MSB 430 Final
Show how companies protect against foreign-exchange risk.
-Define and measure exposure -Organize and implement a reporting system that monitors exposure and exchange rate movements -Adopt a policy assigning responsibility for minimizing exposure -Formulate strategies for hedging exposure
Describe the challenges faced by international traders.
-Financial Risks: shortage of working capital to finance export -Customer Management: real time communication means more demands from customers for international services -International Business Expertise: lack of knowledge about international trade hold companies back from entering the international market -Marketing Challenges: high shipment costs, logistic demands, weak foreign market connections, difficulties in matching foreign rivals prices, effectively promoting products and establishing distribution networks, and tailoring after-sales service programs are common complaints from traders -Top Management Committment: managers have a preference for the predictable home market -Government Regulation: inefficiencies persist due to delays, documents, and administrative fees -Trade Documentation: a battery of documents regulates international trade
Explain the various ways to access debt internationally.
-Foreing governments or individuals who want to hold dollars outside of the US -MNEs that have cash in excess of current needs -European banks with foreign currency in excess of current needs -Countries such as China, that have large foreign-exchange reserves Foreign Bonds Eurobonds Global Bonds Initial Public Offering (IPO) Sovereign Wealth Funds (SWF) American Depository Receipt (ADR)
Describe pricing complexities when selling in foreign markets.
-Government Intervention -Market Diversity: country to country variations in demand and competition create natural segments and limitations in pricing possibilities -Export Price Escalation: price markups due to increased costs through exporting -Fluctuations in Currency Value -Fixed v. Variable Pricing
Understand and analyze the various collaborative arrangements available to MNEs.
-Licensing: rights for use of intangible property -Franchising: a specialized form of licensing in which the parties act almost as a vertically integrated company because they are interdependent and each creates part of the product or service that ultimately reaches the consumer -Management Contracts: when an organization pays for managerial assistance under a contract when it believes another can manage its operations more efficiently than it can, usually because the contractor has industry specific capabilites -Turnkey Operations: usually industrial equipment manufacturers, construction companies, or consulting firms; customer is usually a government agency; contracts are usually for billions of dollars -Joint Ventures: 2 or more companies; may vary with number of participants and the portion of ownership they hold Equity Alliance: at least one company takes an ownership position (almost always minority) in the other(s)
Explain the broad foundations of ethical behavior and understand the role of culture in its formation.
1. Preconventional Level: where children learn what is right and wrong but don't necessarily understand why their behavior is right or wrong 2. Conventional Level: where we learn role conformity first from our peers, then from societal laws 3. Postconventional, Autonomous, or Principled level: where individuals internalize moral behavior, not because they are afraid of sanctions, but because they truly believe such behavior is right
Understand why import and export may not suffice for MNEs competing in international business (IB).
1. When production abroad is cheaper than at home 2. When transportation costs are too high for moving goods or services internationally 3. When companies lack domestic capacity 4. When products or services need to be altered substantially to gain sufficient consumer demand abroad 5. When governments inhibit the imports of foreign products 6. When buyers prefer products originating from a particular country
Discuss the pros and cons of adaptation versus global standardization of products.
Adaptation: -Pros: >increase in sales >conforms to local laws, cultures, and economies -Cons: >costs more >alteration costs Global Standardization: -Pros: >easier >costs less -Cons: >may not conform to local laws, cultures, or economies
Describe key legal issues facing international companies.
Are laws based on abstractions or practicality? Do judges or juries pass judgement? Is justice based on objective principle or seen as the province of divinity? Do personal connections trump case facts?
Describe the different facets of global operations strategies.
Compatibility: the degree of consistency between the foreign investment decision and the company's competitive strategy Configuration: the transformation of raw materials into parts which make up the inputs that go into the conversion of parts into the final products Coordination: the linking or integrating activities into a unified system Control: the measuring of performance so a firm can respond appropriately to changing conditions
Assess approaches to creating value and understand the features and functions of the value chain.
