MGT Final

Economic Development Programs

- Export Promotion Strategy - Import Substitution Strategy

Evaluation (different types of costs, benefits & risks)

1. Cost 2. Benefits 3. Risk

What is acculturation?

1. Honeymoon 2. Disillusionment 3. Adaptation 4. Biculturalism

TRQ (Tariff Rate Quota)

A type of quota that imposes a low tariff rate on a limited amount of imports of a specific good into the country but then subjects all imports above that threshold to a prohibitively high tariff.

What are the different means of transportation and when is each best suited?

1. Physically transporting its goods and services from where they are created to the various markets in which they are to be sold 2. Selecting the means by which to merchandise its good in the markets it wants to serve

standard price policy

Pricing policy under which a firm charges the same price for its products and services regardless of where they are sold.

How does rise or fall in the value of a currency influence the exports and imports from a nation?

A weaker domestic currency stimulates exports and makes imports more expensive; conversely, a strong domestic currency hampers exports and makes imports cheaper. Higher inflation can also impact exports by having a direct impact on input costs such as materials and labor.

Honeymoon

For the first few days or months the new culture seems exotic and stimulating. Excitement of working in new environment makes employee overestimate the ease of adjusting.

Biculturalism

Anxiety has ended as transplanted employee gains confidence in ability to function productively in new culture

NTBs (non-tariff trade barriers)

Any governmental regulation, policy, or procedure other than a tariff that has the effect of impeding international trade.

Polycentric staffing models

Approach primarily using HCNs to staff upper-level foreign positions that is, they emphasize the use of HCNs in the belief that HCNs know the local market best.

Ethnocentric staffing models

Approach that primarily uses PCNs to staff upper-level positions This approach assumes that home office perspectives should take precedence over local perspectives and that expatriate PCNs will be most effective in representing the views of the home office in the foreign operation.

Geocentric staffing models

Approach using a mix of PCNs, HCns, and TCNs to staff upper-level foreign positions puts PCNs, HCNs, and TCNs on an equal footing. Firms that adopt this approach want to hire the best person available, regardless of where that individual comes from

three-point Arbitrage

Arbitrage based on exploiting differences between the direct rate of exchange between two currencies and their cross rate of exchange using a third currency.

Covered interest Arbitrage

Arbitrage that exploits geographic differences in interest rates and differences in exchange rates over time.

National defense argument

Argument in favor of governmental intervention in trade, holding that a nation should be self-sufficient in critical raw materials, machinery, and technology. The national defense argument appeals to the general public, which is concerned that its country will be pushed around by other countries that control critical resources. Many special-interest groups have used this politically appealing argument to protect their industries from foreign competition.

Infant industry argument

Argument in favor of governmental intervention in trade: a nation should protect fledgling industries for which the nation will ultimately possess a comparative advantage. Governmental nurturing of domestic industries that will ultimately have a comparative advantage can be a powerful economic development strategy. However, determination of which industries deserve infant industry protection is often done on a political rather than an economic basis. Firms, workers, and shareholders are not shy about using the infant industry argument to bolster support for import protection or export subsidies for their industries. Moreover, once an industry is granted protection, it may be reluctant to give it up. Many infant industries end up being protected well into their old age.

What considerations should be taken into account when formulating the message and medium in advertising?

As a firm develops its advertising strategy, it must consider three factors: 1. The message it wants to convey 2. The media available for conveying the message 3. The extent to which the firm wants to globalize its advertising effort At the same time the firm must consider relevant cultural, linguistic, and legal constraints found in various national markets.

Embargo

Ban on the exporting and/or importing of goods to a particular country.

When is personal selling most suitable and what does it involve?

Because of the close contact between the salesperson and the potential customer, sellers are likely to rely on host-country nationals to serve as their representatives. A firm just starting international operations often will subcontract personal selling to local sales organizations that handle product lines from several firms. As the firm grows and develops a sales base in new markets, it may establish its own sales force.

Public Choice Analysis

Branch of economics that analyzes public decision making. the special interest will often dominate the general interest on any given issue for a simple reason: Special-interest groups are willing to work harder for the passage of laws favorable to their interests than the general public is willing to work for the defeat of laws unfavorable to its interests.

Market pricing policy

Pricing policy under which prices are set on a market-by-market basis.

Political Risk

Change in the political environment that may adversely affect the value of a firm. Most political risks can be divided into three categories: 1. Ownership risk, in which the property of a firm is threatened through confiscation or expropriation 2. Operating risk, in which the ongoing operations of a firm or the safety of its employees are threatened through changes in laws, environmental standards, tax codes, terrorism, armed insurrection, and so forth 3. Transfer risk, in which the government interferes with a firm's ability to shift funds into and out of the country

What is channel length and how does it influence distribution consideration?

Channel lengths: Number of stages in a distribution channel. he challenge for international marketing managers is to find the optimal distribution channel to match the firm's unique competitive strengths and weaknesses with the requirements of each national market it serves. In practice, as with other elements of international marketing, most international firms develop a flexible distribution strategy—they may use a short channel in some markets and a longer channel in others.

