international business

3M generates more than ___% of its revenues from outside the US

60

Exporting

A common first step for many manufacturing firms to enter a foreign market. Later, firms may switch to a different mode

What is the instrument normally used in international commerce for payment?

A draft

Counterpurchase

A reciprocal buying agreement. Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Scale of market entry

After a firm decides which market to enter, they have to decide whether to take a large or small scale entry into that market

Advantage small scale entry

Allows a firm to learn about a foreign market while simultaneously limiting the firms exposure to that market

Time Draft

Allows for a delay in payment. Normally 30,60,90, or120 days

Who can firms hire to reduce export risk?

An EMC or export consultant to identify opportunities and navigate paperwork and regulations

5 versions of countertrading

Barter, counterpurchase, offset, buyback, switch trading

Another name for a draft

Bill of Exchange

Main advantage of a letter of credit

Both parties are more likely to trust a reputable bank even if they don't trust each other

Greenfield Strategy

Build a subsidiary from the ground up.

What two types of risk does the FCIA provide coverage for?

Commercial and Political risks

How to reduce the risk of losing proprietary assets

Cross-licensing agreements

The success of a strategic alliance is a function of...

Effective partner selection and the structure of the alliance

Trend of strategic alliances

Exploded in recent decades

Where can U.S. firms get export financing aid?

Export-Import Bank (Ex-Im Bank)

6 ways to enter a foreign market

Exporting Turnkey projects Licensing Franchising Joint ventures with a host country firm Wholly owned subsidiary

U.S. firms have ____ resources available for increasing exporting compared to other countries

Fewer

Disadvantages Strategic Alliances

Firms must be careful not to give away more than they receive

FCIA

Foreign Credit Insurance Association

Where can U.S., firms get export credit insurance?

Foreign Credit Insurance Association

What type of entry into foreign markets do service firms usually use?

Franchising

Two basic kinds of service companies

Freight forwarders Custom Brokers

What countries have developed extensive institutional structures for promoting exports?

Germany and Japan

Sogo Shosha

Great trading houses

The trend of cross-border acquisitions

Had been rising for the last two decades

How can firms overcome the lack of trust in export financing?

Have a third party facilitate international transactions. Usually a reputable bank

Difference between counterpurchase and offset

In an offset agreement the purchasing part can fulfill the obligation with any firm in the country to which the sale is being made.

Proprietary assets

Intangible assets

3 purposes of the Bill of Lading

It is a receipt - merchandise described on document has been received by carrier It is a contract - carrier is obligated to provide transportation service in return for a certain charge It is a document of title - can be used to obtain payment or a written promise before the merchandise is released to the importer

Countertrade is most attractive to...

Large, diverse multinational enterprises

A ______ is issued by a a bank at the request of an _____

Letter of credit, importer

How does the Ex-Im bank achieve its goals?

Loan and loan guarantee programs

What has made exporting easier than ever?

Lower trade barriers under the WTO and regional economic agreements such as EU and NAFTA

Buyback

Occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other services to the country. The firm agrees to take a certain percentage of the plant's output as partial payment for the contract

Sight draft

Payable on presentation to the drawee

First-mover disadvantages

Pioneering costs

Large firms often ____ seek new export activities, but many smaller firms export ______

Proactively, Reactively

Two ways to set up a wholly owned subsidiary

Set up a new operation or acquire an established firm

Disadvantages Greenfield

Slower to establish Risky heavy upfront investment with no cash flow until the business is running and generating cash flow

Japanese exporters can use knowledge and contacts of...

Sogo Shosha

Letter of Credit

States the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of specified documents

Switch Trading

The use of a specialized third party trading house in a countertrade arrangement

What are wholly owned subsidiarys usually called?

WOFE.

firms pursuing global standardization or transnational strategies prefer...

Wholly owned subsidiaries

WOFE

Wholly-owned foreign enterprise

Is the Ex-Im bank an independent agency from the U.S. government?

Yes

Barter

a direct exchange of goods and/or services between two parties without a cash transaction. Most restrictive countertrade arrangement.

Joint Venture

a firm that is jointly owned by two or more otherwise independent firms

Licensing

a licensor grants the rights to intangible property to the licensee for a specified time period, and in return, receives a royalty fee from the licensee Ex. patents, inventions, formulas, processes, designs, copyrights, trademarks

Countertrade

a range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money

Franchising

a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business

Production

activities involved in creating a product

Draft

an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time

Pioneering Costs

arise when the foreign business system is so different from that in the home market that the firm must devote considerable time, effort and expense to learning the rules of the game the costs of business failure if the firm, due to its ignorance of the foreign environment, makes some major mistakes the costs of promoting and establishing a product offering, including the cost of educating customers

When competitive advantage is based on proprietary technological know-how...

avoid licensing and joint ventures unless the technological advantage is only transitory, or can be established as the dominant design

Strategic Alliances

cooperative agreements between potential or actual competitors

How can production and logistics lower the costs of value creation?

disperse production to the most efficient locations manage the global supply chain efficiently to better match supply and demand

How can production and logistics add value by better serving customer needs?