Cost Leadership Strategy: an MNE creates value by perfecting processes and products in order to do things more efficiently than others, thereby making products for lower costs than can competitors Differentiation Strategy: an MNE creates value by doing something no one else can do and doing it effectively, thereby making products for which consumers pay a premium price Integrated Cost leadership/Differentiation Strategy: combines the two approaches
Differentiate the staffing frameworks used by MNEs.
Ethnocentrism: the conviction that one's preferred policies and procedures are the superior way to manage anyone, anywhere; fills executive positions in foreign units with home-country nationals; vulnerable to problems arising from workplace, legal-political, and misreads and misfits tensions Polycentrism: looks to host-country nationals to manage local subsidiaries; boosts local motivation and morale; costs though, may include gaps with global operations due to problems of accountability and allegiance Geocentrism: posts the most qualified executives, regardless of nationality, to expatriate slots; vulnerable to problems arising from professional and logistic tensions
Compare and contrast different regional trading groups.
European Union (EU): largest and most comprehensive, single common currency throughout, free movement of workers, common agricultural policy, value-added tax system; European Commision, council, parliament, and Court of Justice North American Free Trade Agreement (NAFTA): between the US, Canada, and Mexico; free trade agreement in goods and services; has a dominating economic power (US); includes provisions for services, investment, and intellectual property; eliminated tariffs and quotas; enacts rules of origin meaning that products cannot be shipped between members duty free; regional content rule says that 50 percent of net cost of components, raw materials, and labor of products must come from NAFTA region to qualify for FTA Association of Southeast Asion Nations (ASEAN): goal of preferential trade; reduced tariffs, attracted FDI, turned region into huge network of production
Explain the principles and practices of importing and exporting.
Exporting: offers ownership, location, and internalization (keeping intellectual property safe) advantages; core competencies, competitive prices, efficient production, executive leadership, and effective marketing are typically good predictors of exporters Importers include Inuput Optimizers, Opportunistic, and Arbitrageurs
Articulate the motivations and methods of importing and exporting.
Exporting: profitability, productivity, diversification Importing: Import Drivers include specialization of labor, input optimization, local unavailability, diversification
Assess the relationship between foreign trade and international factor mobility.
Factor movement is an alternative to trade that may or may not be a more efficient use of resources
Understand the contemporary state of political freedom.
Free country: exhibits open political competition, respect, for civil liberties, independent civic life, and independent media Partly Free country: exhibits limited political rights and civil liberties, corruption, weak rule of law, ethnic and religious strife, unfair elections, and censorship Not Free country: few to no political rights and civil liberties, government allows minimal to no exercise of personal choice, relies on the rule of man as the basis of law, constrains religious and social freedoms, and controls a large share, if not all, of business activity
Differentiate the systems used to coordinate and control international activities.
Functional Structure: group people based on common expertise and resources, and fit the organizational demand of MNEs that have narrow product lines Divisional Structures: divide employees based on the product type, customer segment, or geographical location; duplicate functions and resources across divisions; fit the organizational demands of the MNE that manages conventionally differentiated activities Global Matrix Structure: institutes overlap among functional and divisional forms, gives functional, product, and geographic groups a common focus, has dual-reporting relationships rather than a single line of command, and fits the demands of MNEs that cannot easily reconcile competing market pressures Mixed Structures
Show how managers try to forecast exchange-rate movements.
Fundamental forecasting: uses trends in economic variables to predict future rates Technical forecasting: uses past trends in exchange rates themselves to spot future rate trends -Institutional Setting -Fundamental Analyses -Confidence Factors -Circumstances -Technical Analyses
Explain the different branding strategies companies may employ internationally.
Global Brand: same brand and logo thorughout the world
Define the three major types of international economic integration.
Global Integration - countries from all over the world decide to cooperate through the World Trade Organization (WTO) Bilateral Integration - two countries decide to cooperate more closely together, usually in the form of tariff reductions Regional Integration - a group of countries located in the same geographic proximity decide to cooperate, as with the EU
Compare and contrast global integration and local responsiveness.
Global integration standardizes worldwide activities to maximize efficiency, whereas national responsiveness adapts local activities to optimize effectiveness. Global integration combines differentiated parts into a standardized whole. Local responsiveness disaggregates the standardized whole into differentiated parts.
