International Business Final

What are the arguments for standardizing advertising across international markets?

1. Significant economic advantages-- spreads fixed costs out. 2. B/C creative talent is scarce, so one large effort to produce a campaign will produce better results than 40 or 50. 3. Want to project a single brand image to avoid confusion. This is because international travel is so common-- want continuity in brand identification for consumers traveling.

6 Forms of entry

1. Licensing 2. Franchising 3. Wholly owned subsidiary 4. Joint venture 5. Turnkey 6. Exporting

Describe pricing complexities when selling in foreign markets

1. Price discrimination-- When consumers in different locations are charged different prices for the same product.. The markets must be separate and there must be different price elasticities. 2. Strategic Pricing-- pertains to three aspects: predatory pricing, experience curve pricing, and multipoint pricing. 3. Regulations regarding pricing-- anti-dumping and competition policies.

Identify the major determinants of exchange rates

1. Prices --Money supply----> inflation ---PPP Theory 2. Interest Rates --interest rates reflect expectations about future inflation rates. Where inflation is high, interest rates will also be high... 3. Investor Psychology and Bandwagon effects

Why should a firm choose exporting as a means of foreign market expansion?

Because you can avoid the costs associated with setting up facilities overseas. And it can help a firm realize scale economies. By having a central manufacturing location, it can realize advantages because of its global sales volume. It also has learning-curve cost advantages.

Why managing an international business is different from managing purely domestic business.

Because you have to deal with different cultures, laws, economic systems and political systems. It is much more complex

Discuss the benefits and costs of FDI from the perspective of a host country.

Benefits: Helps with resource-transfer effects, Employment effects, balance-of-payments effects, effect on competition and economic growth Costs: Adverse effects on competition, adverse effects on balance of payments, effects on national sovereignty and autonomy.

What are some of the similarities between Islam and Christianity regarding business preferences and practices?

Both Christianity and Islam and pro-free enterprise and stress the right to private property. They also assume that capitalism and free trade are good. However, they both warn against exploitation and stress ethical business practices such as not to steal, lie, or cheat.

Compare and contrast licensing agreements and franchising agreements.

Licensing-- Better for manufacturing. Franchising-- Better for service. More stringent control on business operations.

What are the two related dimensions by which a political system can be assessed?

1) Individualism vs. collectivism and 2) democratic or totalitarianism

Financing Mechanisms for export/import

1)Bill of Lading 2)Letter of credit 3)Draft a. Sight draft b. Time draft

Discuss the disadvantages of using uniform promotional marketing practices among different countries.

1. A message that works in one country can fail miserably in another. Cultural diversity makes it very difficult to create one unified marketing message. 2. Advertising regulations may block a unified advertisement. Many different legal doctrines across countries pertaining to what is and what is not permitted.

What are the six ways a foreign firm can enter a foreign market? Provide a brief description of each of these foreign market strategies.

1. Exporting--The sale of products produced in one country to other countries. It is efficient and simple. 2. Turnkey Projects-- Hiring a contractor to help set up facilities and operations overseas for a foreign owner. Once it is set up, they hand over operations "key" to the owner. 3. Licensing-- is an agreement where a licensor grants the rights to intangible property to another company for a specific amount of time and receives royalties from it. 4. Franchising-- A subset of licensing, where the a company is licensed to use intangible property for a specified time but they also have to abide by strict rules on how to do business. There are also royalties. 5. Joint Venture-- Occurs when two or more independent firms join forces to establish one firm. Typically, 50-50 ownership 6. Wholly owned subsidiaries-- When the firm owns 100% of stock. Either through greenfield investment or acquisition/merger. (Similar to FDI)

What is a greenfield investment? How does it compare to an acquisition?

A greenfield investment and an acquisition are both forms of FDI. However, a greenfield investment occurs when a foreign company completely established a new company overseas. While, an acquisition is when a foreign company merges with an existing company overseas. It is cheaper and quicker than a greenfield investment.

What is a joint venture? What type of joint venture is the most common? Provide an example of a joint venture.

A joint venture occurs when a firm is established that is jointly owned by two or more independent firms. The most common joint venture is one that has 50-50 ownership. Meaning, there are two parties and each owns half ownership. An example of a joint venture is the joining of Fuji Photo and Xerox to create 'Fuji Xerox'

What is a turnkey project? What are the advantages of a turnkey project compared to FDI?

A turnkey project is when a contractor agrees to fully set up a facility and the operations of an organization for a foreign client and when complete, hand it over to the the client. This can be beneficial when compared to FDI because of the know-how of the contractor. It is also very helpful when host-countries have stringent FDI regulations or when the country is unstable politically/economically.

Describe Adam Smith's theory of absolute advantage

Absolute advantage occurs when it is more efficient for one country to produce a good. You should never produce a good that you can acquire for lower price than what it would cost you to produce it.

Experience curve pricing

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

Describe the difference between individualism and collectivism. Are these two ideologies compatible or in direct conflict? Which ideology seems to be gaining ground and which ideology is waning? Is this good news or bad news for international commerce? Explain.

