IBUS 300 Concept Check 3

Outflows of FDI

Flow of foreign direct investment out of a country

Straw men approaches to business ethics

Friedman doctrine Cultural Relativism Righteous Moralist Naive Immoralist

Noise

the number of other messages competing for a potential consumer's attention

Friedman Doctrine

the only social responsibility of business is to increase profits, so long as the company stays within the rules of law

Organizational Culture

the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization

Stock of FDI

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

The most common ethical issues in business involve:

-employment practices -environmental regulations -moral obligations of MNEs -corruption

What can firms do to ensure ethical employment practices

-establish acceptable minimum standards that safeguard basic rights and dignity of employees -audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the standards -take corrective action as necessary

disadvantages of turnkey projects

-firm that enters has no long-term interest in foreign country -might create a competitor -could lose control of process technology

Exporting is attractive because

-it is relatively low cost -firms may achieve experience curve economies

advantages of wholly owned subsidiaries

-protection of technology, -ability to engage in global strategic coordination -ability to realize location and experience economies

global market opportunities

1) Decide which market to enter 2) Screen countries to identify target markets 3) Identify candidate countries by assessing each based on -Size and Growth rate - Market Intensity - Country's receptivity to imports - Economic freedoms and Country Risk

FDI is more profitable than licensing when:

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 3) when a firm's skills and know-how are not amenable to licensing

Two forms of FDI

1. A greenfield investment - the establishment of a wholly new operation in a foreign country 2. Acquisition or merging with an existing firm in the foreign country

Barriers to International Communication

1. Cultural barriers 2. Source and country of origin effects 3. Noise levels

Exclusive Distribution Channel

A distribution channel that outsiders find difficult to access.

Universal Declaration of Human Rights

A 1946 United Nations covenant binding signatory nations to the observance of specified rights. (4) 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 right to equal pay for equal work 3. Everyone who works has right to just and favorable remuneration ensuring for himself and family an existence worthy of human dignity and supplemented, if necessary, by other social protections 4. Everyone has the right to form and join trade unions for the protection of his interests

Pull Strategy

A marketing strategy emphasizing mass media advertising as opposed to personal selling. Tend to be emphasized for: -consumer goods -when distribution channels are long -when sufficient print and media are available to carry the marketing message

Push strategy

A marketing strategy emphasizing personal selling rather than mass media advertising Tends to be emphasized for: -industrial products or complex new products -when distribution channels are short -when few print or media are available

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.

Franchising Agreement

A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business

Country of Origin

A subset of source effects, the extent to which the place of manufacturing influences product evaluations

Advantages of Joint Ventures

Access to local partner's knowledge Sharing development costs and risks Politically acceptable

ethnocentric approach (Standardized)

Adopt the domestic marketing mix for global markets

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).

Promotion

Advertising Personal Selling Sales Promotion

experience curve pricing

Aggressive pricing designed to increase volume and help the firm realize experience curve economies.

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 to make this effective

Oligopoly

An industry composed of a limited number of large firms

Eclectic Paradigm

Argument that combining location-specific assets or resources endowments and the firm's own unique assets often requires FD; It requires the firm to establish production facilities where those foreign assets or resource endowments are located

Marketing Mix

Choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets.

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.

Polycentric Approach (customized)

Customize the firm's marketing mix for each market

Place (Distribution)

Direct Marketing Direct Exporting Using an intermediary FDI

First Mover Disadvantages

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

Greenfield Investment

Establishing a new operation in a foreign country (start from scratch) ex. HP's plant in China

Non-Equity Modes of Entry

Exports and contractual agreements -less costly -potential for gradual organizational learning

offshore production

FDI undertaken to serve the home market

Acquisition

Firm acquires another company in a foreign market ex. Burger King and Tim Hortons

Inflows of FDI

Flow of foreign direct investment into a country

Cultural Relativism

Host country standards should be followed

Born Global Strategy

If you wait too long, miss the window of opportunity

Equity Modes of Entry

JVs and Wholly owned Subsidiaries -demonstrate strategic commitment to certain markets, local customers and suppliers -Deters potential entrants

Managers face uncertainty on many fronts --

Lack of Market knowledge Lack of international experience Perceptions of risk in dealing with foreign business partners

Licensing Agreement

Licensor grants licensee access to intangible property for royalty fee ex. Hello Kitty