Explain why global sourcing is an important aspect of global supply-chain and operations management.
Global sourcing is the first step in the process of materials management, which includes obtaining a supply of inputs used in the production process, inventory management, and transportation between suppliers, manufacturers, and customers
Discuss the major exchange-rate arrangements that countries use.
Hard Peg: country locks their value onto something and they don't change. through dollarization, countries can adopt a foreign currency as its own. through the currency board, separate from a central bank, the board issues domestic currency anchored to foreign currency. if it does not have deposits on hand in foreign currency, it cannot issue domestic currency Soft Peg: they are pretty rigid but not as rigid as the hard peg. typically use a conventional fixed peg arrangement whereby a country pegs its currency to another currency or basket of currencies and allows the exchange rate to vary plus or minus 1 percent from that value Floating: value is based on supply and demand. two types: floating are currencies that generally change according to market forces but may be subject to market intervention with no predetermined direction in which the currency should move. free floating currencies are subject to intervention only in exceptional circumstances
Explain the major sources and shortcomings of comparative country information.
Inaccuracy due to governemental resources, governments dependences on estimates and revisions, governments omitting or purposely publishing misleading information, respondents giving false info to data collectors, official data including only legal and reported market activities, and questionable methodology being used. Noncomparability Externally and Internally generated data
Understand and explain what export capabilities are.
It reflects the capacity of the export firm to use new methods, techniques, and ideas in export processes in order to either built or reconfigure customers' added value
Illustrate how legal attitudes in countries impact ethical behavior.
Just because something is not illegal does not make it unethical. Sometimes interpersonal behavior, lack of laws, inefficiency of law, etc makes the law inadequate for determining ethics. However, the law is a good basis for ethical behavior bc it embodies local cultural values
Differentiate the types of economic environments and systems.
Market Economy: an economic system whereby individuals, rather than the govt, make most decisions Command Economy: the state owns and controls the factors of production (land, labor, capital, and entrepreneurship) Mixed Economy: economic decisions are principally market driven and ownership is private, but the govt intervenes, from a little to a lot in valuing assets, allocating resources, regulating activities, and organizing markets
Examine how exchange-rate movements influence business decisions.
Marketing Decisions: exchange rates can affect demand for a company's products at home and abroad Production Decisions: exchange rates can affect the location of production; company's might want to move production to countries whose currency is rapidly losing value Financial Decisions: exhange rates can affect financial decisions primarily in sourcing financial resources, remitting funds across national borders, and reporting financial results
Interpret indicators of economic development, performance, and potential.
Monetary Measures: -Gross National Income (GNI): include personal consumption, business investments, govt spending, and net exports of goods and services; measures value of all production in domestic economy together witht he income that country receives from other countries less the same sorts of payments made to other countries -Gross Domestic Product (GDP): total market value of all output produced within a nation's borders, no matter whether it is generated by a domestic or foreign-owned enterprise, over a fixed period of time -Gross National Product (GNP): begins by estimating the market value of goods and services produced in a given year by the labor, assets, and capital supplied by the resident of a country, adds the income that its citizens earned working abroad, but removes the income earned by foreigners working domestically Improving Economic Analytics -Rate of Economic Growth -Population Size -Purchasing Power Parity Sustainability: -Net National Product (NNP): measure the depletion of natural resources and degradation of environment that result from making and consuming products -Genuine Progress Indicators (GPI): applies same framework to calculate GDP then adjusts for costs of reduced environmental quality, health and hygiene, livelihood security, equity, free time, and educational attainment -Human Development Index (HDI): measure longevity, knowledge, and standard of living Stability: -Your Better Life Index (YBLI): directly measures well-being and perceptions of living conditions -Gross National Wellness Index (GNWI): measures a country's capacity to promote individual well being in terms of mental, health, work, income, social relations, economic, retirement, political, and environmental standards -Happy Planet Index (HPI): progress is defined through success in achieving a sustainable well being for all
Illustrate the historical and current rationale for interventionist and free trade theories.