eliminate defective products from the supply chain and the manufacturing process

3 pivitol growth points for countertrading

emerged as a means purchasing imports during the1960s when the USSR and the Communist states of Eastern Europe had nonconvertible currencies grew in popularity in the 1980s among many developing nations that lacked the foreign exchange reserves required to purchase necessary imports notable increase after the 1997 Asian financial crisis

Advantages Strategic Alliances

facilitate entry into a foreign market allow firms to share the fixed costs and risks of developing new products or processes bring together complementary skills and assets that neither partner could easily develop on its own help a firm establish technological standards for the industry that will benefit the firm

When pressure for cost reductions is high...

firms are more likely to pursue some combination of exporting and wholly owned subsidiaries

Advantages Joint Ventures

firms benefit from a local partner's knowledge of the local market, culture, language, political systems, and business systems the costs and risks of opening a foreign market are shared they satisfy political considerations for market entry

When is bartering mainly used?

for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy

A good partner...

helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it values shares the firm's vision for the purpose of the alliance will not exploit the alliance for its own ends

Bill of Lading

issued to the exporter by the common carrier transporting the merchandise. It assigns title to the shipment.

Advantages Franchising

it avoids the costs and risks of opening up a foreign market firms can quickly build a global presence

Advantages Exporting

it avoids the costs of establishing local manufacturing operations it helps the firm achieve experience curve and location economies

Once a time draft has been accepted...

it becomes a negotiable instrument that can be sold at a discount from its face value

Pros Countertrading

it gives a firm a way to finance an export deal when other means are not available it give a firm a competitive edge over a firm that is unwilling to enter a countertrade agreement

Advantages Greenfield

it gives the firm a greater ability to build the kind of subsidiary company that it wants

Disadvantages Franchising

it inhibits the firm's ability to take profits out of one country to support competitive attacks in another the geographic distance of the firm from its franchisees can make it difficult to detect poor quality

Cons countertrade

it may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably it requires the firm to establish an in-house trading department to handle countertrade deals

When a firm enters a counterpurchase or offset agreement with a country...

it often ends up with counterpurchase credits which can be used to purchase goods from that country

An effective alliance should...

make it difficult to transfer technology not meant to be transferred have contractual safeguards to guard against the risk of opportunism by a partner allow for skills and technology swaps with equitable gains minimize the risk of opportunism by an alliance partner

Freight forwarders

manage the export documentation, inland and air/ocean transportation arrangements and other shipping information for a client

Custom brokers

manage the importation of the shipment, customs clearance, transportation through the port and shipment to the customers destination.

Offset

one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale

Logistics

procurement and physical transmission of material through the supply chain, from suppliers to customers

Countertrade arrangements may be _____by the government of a country to which a firm is exporting goods or services

required

Acquisition strategy

sometimes called a "brownfield strategy" acquires an existing company

Firms that enter a market on a significant scale make a....

strategic commitment to the market. This decision has a long term impact and is difficult to reverse

First-mover advantages

the ability to preempt rivals by establishing a strong brand name the ability to build up sales volume and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants the ability to create switching costs that tie customers into products or services making it difficult for later entrants to win business

Disadvantage Acquisitions

the acquiring firm overpays for the acquired firm the cultures of the acquiring and acquired firm clash anticipated synergies are slow and difficult to achieve there is inadequate pre-acquisition screening

Turnkey Projects

the contractor handles 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

Advantages Licensing

the firm avoids development costs and risks associated with opening a foreign market the firm avoids barriers to investment the firm can capitalize on market opportunities without developing those applications itself

Disadvantages Wholly Owned Subsidiaries

the firm bears the full cost and risk of setting up overseas operations

Disadvantages Licensing

the firm doesn't have the tight control required for realizing experience curve and location economies the firm's ability to coordinate strategic moves across countries is limited proprietary (or intangible) assets could be lost

Disadvantages Turnkey Arrangement

the firm has no long-term interest in the foreign country the firm may create a competitor 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

Wholly owned subsidiary

the firm owns 100 percent of the stock

Disadvantages Joint Ventures

the firm risks giving control of its technology to its partner the firm may not have the tight control to realize experience curve or location economies shared ownership can lead to conflicts and battles for control if goals and objectives differ or change over time

When competitive advantage is based on management know-how...

the risk of losing control over the management skills is not high, and the benefits from getting greater use of brand names is significant

Disadvantages Exporting

there may be lower-cost manufacturing locations high transport costs and tariffs can make it uneconomical agents in a foreign country may not act in exporter's best interest

Advantages Turnkey arrangement

they are a way of earning economic returns from the know-how required to assemble and run a technologically complex process they can be less risky than conventional FDI

Advantages Acquisitions

they are quick to execute they enable firms to preempt their competitors they may be less risky than greenfield ventures

Advantages Wholly Owned Subsidiary

they reduce the risk of losing control over core competencies they give a firm the tight control in different countries necessary for global strategic coordination they may be required in order to realize location and experience curve economies

When does switch trading occur?

when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them

When is a greenfield venture better?

when the firm needs to transfer organizationally embedded competencies, skills, routines, and culture

When is an acquisition strategy better?

when there are well-established competitors or global competitors interested in expanding