests). Alternatively, it is difficult to imagine that managers operating under a veil of ignorance would design a system where foreign employees were paid subsistence wages to work long hours in sweatshop conditions and where they were exposed to toxic materials. - Thus, Rawls's veil of ignorance is a conceptual tool that contributes to the moral compass that managers can use to help them navigate through difficult ethical dilemmas.

multipoint competition

Knickerbocker's theory can be extended to embrace the concept of multipoint competition. Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.18 Economic theory suggests that rather like chess players jockeying for advantage, firms will try to match each other's moves in different markets to try to hold each other in check. The idea is to ensure that a rival does not gain a commanding position in one market and then use the profits generated there to subsidize competitive attacks in other markets. Although Knickerbocker's theory and its extensions can help explain imitative FDI behavior by firms in oligopolistic industries, it does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license. Internalization theory addresses this phenomenon. The imitative theory also does not address the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. Again, internalization theory addresses the efficiency issue. For these reasons, many economists favor internalization theory as an explanation for FDI, although most would agree that the imitative explanation tells an important part of the story.

ethics and international business

Many of the ethical issues in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation. What is considered normal practice in one nation may be considered unethical in another. Because they work for an institution that transcends national borders and cultures, managers in a multinational firm need to be particularly sensitive to these differences. In the international business setting, the most common ethical issues involve employment practices, human rights, environmental

Internationalization Theory

Marketing imperfection approach to foreign direct investment

international business ethics

Moral principles that define right and wrong behavior in conducting business in a global environment - Culture and ethics are two of the most important aspects of business success. The challenge of ethics is that what's ethical to you is not necessarily ethical to the person next to you. When you get down to it, ethics are an individual decision. - Intellectual property is a big issue for many companies in the global environment because a lot of companies don't think it's a big issue: real versus fake poles

licensing

Occurs when a firm (the licensor) licenses the right to produce its product, use its production processes, or use its brand name or trademark to another firm (the licensee). In return for giving the licensee these rights, the licensor collects a royalty fee on every unit the licensee sells.

Righteous Moralist

One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries - The main criticism of the righteous moralist approach is that its proponents go too far. While there are some universal moral principles that should not be violated, it does not always follow that the appropriate thing to do is adopt home-country standards.

internal stakeholders

People who work for or own the business such as employees, directors, and stockholders

sustainable strategies

Strategies that not only help the multinational firm make good profits, but that do so without harming the environment, while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its multiple stakeholders - sustainable strategies, we refer to strategies that not only help the multinational firm make good profits, but that also do so without harming the environment while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its stakeholders.52 The core idea of sustainability is that the organization—through its actions—does not exert a negative impact on the ability of future generations to meet their own economic needs and that its actions impart long-run economic and social benefits on stakeholders. - An important aspect of the sustainable strategies pursued by both Stora Enso and Starbucks is that they have helped both companies gain a competitive advantage and, therefore, make more money for their shareholders. In the case of Starbucks, its ethical sourcing policies send a powerful signal to its customers about the kind of company Starbucks wants to be. This resonates well with the company's customer base and strengthens the Starbucks brand, resulting in more store traffic and higher sales and profits. So even though it may cost Starbucks some money up front to shift to an ethical sourcing policy, the benefits in terms of a more powerful brand outweigh the costs. - well-crafted sustainable strategies can be good for all primary stakeholders, such as shareholders, the environment, suppliers, local communities, employees, and customers.

Straw men

Straw men approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise. Four such approaches to business ethics are commonly discussed in the literature. These approaches can be characterized as the Friedman doctrine, cultural relativism, the righteous moralist, and the naive immoralist. All these approaches have some inherent value, but all are unsatisfactory in important ways. Nevertheless, sometimes companies adopt these approaches.

How are ethics relevant to employment practices?

Suppose work conditions in a host nation are clearly inferior to those in the multinational's homenation - which standards should apply? •home country standards (RighteousMoralist) •host country standards ( CulturalRelativism •somethingin-between - Some may want to think that you want to do the home country standard, but we're talking about employment practices. Ex: Seattle's minimum wage is 15 an hour, would you be wanting to pay employees 15 an hour when their minimum wage is 5 an hour?