No nation has all the natural resources, geographic conditions, and technology necessary to produce everything weconsume today. Free trade theories hold that countries should specialize in certain product base on absolute or comparative advantage. Specialization allows a country to become more skilled in certain tasks, save time by not switching production, and create more efficient modes of production for the products they make.
Understand the major opportunity and risk variables in country and location decisions.
Opportunities: Sales Expansion, Resource Acquisition Risks: Political, Foreign Exchange, Natural Disaster, Competitive
Classify international marketing strategies in terms of marketing orientations, segmentation, and targeting.
Orientations: -Product Orientation: concentration on production assuming that customers want products with lower prices, higher quality, or whatever they sell domestically; supply generates demand -Sales Orientation: sell the product once it has been made; assumes that customers at home and abroad are sufficiently similar -Customer Orientation: country or type of customer is held constant and marketing methods vary; focused on customer -Strategic Marketing Orientation: combines all three; customize to accomodate foreign customers so as not to lose too many sales to aggressive competitors while considering their own competencies -Social Marketing Orientation: pays close attention to potential environmental, health, social, and work-related problems that may arise when selling or making their products Segmentation and Targeting: -Global Segment: global segements that transcend countries -Country Segment: modify global segmentations to fit country nuances -Mixing the marketing mix: changing some aspects of the marketing mix based on market while holding others constant -Mass Markets and Niche Markets
List some of the key international finance functions.
Payback -Period Net Present Value Internal Rate of Return
Recognize the advantages and problems of using uniform promotional marketing practices across countries.
Pros: -reduces costs -may improve quality at local level -prevents internationally mobile consumers from being confused by different images -speeds the entry of products into different countries Cons: -translation -legality -mesage needs
Understand some of the resources available to help international traders.
Public Agencies -Agents and Services: promote export investment, help SMEs exploit export potential Private Agents -Export Management Comany (EMC): helps firms establish overseas markets, operates on supply -Export Trading Comapny (ETC): permits firms to collaborate with each other to reduce their export costs, improve export efficiency, and compete more effectively in export markets; operates on demand -Freight Forwarders: largest export/import intermediary in terms of the value and weight of products shipped internationally -Third Party Logisitics (3PL): move cargo across global markets and collaborate with manufacturers, shippers, and retailers to relieve them of the logistics responsibilities of transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding -Customs Brokers
Examine why IB collaborative arrangements fail or succeed.
Reasons for Failure: -Relative Importance -Divergent Objectives -Control Problems -Comparative Contributions and Appropriations -Differences in Culture Reasons for Success: -Fitting Modes to Country Differences -Finding and Evaluating Partners -Negotiating Agreements: The question of secrecy -Controlling through contracts and trust -Evaluating continually -Adjusting the internal organization
Differentiate between resources, capabilities, and core competencies.
Resources drive the production of goods and services that are sold to customers. A capability is the capacity for resources to perform and activity in an integrated manner. Core competency is the special outlook, skill, or technology that, by synthesizing links between resources and capabilities, sets and sustains the firm's capacity to create superior value.
Define what scanning is and its importance to location decisions.
Scanning is when managers examine many countries braodly - using info that is readily available, inexpensive, and fairly comparable - to narrow detailed analysis and travel to only the most promising ones. they analyze publicly available info and communicate with experienced people on conditions that could significantly affect the succes and fir for their business. Once narrowing the number of countries, managers need to compare them in greater detail and usually go on location to collect and evaluate more specific info.
Explain the idea of strategy and how executives make strategy in an MNE.
Strategy is an integrated set of choices and committments that supports and sustains an MNE's competitiveness. It defines and communicates an MNE's plan on how it will use its resources, capabilities, and competencies to compete in different countries. It maps an MNE's plan to create value, both for itself and its stakeholders and specifies what an MNE will and will not do. It calls on managers to deal with the questions and complexities that follow from crosschecking opportunities with competencies, assessing competitive threats, and setting and sustaining superior performance. Start with the MNE's vision and mission and from there convert the vision and mission into reasonable intellectual challenges, testable propositions, action programs, and measurable outcomes.