TCN's (third country nationals)

Employees of an international business who are not citizens of the firm's home or host country.

(PCNs) Parent-country Nationals

Employees who are citizens of an international business's home country and are transferred to one of its foreign operations.

HCNs (Host Country Nationals)

Employees who are citizens of the host country where an international business operates

Quota

Deposit paid by a member nation when joining the International Monetary Fund.

disillusionment

Differences between new and old environments are blown out of proportion. As employee and family face challenges of everyday living, differences become magnified. Many transplanted employees remain stuck in this phase.

What is dumping & Countervailing duty (CVD)- when is it imposed? Understand with examples.

Dump: Sale of imported goods either (1) at prices below what a company charges in its home market or (2) at prices below cost. This type of dumping is a form of international price discrimination. The second type of dumping involves the firm's selling its goods below cost in the foreign market, in which case the dumping is a form of predatory pricing. The concern with predatory pricing is that a foreign company may lower its prices in the host country, drive host country firms out of the market, and then charge monopoly prices to host country consumers once competitors have been eliminated. CVD: Ad valorem tariff placed on imported goods to offset subsidies granted by foreign governments. The CVD is calculated to just offset the advantage the exporter obtains from the subsidy. In this way, trade can still be driven by the competitive strengths of individual firms and the laws of comparative advantage, rather than by the level of subsidies that governments offer their firms.

National trade policies

Economic Development Programs Industrial Policy Public Choice Analysis

Import Substitution Strategy

Economic development approach that relies on the promotion of domestic manufacturing by erecting barriers to imported goods

Export Promotion Strategy

Economic development strategy based on building a vibrant manufacturing sector by stimulating exports, often by harnessing some advantage the country possesses, such as low labor costs.

Industrial Policy

Economic development strategy in which a national government identifies key domestic industries critical to the country's economic future and then formulates policies that promote the international competitiveness of these industries. Ideally, industrial policy assists a country's firms in capturing large shares of important, growing global markets, as MITI has done for Japanese MNCs. Many experts, however, do not view industrial policy as a panacea for improving the global competitiveness of a country's firms. They argue that government bureaucrats cannot perfectly identify the right industries to favor under such a policy

Mercantilism

Economic philosophy based on the belief that a nation's wealth is measured by its holdings of gold and sliver According to mercantilists, a country's goal should be to enlarge these holdings by promoting exports and discouraging imports. The logic was transparent to sixteenth-century policymakers: If foreigners buy more goods from you than you buy from them, then the foreigners have to pay you the difference in gold and silver, enabling you to amass more treasure.

Benefits

Entering a new market presumably offers a firm many potential benefits; otherwise, why do it? Among the most obvious potential benefits are the expected sales and profits from the market. Others include lower acquisition and manufacturing costs (if materials or labor are cheap), foreclosing of markets to competitors (which limits competitors' ability to earn profits), competitive advantage (which allows the firm to keep ahead of or abreast with its competition), access to new technology, and the opportunity to achieve synergy with other operations.

Three approaches that companies use in deciding to standardize or customize the firm's marketing mix

Ethnocentric, Polycentric & Geocentric

Staffing philosophies

Ethnocentric, polycentric & geocentric staffing models HCNs, PCNs, TCNs

Who are expatriates and repatriates?

Expatriate: Collective name for parent country nationals (PCNs) and third-country nationals (TCNs). TCNs and PCNs collectively are known as expatriates, or people working and residing in countries other than their native country. Repatriates: Moving a manager back home after a foreign assignment has been completed. In other words, you are an expatriate when you enter a new country for a work assignment, and you are a repatriate when you return to your home country after the international assignment.

FDI vs FPI

FDI: Investments made for the purpose of actively controlling property, assets, or companies located in a host country. FPI: Investments made in a host country by foreign investors not for purposes of control. Foreign portfolio investments (FPI) represent passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor. Modern finance theory suggests that FPI will be motivated by attempts to seek an attractive rate of return as well as the risk reduction that can come from geographically diversifying one's investment portfolio. Foreign direct investment (FDI) is acquisition of foreign assets for the purpose of controlling them. U.S. government statisticians define FDI as "ownership or control of 10 percent or more of an enterprise's voting securities or the equivalent interest in an unincorporated business."15 FDI may take many forms, including purchase of existing assets in a foreign country, new investment in property, plant, and equipment, and participation in a joint venture with a local partner.

What are Foreign exchange and foreign exchange markets?

For Ex: Currencies issued by countries other than one's own. For Ex Mark: comprises buyers and sellers of currencies issued by the world's countries. Anyone who owns money denominated in one currency and wants to convert that money to a second currency participates in the foreign exchange market.

What is the free trade vs. fair trade argument?