The eclectic paradigm

The eclectic paradigm has been championed by the British economist John Dunning.19 Dunning argues that in addition to the various factors discussed earlier, location-specific advantages are also of considerable importance in explaining both the rationale for and the direction of foreign direct investment. By location-specific advantages, Dunning means the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management capabilities).- he argues that combining location-specific assets or resource endowments with the firm's own unique capabilities often requires foreign direct investment.- An obvious example of Dunning's arguments are natural resources, such as oil and other minerals, which are by their character specific to certain locations. Dunning suggests that to exploit such foreign resources, a firm must undertake FDI.- Another obvious example is valuable human resources, such as low-cost, highly skilled labor.- knowledge being generated in Silicon Valley with regard to the design and manufacture of computers and semiconductors is available nowhere else in the world. To be sure, that knowledge is commercialized as it diffuses throughout the world, but the leading edge of knowledge generation in the computer and semiconductor industries is to be found in Silicon Valley. In Dunning's language, this means that Silicon Valley has a location-specific advantage- this advantage comes from the sheer concentration of intellectual talent in this area, and in part, it arises from a network of informal contacts that allows firms to benefit from each other's knowledge generation. Economists refer to such knowledge "spillovers" as externalities, and there is a well-established theory suggesting that firms can benefit from such externalities by locating close to their source.2

Two forms of FDI

The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in the foreign country.- In the case of developing nations, only about one-third or less of FDI is in the form of cross-border mergers and acquisitions. The lower percentage of mergers and acquisitions may simply reflect the fact that there are fewer target firms to acquire in developing nations. - mergers and acquisitions are quicker to execute than greenfield investments. This is an important consideration in the modern business world where markets evolve very rapidly. Many firms apparently believe that if they do not acquire a desirable target firm, then their global rivals will. Second, foreign firms are acquired because those firms have valuable strategic assets, such as brand loyalty, customer relationships, trademarks or patents, distribution systems, production systems, and the like. It is easier and perhaps less risky for a firm to acquire those assets than to build them from the ground up through a greenfield investment. Third, firms make acquisitions because they believe they can increase the efficiency of the acquired unit by transferring capital, technology, or management skills

limitations of exporting

The viability of an exporting strategy is often constrained by transportation costs and trade barriers. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that have a low value-to-weight ratio and that can be produced in almost any location. - Thus, Cemex, the large Mexican cement maker, has expanded internationally by pursuing FDI, rather than exporting- Transportation costs aside, some firms undertake foreign direct investment as a response to actual or threatened trade barriers such as import tariffs or quotas.

ethics officers

To make sure that a business behaves in an ethical manner, firms now must have oversight by a high-ranking person or people known to respect legal and ethical standards. These individuals— often referred to as ethics officers—are responsible for managing their organizations ethics and legal compliance programs. They are typically responsible for (1) assessing the needs and risks that an ethics program must address; (2) developing and distributing a code of ethics; (3) conducting training programs for employees; (4) establishing and maintaining a confidential service to address employees' questions about issues that may be ethical or unethical; (5) making sure that the organization is in compliance with government laws and regulations; (6) monitoring and auditing ethical conduct; (7) taking action, as appropriate, on possible violations; and (8) reviewing and updating the code of ethics periodically.

Foreign Corrupt Practices Act (FCPA)

U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions. - The Lockheed case was the impetus for the 1977 passage of the Foreign Corrupt Practices Act (FCPA) in the United States, - The act was subsequently amended to allow for "facilitating payments." Sometimes known as speed money or grease payments, facilitating payments are not payments to secure contracts that would not otherwise be secured, nor are they payments to obtain exclusive preferential treatment. Rather they are payments to ensure receiving the standard treatment that a business ought to receive from a foreign government but might not due to the obstruction of a foreign official.

alliance success

When does an alliance perform well? •When the environment is stable •When both partners transfer a lot of knowledge •When both partners have lots of alliance experience = "relational capabilities"

ethical strategy

a course of action that does not violate a company's business ethics

Just Distribution

a distribution of goods and services that is considered fair and equitable

non equity modes of entry

contractual agreements and alliances: - R&D contracts: outsourcing agreements in R&D between firms, don't see a lot of these happening because of intellectual property contracts - turnkey project: foreign firm is paid to design and construct new facilities and train personnel - Build-operate-transfer (BOT): like turnkey but foreign firm operates for a set period, takes it a step further, not only do they build it for you, but they operate it for you for a certain period of time - Licensing/franchising: producing / marketing on the licensor / franchisor's behalf

Leadership

fifth root cause of unethical behavior: leadership. Leaders help establish the culture of an organization, and they set the example, rules, and guidelines that others follow as well as the structure and processes for operating both strategically and in daily operations. Employees often operate and work within a defined structure with a mindset very much similar to the overall culture of the organization that employs them. Additionally, employees in a business often take their cue from business leaders, and if those leaders do not behave in an ethical manner, the employees might not either. It is not just what leaders say that matters but what they do or do not do.

Market Imperfections

imperfections in the operation of the market mechanism

External Stakeholders

individuals or groups that have some claim on a firm such as customers, suppliers, and unions

the naive immoralist

one who asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either - The objection is twofold. First, to say that an action is ethically justified if everyone is doing it is not sufficient. - Second, the multinational must recognize that it does have the ability to change the prevailing practice in a country. It can use its power for a positive moral purpose.