Explain the value of economic analysis for international organizations.
Studying an economic environment helps managers make better investment choices and operating decisions; Resource restraints require managers to identify which countries in the world warrant investment as well as those they must avoid; helps managers to assess a country's development, explain its performance, and estimate its potential; allows managers to spot opportunities and preempt risk
Define what is meant by global supply-chain management.
Supply chain is the network that links together the different aspects of the value chain, from sourcing and procurement to conversion through operations to the final customer. Supply chain management refers to activities in the value chain that occur outside the company
Describe the major instruments of trade control, and classify how companies deal with governmental trade influences.
Tariffs: direct price influences - specific duty (per unit basis) - ad valorem duty (percentage of item's value) -compound duty (both) - export, transit, and import tariffs Nontariff barriers: direct price influences -subsidies: direct assistance for companies to boost competitiveness -aid and loans: given by foreign countries to businesses but often expect company to use the aid or loan within the donor country (tied) -Customs Valuation: sometimes country's lie about where a product is made in order to lower import tariffs Nontariff Barriers: Quantity Controls -quota: limits the quantity of a product that can be imported or exported in a given time frame (to circumvent, companies will often convert the product into one for which there is no quota) -"buy local" legislation: sets rules whereby govts give preferences to domestic production in their purchases -standards and labels: countries can devise classification, labeling, and testing standards to allow the sale of domestic products while obstructing foreign-made ones -specific permission requirements: countries may require that importers or exporters secure govt permission before transacting trade -administrative delays: similar to specific permission requirements -reciprocal requirements: importing countries may require that whole or partial payment be made to exporters in merchandise rather than currency -restrictions on services: essentility, not for profit preference, standards, and immmigration How companies deal with govt trade influences: 1. Move operations to another country 2. concentrate on market niches that attract less intl competition 3. adopt internal innovations such as greater efficiency or superior products 4. try to get govt protection
Explain the relationship between accounting and finance.
The CFO relies on the controller, or chief accountant, to provide the right information for making decisions, while the internal audit staff ensures that corporate policies and procedures are followed. The internal auditors, the controller, and the CFO work closely with the external auditor to try to safeguard the assets of the business
Describe the International Monetary Fund and its role in determining exchange rates.
The IMF monitors the global economy as well as economies of individual countries and advises on needed policy adjustments. It also provides technical assistance mainly to low and middle income countries and makes loans to countries with balance of payments problems. The fundamental mission of the IMF is to: -foster global monetary cooperation -secure financial stability -facilitate international trade -promote high employment and sustainable economic growth -reduce poverty around the world Each country can decide which exchange rate system they use, the de jure system, and the IMF surveillance program determines the de facto or actual exchange rate system. The IMF consults anually with countries to see that they are acting openly and responsibly in exchange rate policies and the IMF uses info provided by the country and evidence of how the country acts in the market to place it in a specific category.
Define and explain wholly owned foreign direct investments.
Wholly owned FDIs are companies that own 100 percent of their own business for many reasons - market failure to present a collaborator that fits the company and knows the foreign market, cost reduction and ability to control all aspects of production and distribution through internalization, to avoid transferring knowledge and allowing access to resources to another country through appropriability, and more freedom to pursue a global strategy
Show how companies use foreign exchange to facilitate international trade.
a company trades foreign exchange for exports/imports and the buying or selling of goods and services
Distinguish the perspective of the expatriate.
a person that leaves their country to work in an international location of their company
Explain the purpose and characteristics of organizational culture.
a powerful tool to shape the workplace, integrate decision-making, and implement strategy; the shared meaning and beliefs that shape how employees interpret information, make decisions, and implement actions; stimulates people to identify with the company's vision, do their jobs well, and collaborate with others while lessening the need to regulate their behaviors with elaborate structures and systems Key features: -values and principles of management -work climate and atmosphere -patterns of "how we do things around here" -traditions -ethical standards
Explain how information technology is used in global operations and supply-chain management.