Advantages of Licensing/Franchising

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

Internationalization Theory

Marketing imperfection approach to foreign direct investment

Disadvantages of Licensing/Franchising

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

Sullivan Principles (GM)

Named after Leon Sullivan -Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled 1) company should not obey the apartheid laws in its own ops 2) Company should do everything within its power to promote the abolition of apartheid laws

Build-operate-transfer (BOT) agreement

Nonequity mode used to build a longer term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm (similar to turnkey)

Multipoint Pricing

Occurs when a pricing strategy in one market may have an impact on a rival's pricing strategy in another market.

first-mover advantage

Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage

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

Why do managers behave unethically?

Personal ethics Societal culture Leadership Unrealistic performance goals Organization culture Decision-Making Process

U.S. Foreign Corrupt Practices Act (FCPA)

Prohibits American companies from making illicit payments to foreign officials in order to obtain or keep business

Types of Contractual Agreements and Alliances

R&D Turnkey Build-operate-transfer (BOT) Licensing/Franchising

Standardized Marketing Mix Advantages

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

Customized Marketing Mix Advantages

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

Formal and Informal barriers to entering foreign markets

Registration Licensing Taxation Reporting inspections

Most likely countries to offer bribes

Russia China Mexico Indonesia

The "Stages Model": Expansion as a process of Organizational Learning

Stage 1: Home Market only Stage 2: Indirect Export Stage 3: Direct Export Stage 4: Foreign Production

Geocentric Approach (standardized)

Standardize a global marketing mix for global market

Pricing Policies

Standardized Pricing: Walmart Differential Pricing: Toys R Us

Standardized vs Customized Products

Standardized: same product design across all international markets ex. Industrial products Customized: product localized for each international market ex. consumer products have a tendency to be customized

Flow of FDI

The amount of FDI undertaken over given time period

Channel Length

The number of intermediaries that a product has to go through before it reaches the final consumer.

advantages of turnkey projects

Useful when FDI is limited by host-government regulations Can be less risky than conventional FDI in countries where longer-term investment can expose firm to political/economic risks

Rapid internationalization can be successful if:

Venture capital is present Strong ownership "O" advantages can be exploited First mover advantages exist

Principle Accumulative Attraction

When competing or complimentary businesses locate near each other

Rights Theorists

a 20th century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures

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

Concentrated Retail System

a few retailers supply most of the market

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Fragmented Retail System

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

intermarket segmentation

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

Ethical Dilemma

a situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even illegal

Business Ethics

accepted principles of right or wrong governing the conduct of business people

Joint Venture

an agreement between two or more companies to share a business project ex. SBUX/Tata in India

Multipoint Competition

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

Country of Origin Effect

consumers' general perceptions of quality for products made in a given country

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

Marketing Mix Approaches

ethnocentric approach polycentric approach geocentric approach

Speed Money

facilitating payments made to expedite routine government action

wholly owned subsidiary

foreign subsidiary that is totally owned and controlled by an organization

Basic Human Rights

freedom of speech freedom of assembly freedom of movement

Righteous Moralist

home country ethics should always be followed

Market Segmentation

identifying groups of consumers whose purchasing behavior differs from others in important ways

Market Imperfections

imperfections in the operation of the market mechanism

Current Account

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

Product Design Considerations

infrastructure needs culture legal requirements religious customs economic development level

Disadvantages of Joint Ventures

lack of control over technology inability to engage in global strategic coordination inability to realize location and experience economies

Exporting is unattractive 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

Disadvantages of wholly owned subsidiaries

most costly method of serving a foreign market

balance of payments accounts

national accounts that track both payments to and receipts from foreigners

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

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

R&D

outsourcing agreements in R&D between firms

Gatekeepers

people or corporations who control access to information, licenses and registration, costs of ops

Social Responsibility

refers to the idea that managers should consider the social consequences of economic actions when making business decisions

Predatory Pricing

selling a product below cost to drive competitors out of the market

Cultural Relativism

the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate

Kantian Ethics

the belief that people should be treated as ends and never as means to the ends of others

Strategic Pricing

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

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

Utilitarian Approaches to Ethics

these hold that the moral worth of actions or practices is determined by their consequences

Source Effects

when the receiver of the message evaluates the message based on the status or image of the sender