Kantian Ethics

the belief that people should be treated as ends and never as means to the ends of others - Kantian ethics is based on the philosophy of Immanuel Kant (1724-1804). Kantian ethics holds that people should be treated as ends and never purely as means to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such. Employing people in sweatshops, making them work long hours for low pay in poor working conditions, is a violation of ethics, according to Kantian philosophy, because it treats people as mere cogs in a machine and not as conscious moral beings that have dignity. Although contemporary moral philosophers tend to view Kant's ethical philosophy as incomplete—for example, his system has no place for moral emotions or sentiments such as sympathy or caring—the notion that people should be respected and treated with dignity resonates in the modern world.

stakeholders

the individuals or groups that have an interest, stake, or claim in the actions and overall performance of a company

the friedman doctrine

the only social responsibility of business is to increase profits, so long as the company stays within the rules of law - his arguments suggest that improving working conditions beyond the level required by the law and necessary to maximize employee productivity will reduce profits and are therefore not appropriate. His belief is that a firm should maximize its profits because that is the way to maximize the returns that accrue to the owners of the firm, its shareholders. If the shareholders then wish to use the proceeds to make social investments, that is their right, according to Friedman, but managers of the firm should not make that decision for them. - Critics charge that Friedman's arguments break down under examination. This is particularly true in international business, where the "rules of the game" are not well established and differ from country to country

Stock of FDI

the total accumulated value of foreign-owned assets at a given time

organizational culture

the values and norms shared among an organization's employees - the third cause of unethical behavior in businesses: an organizational culture that deemphasizes business ethics, reducing all decisions to the purely economic. The term organizational culture refers to the values and norms that are shared among employees of an organization. - values are abstract ideas about what a group believes to be good, right, and desirable, while norms are the social rules and guidelines that prescribe appropriate behavior in particular situations.

Utilitarian Approaches to Ethics

these hold that the moral worth of actions or practices is determined by their consequences - The utilitarian approach to business ethics dates to philosophers such as David Hume (1711- 1776), Jeremy Bentham (1748-1832), and John Stuart Mill (1806-1873). Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences.31 An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences. Utilitarianism is committed to the maximization of good and the minimization of harm. Utilitarianism recognizes that actions have multiple consequences, some of which are good in a social sense and some of which are harmful. As a philosophy for business ethics, it focuses attention on the need to weigh carefully all the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. The best decisions, from a utilitarian perspective, are those that produce the greatest good for the greatest number of people. - Many businesses have adopted specific tools such as cost-benefit analysis and risk assessment that are firmly rooted in a utilitarian philosophy. - The utilitarian philosophy does have some serious drawbacks as an approach to business ethics. One problem is measuring the benefits, costs, and risks of a course of action. - The second problem with utilitarianism is that the philosophy omits the consideration of justice. The action that produces the greatest good for the greatest number of people may result in the unjustified treatment of a minority. Such action cannot be ethical, precisely because it is unjust.

How are ethics relevant to employment practices?

•Firms should • establish minimal acceptable standards that safeguard the basic rights and dignity of employees • audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the standards • take corrective action as necessary - Nike: in the 90s it was found that nikewas using child labor. Iniciallythe CEO said you know what it's not our problem, it's the subcontractors were using, it's there problem. This backfired hugely and was a public relations disaster. Then they came up with compliance officers that audit their factories, they do training, etc.

advantages of licensing/franchising

•Lower costs (vs. FDI) •Less transportation costs •Share resources from licensee/franchisee •Lower production costs (vs. export)

How few ethics relevant to corruption?

•The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business •The law also pertains to foreign nationals that work for a U.S. firm •Amended to allow for facilitating payments •Two parts of the law •Making bribes directly •Bribes paid by intermediaries - This becomes a real challenge for certain businesses that operate in countries where briberies are a way of doing business, but if they are a US business they will be fined for doing this under the foreign corrupt practices act •But, is it permissible for multinationals to pay government officials facilitating payments if doing so creates local income and jobs? •is it ok to do a little evil in order to do a greater good? •does grease money actually improve efficiency and help growth? - The problem is, how do you define that? - Example of a violation of facilitating payments: Walmart giving products to customs to try and speed up deliveries

Turnkey

•The most popular projects are extensions and upgrades to metro systems. Other projects include airports, oil refineries, and hospitals. •One of the world's largest publicly-funded turnkey projects is in Delhi, India. The $2.3 billion project was commissioned by Delhi Metro to build roads and tunnels that run through the city. •The consortium includes local firms and Skanska, one of the largest construction firms in the world, based in Sweden.