aids in quick and efficient production, proficient inventory management, effective supplier communication, and customer satisfaction; workflow software is critical for the supply-chain management process
Describe international accounting standards and the process of global convergence.
a single set of high-quality, understandable, enforceable, and globally accepted international financial reporting standards; the process of global convergence means bringing together all the accounting standards so that they can work together and have one standard for all companies internationally
Explain economic freedom.
absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself; the greater the degree of economic freedom, the greater freedom an individual has to decide how to work, produc, consume, save, invest, and innovate
Explain what the World Trade Organization (WTO) is and its role in the world.
an organization whose mission includes the trading of goods and services, investment, intellectual property, sanitary measures, plant health, agriculture, textiles, and technical barriers to trade. it consists of 162 countrues which account for most of the world trade. most decisions are made by consensus and agreements must be ratified by the govts of member nations. seeks to end quotas and reduce tariffs. member countries are to trade w/o discrimination. also dispute trade issues between countries with a panel
Identify the major factors affecting the development of accounting objectives, standards, and practices.
cultural differences lead to differences in measurement (how companies value assets) and disclosure (how and what information companies provide and the level of detail and transparency) - the secrecy-transparency / optimism-conservatism matrix
Define leverage and how it affects the choice of capital structure.
degree to which a firm funds the growth of a business by debt; in countries where tax differences are critical, companies tend to use more debt since they can deduct interest expense and therefore lower tax liability
Describe how foreign-source income is taxed.
depends on the parent country and where it is located as well as on whether or not a tax treaty exists between the two countries
Describe expatriate selection, preparation, compensation, repatriation, and failure.
expatriate selection: finding candidates who are ready and willing to head abroad as well as able; looks at technical expertise, self-orientation, others-orientation, resourcefulness, global mindset preparation: improve technical qualification, training much in advance of overseas assignment; training on the politics, laws, economics, workplace practices, business etiquette, logistics options, and social situations of host country and improve expats cultural sensitivity compensation: can make or break and expat's motivation; IHRM tries to offset features of international assignments that negatively affect an expat's standard of living; most common approach to figuring out compensation is the balance sheet approach repatriation: returns an expat to his or her home country; difficult to find right job for returning executive failure: expat's premature return home due to poor operational performance
Assess governments' economic rationales and outcome uncertainties with international trade intervention.
fighting unemployment; foreign players may retaliate against restrictions, number of import handling jobs decreases leading to unemployment for those workers, higher input costs, protecting "infant industries"; hard to determine level of success and costs may remain high, someone must bear the cost of trade restriction until the company flourishes developing an industrial base economic relationships with other countries (making balance-of-trade adjustments, gaining comparable access to foreign markets, using restrictions as a bargaining tool, and controlling prices)
Explain what trade protectionism is and its conflicting outcomes.
governmental actions to influence international trade; governments intervene in trade to attain economic, social, or political objectives. officials enact trade policies that they reason will have the best chance to benefit their nation, citizens, and in some cases, they personal political longevity. decisions are complicated because outcomes are uncertain and affect groups of citizens differently
Explain the role of governments and companies in helping to resolve labor and environmental challenges.
have to make laws and regulations that promote energy conservations, sustainability, and a clean environment the ETI (Ethical Trading Initiative) identifies issues of labor and protects workers against mistreatment
Show how corruption and bribery affect and are affected by cultural, legal, and political forces.
high poverty leads to higher rates of corruption and bribery. some countries make bribery illegal domestically and with foreign investments. corruption causes inflation
Understand why policymakers rely on international trade and factor mobility theories to achieve economic objectives.
important in growing portions of the global economy and helps governments to wrestle with the decisions of what, how much, and with whom to trade; also intertwined with considerations of what they can produce competitively by boosting the quality and quantity of capital, technical competence, and worker skills
Explain how politics and laws influence business.
investing and operating internationally exposes MNEs to risks that arise from change in a country's political system
Understand the significance of location in international business (IB) operations.
location can determine the success of a company, costs associated with production, types of employees, and how financial resources are spent
Assess governments' noneconomic rationales and outcome uncertainties with international trade intervention.