Collectivism stresses the primacy of collective goals over individual goals. The needs of society surpass individual freedom. Socialism is often associated with collectivism. Meanwhile, individualism places the emphasis on individual freedom and self-expression. This is often associated with capitalism. The two ideals are in direct conflict with one another. Over the past few decades, collectivism has been waning (with the fall of the Soviet Union) and individualism has been gaining ground. This is good news for international commerce because individualism promotes competition and capitalism and economic freedom.

Identify the three types of economic systems how do these three types of economic systems differ from each other? How are they the same?

Command Economy-- Everything is controlled and planned by the state. The production and distribution of goods is all allocated by the government. Market Economy-- In this economy everything is privatized. The government is not involved whatsoever with the production and distribution of goods. Supply and demand governs production and price. Mixed Economy-- Most economies in today's world fall under this. Certain sectors are left to private ownership, while others are controlled by the government.

Explain the difference between common and civil law systems and the approach of each contract law.

Common law is found in all countries that have emerged from the UK (so the USA and all other Common Wealth countries). It is based on precedent, tradition, and custom. It is therefore, more flexible than civil law countries because its emphasis on interpretation. Civil law is based on stringent laws and codes. There is not as much flexibility because Judges rely on codes. In terms of contracts, the civil law contracts are short, because there is not much room for interpretation because of the codes. But for common law, the contracts are lengthy because there is greater flexibility in interpretation.

How do levels of economic development affect consumer behavior? What are the implications for marketing strategy?

Developed countries: --Not willing to sacrifice preferred attributes for lower prices --Willing to pay more for products with extra features Less developed countries: --Extra attributes aren't usually demanded in less features I.e. cars in less developed countries have fewer features --Product reliability is more important than number of features (because those purchases may account for a major proportion of a consumer's income) Implications for marketing strategy: Highly developed countries: firms market all of the fancy features at a higher price Firms tend to build a lot of extra performance attributes into their products Less developed countries: firms market the reliability and cost-effectiveness

Describe an exclusive distribution channel. Consider the implications of channel exclusivity for outside business.

Distribution channel-- the way in which a product reaches the final consumer. An exclusive distribution channel is one that is difficult for outsiders to access. A lot of times it depends on how established the company is and the relationship to the country/distributer. Often times, the distributers will promise not to carry any products from the companies competitors.

Describe the two main components of globalization. Explain how each of these components of globalization has helped create the shift towards more integrated world economy?

Globalization of Markets and Globalization of Production. Globalization of Markets is the merging of two historically distinct markets into one huge global market. Globalization of Production is the sourcing of goods and services from locations around the globe to take advantages of national differences in the cost and quality of factors of production. This has helped create a more integrated market because tastes are becoming unified and companies are creating cross-cultural relationships.

What is ethnocentric behavior? Is ethnocentrism a desirable or undesirable attribute for the manager of a international firm?

Ethnocentric behavior is believing that your culture is superior to others. It is no a desirable attribute for a manager because they will likely be unadaptable and unwilling to cater products/services to the unique needs of other cultures.

What is meant by the term FDI? Describe the difference between the flow of FDI and the stock of FDI.

FDI occurs when a firm invests directly in facilities to produce or market a good or service overseas. There are two types of FDI (1) Greenfield investment (2) Acquisition. Greenfield occurs when company establishes a completely new operation overseas, while an acquisition occurs when the company merges with an existing firm overseas. The flow of FDI refers to the amount of FDI undertaken in a given time period (typically a year). There are inflows and outflows. Meanwhile, the stock of FDI refers to the total accumulated amount of foreign owned assets at a given time.

What are first-mover advantages? What are late-mover advantages? Explain with examples.

First-mover advantage refers to when an international firm enters into a foreign market. It is early if it enters before other foreign firms and late if it enters after. The advantages of entering early is preempting rivals and capturing demand. For example, Tesco, entered into developing nations very early and received these advantages. Another first-mover advantage is getting a cost advantage. However, a late-mover advantage would be avoiding pioneering costs (costs first-movers must under take to move to an untapped market). It is expensive to set up shop overseas first. KFC did this in China. And McDonalds came later-- and capitalized on the market that KFC forged.

With the help of an example discuss the characteristics of globalization of production.

Globalization of production refers to when goods are sourced from locations around the globe to take advantage of cost and quality advantages. The main goal is to lower the cost of the product. An example is Boeing utilizing foreign suppliers for various parts of the plane.

Please briefly explain the following forms of economic integration: free trade area, customs union, common market, economic union, and full political union. Provide an example of each form of economic integration.

Free trade area is when a goods can move freely within a designated region (with member countries) without any trade barriers. An example of this is NAFTA Customs union has the same characteristics as a free trade area but they have a unified policy toward trade with non-member nations. The Andean Community is this Common market has all the characteristics of a customs union, except there is the free movement of capital and labor between member nations. The EU used to be this. Economic Union has all the characteristics of a common market except there is a unified monetary and fiscal policy among member nations. This includes coordinated tax rates, monetary/fiscal policies and a common currency. The EU is currently operating here A political union has all the same characteristics of an economic union. Except, it has a unified political system--with one central governing body. Coordinated monetary, fiscal, social, and foreign policies. The EU is moving towards this. The US could be considered this, with the various states but one federal government.