maintaining essential industries, promoting acceptable practices abroad, maintaining or extending spheres of influence, preserving national culture once an essential industry arguement is made, it its hard to deem that industry unnecessary
Define what foreign exchange is and who the major players are in the foreign-exchange market.
money denominated in the currency of another nation or group of nations reporting dealers - aka money center banks, large financial institutions that actively participate in local and global foreign-exchange and derivative markets; influence price setting and are market makers Financial institutions - include small local and regional commercial banks, investment banks and security houses, hedge funds, pension funds, money market funds, currency funds, mutual funds, specialized foreign exchange trading companies and so forth Nonfinancial institutions - comprise any counterparty other than those described above and include any nonfinancial end user, such as govts and companies
Connect the ideas of politics, law, and the business environment.
most of the top ranked countries for favorable business environment have a democratic political system and a common or civil law legal system anchored in the rule of law whereas low ranked countries exhibit authoritarian politics and a mixed legal system anchored in the rule of man
Summarize how quality management is important in global operations and supply-chain management
quality can mean a competitive advantage for a company or the destruction of its reputation, it can pull in customers or turn them away
Define and profile international human resource management.
refers to activities that staff the MNE's worldwide operations; organizes people within the MNE, developing policies and systems that improve individual productivity and collective performance; finding people to implement strategy, motivating them to perform well, updatng their skills, and retaining them
Explain what a commodity is, and describe the forces that affect the prices of commodities and their impact on commodity agreements.
refers to raw materials or primary products that enter into trade such as metals or agricultural products OPEC (Organization of Petroleum Exporting Countries) controls prices by establisshing quotas on member countries
Summarize the benefits of regional economic integration.
resources shift from inefficient to efficient companies; increases market size; companies can reach economies of scale, increase production which leads to lower costs per unit; increased competition
Describe the finance function of an MNE in the a global context.
role is to maintain and create economic value or wealth by maximizing shareholder wealth. managment activities related to cash flows can be broken down into three major areas: -make financing decisions: especially regarding capital structure and long-term financing -make investment decisions: typically in the context of capital budgeting -manage short-term capital needs managing the MNE's currency assets and liabilities
Identify the various stakeholders who influence and are influenced by multinational enterprises (MNEs).
shareholders, employess, customers, suppliers, society
Compare and contrast spot, forward, options, and futures markets.
spot - for foreign exchange transactions that occur within two business days forward - when a rate is quoted for transactions that call for delivery after two business days option - the right, but not the obligation to buy or sell a foreign currency within a certain time period or on a specifi date at a specific exchange rate futures - specifies an exchange rate some time in advance of the actual exchange of currency and is traded on an exchange not OTC; work with exchange brokers rather than instead of a bank or other financial institution
Define classical organizational structures.
the formal arrangement of jobs that specifies roles, responsibilities and relationships Vertical Differentiation: deciding who has what authority to make which decision; differentiates in terms of centralization (how high up) and decentralization (how low down) of decision-making Horizontal Differentiation: the task of specifying which people in which units do which jobs
Interpret political risk.
the risk that political decisions, events, or conditions change a country's business environment in ways that force investors to accept lower rates of return, cost them some or all of the value of their investment, or threaten the sustainability of their operations Systemic: political risk that follows from shifting public policy Procedural: political policies that impose frictions that slow or stop transactions Distributive: arises when MNEs generate great profits and the host govt questions its share of the rewards Catastrophic: political developments that adversely affect the operations of every firm in a country
Summarize the major characteristics and aspects of the foreign-exchange market.
two major segments: Over the counter market (commercial banks, investment banks, and other financial institutions) and exchange traded market (securities exchanges where certain types of foreign exchange instruments are traded) US dollar is the most important currency on the foreign exchange market because: 1. investment currency in many capital markets 2. reserve currency held by many central banks 3. transaction currency in many international commodity markets 4. invoice currency in many contracts 5. intervention currency employed by monetary authorities in market operations to influence their own exchange rates
Analyze how offshore financial centers provide financing opportunities for MNEs.
usually an alternative and cheaper dource of funding