What are the advantages of a global capital market in comparison with a purely domestic capital market?

Global capital market-- diversifies investments even more. Economies are separated enough that a dip in one doesn't necessarily mean a dip in another. It helps reduce risk. Because it is also less regulated, there is a lower cost of capital.

Draw a distinction between democracy and totalitarianism. Which political system facilitates the development of a free market economic system? Why?

In a democracy the government is by the people-Oftentimes, through elected individuals in a representative democracy. Meanwhile, totalitarianism is a form of government in which one person or a small group holds absolute power over all spheres of human life-- and any opposition is severely suppressed. There are four types of totalitarianism-- tribal totalitarianism, theocratic totalitarianism, communist totalitarianism, right-wing totalitarianism. Democracy best facilitates a free market economic system because its emphasis on individualism promotes capitalism and private property.

Discuss individualism. Explain the key positions of the philosophy, its roots, and its role in the modern economy.

Individualism is gaining popularity in the modern world. Individualism v. Collectivism and Democracy v. Totalitarianism are two measures of political systems. Individualism stresses the importance of freedom and self-expression. That individual goals and freedoms are superior to collective goals. It is associated with democracy and capitalism. Individualism can be traced to Aristotle, while Plato argued for collectivism. He argued that private property was more productive than collective property

Multi-point Pricing Strategy

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

Explain PPP. Use an example of how PPP can help explain exchange rates.

PPP is compares different countries goods through a "basket of goods" approach. By comparing identical products in different currencies, we would find the 'real' PPP if markets were completely efficient. But PPP theory states that given relatively efficient markets, the basket of goods should be about equivalent in each country. The 'Big Mac' index helped look at the price of a McDonalds burger in various currencies. It looks at how over/under valued a currency is.

Strategic Pricing

Pertains to three aspects: predatory pricing, experience curve pricing, and multipoint pricing.

Common law is based on...

Precedent, tradition, and custom

Compare and contrast a push vs pull strategy. Give examples.

Push-- emphasizes personal selling rather than mass media advertising. It requires a extensive sales force and can be pretty expensive. -- best for industrial products B2B -- Best when media is not readily available --Boeing selling planes Pull-- Depends on mass media for advertising. -- best when there is a large market segment (B2C) you are trying to reach -- Works best when there is along distribution channel --Face wash commercials.

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).

What is the WTO? What is its role in the world economy?

The WTO is the World Trade Organization. It's an international organization headed in Geneva Switzerland. It is an umbrella organization that encompasses the GATT. It promotes the liberalization of trade. It also helps police trade. The WTO facilitates mediations between countries. They also aim to expand trade agreements.

What is the difference between franchising and licensing in an international context?

The main difference is that the parent company in a franchising agreement gives the franchiser strict business guidelines and rules that they must follow by. The parent-company also assists more with the franshisee. Also, franchising is pursued mostly by service firms, while licensing is pursued by manufacturing firms.

Describe the mechanisms for financing exports and imports. Do you believe that the complexity of export financing deters small firms from becoming involved in exporting? Explain your answer.

The primary issues with financing exports/imports is a lack of trust on both sides. However, to help alleviate this a letter of credit was established. A letter of credit is an agreement between the export and import banks that verify payment will be made. This helps because the exporter/importer are more likely to trust established banks rather than each other. Another mechanism is a Draft is created by the exporter instructing the importer how much to pay and at what time. Within this, are two types of drafts, sight drafts and time drafts. Sight drafts are payable immediately when the importer receives the product. And time drafts allows for a delay in payment. Finally, the Bill of lading is a document issued to the exporter and it is a kind of receipt that the carrier has received the product and it matches what is on the document.

Describe the product cycle theory

The product cycle theory is a trade theory. It contends that only wealthy countries are equipped to develop new cutting-edge products because they have the resources. However, as time goes on demand for the new product grows in other advanced economies and it becomes worthwhile to expand production to other developed countries. But overtime production will become more standardized and the price to produce is lowered. Then, production moves to developing countries and the original country that created the product switches from being an exporter to an importer of the product.

What is meant by the term "political system"?

The term political system refers to the system of government in a nation

Why do command economies tend to stagnate?

They tend to stagnate because there is little incentive to cut costs and be efficient/innovative because they cannot go out of business because the government controls them. Also, since there is no private property, there is no incentive to look for better ways to serve consumer needs. So instead of growing and innovating, they tend to stagnate .

4 types of totalitarianism.

Tribal totalitarianism, right-wing totalitarianism, communist totalitarianism, theocratic totalitarianism

From the perspective of a domestic firm, what are the advantages and disadvantages of licensing the rights to the company's production process and trademark to a firm in a foreign country?

Typically, the licensee puts up most of the capital necessary to get the overseas operation going, so the parent company will not have to worry about those added costs. Also, it is beneficial if there are limitations on investments in countries. A disadvantage is that the parent company loses control over some operations. There is also the possibility of losing technological know-how, which threatens the firms competitive advantage.

Price discrimination

When consumers in different locations are charged different prices for the same product.. The markets must be separate and there must be different price elasticities.