Free: Trade between nations that is unrestricted by governmental actions. Fair: Trade between nations that takes place under active government intervention to ensure that the companies of each nation receive their fair share of the economic benefits of trade; also called managed trade. Free trade implies that the national government exerts minimal influence on the exporting and importing decisions of private firms and individuals. Fair trade, sometimes called managed trade, suggests that the national government should actively intervene to ensure that domestic firms' exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries. Some fair traders also argue that the government should ensure a "level playing field" on which foreign and domestic firms can compete on equal terms. Although sounding reasonable, the level playing field argument is often used to justify policies that restrict foreign competition.

Foreign Trade Zone

Geographical area in which imported or exported goods receive preferential tariff treatment. An FTZ may be as small as a warehouse or a factory site (such as Caterpillar's diesel engine facility in Mossville, Illinois) or as large as the entire city of Shenzhen, China (which neighbors Hong Kong).44 FTZs are used by governments worldwide to spur regional economic development. Using an FTZ, a firm typically can reduce, delay, or sometimes totally eliminate customs duties. Generally, a firm can import a component into an FTZ, process it further, and then export the processed good abroad and avoid paying customs duties on the value of the imported component.

globalization of markets

Globalization: The increasing integration of the world economy and the world's countries

What causes a gray market to evolve?

Gray: Market created when products are imported into a country legally but outside the normal channels of distribution authorized by the manufacturer A gray market may develop when the price in one market is sufficiently lower than the price the firm charges in another market that entrepreneurs can buy the good in the lower-price market and resell it profitably in the higher-price market. Thus, the firm that has large price differences among markets is vulnerable to having these differentials undercut by gray markets. Gray markets frequently arise when firms fail to adjust local prices after major fluctuations in exchange rates.

What are soft and hard/convertible currencies (what they mean, examples)

Hard currencies: Currencies that are freely traded and accepted in international commerce; also called hard currencies. (Euro, pounds, Krona, Can Dollar, Aus Dollar, Franc, Yen, and U.S dollar) Soft currencies: Currencies that are not freely traded because of legal restrictions imposed by the issuing country or that are not generally accepted by foreigners in settlement of international transactions; also called soft currencies. (Currencies of many developing countries fall in the soft cat.)

high-context low context cultural classification

High: Culture in which the context in which a discussion is held is equally as important as the actual words that are spoken in conveying the speaker's message to the listener. Low: Culture in which the words being spoken explicitly convey the speaker's message to the listener. High-context cultures place higher value on interpersonal relations in deciding whether to enter into a business arrangement. In such cultures preliminary meetings are often held to determine whether the parties can trust each other and work together comfortably. Low-context cultures place more importance on the specific terms of a transaction.36 In low-context cultures such as Canada, the United Kingdom, and the United States, lawyers are often present at negotiations to ensure that their clients' interests are protected. Conversely, in high-context cultures such as Saudi Arabia, Japan, and Egypt, the presence of a lawyer, particularly at the initial meeting of the participants, would be viewed as a sign of distrust. Because these cultures value long-term relationships, an assumption by a potential partner that one cannot be trusted may be sufficient grounds to end the negotiations.

Limitations of the two tiered and market pricing policy.

However, the strong ethnocentric bias of two-tiered pricing suggests it is not a suitable long-run pricing strategy. A firm that views foreign customers as marginal—rather than integral—to its business is unlikely to develop the international skills, expertise, and outlook necessary to compete successfully in the international marketplace. Firms that adopt a two-tiered pricing policy also are vulnerable to charges of dumping. Recall from Chapter 9 that dumping is the selling of a firm's products in a foreign market for a price lower than that charged in the firm's domestic market—an outcome that easily can result from a two-tiered pricing system. Most major trading countries have issued regulations intended to protect domestic firms from dumping by foreign competitors. A market pricing policy, however, can expose a firm to complaints about dumping (as discussed previously) as well as to three other risks: (1) damage to its brand name, (2) development of a gray market for its products, and (3) consumer resentment against discriminatory prices.

Assessment (what factors are assessed)

In assessing alternative foreign markets, a firm must consider a variety of factors, including the current and potential sizes of these markets, the levels of competition the firm will face, the markets' legal and political environments, and sociocultural factors that may affect the firm's operations and performance summarizes some of the most important questions that firms need to address when analyzing new market opportunities 1. Market Potential 2. Levels of Competition 3. Legal and Political Environment 4. Sociocultural Influences

Factors influencing international HRM strategy - decision making, scope of internalization and staffing philosophy

International HR managers, however, face challenges beyond those confronting their counterparts in purely domestic companies. Specifically, differences in cultures, levels of economic development, and legal systems among the countries in which a firm operates may force it to customize its hiring, firing, training, and compensation programs on a country-by-country basis. Particularly troublesome problems develop when conflicts arise between the culture and laws of the home country and those of the host country. For example, prohibitions against gender discrimination in U.S. equal employment opportunity laws conflict with Saudi Arabian customs and laws regarding the role, rights, and privileges of women. The international firm also must determine where various employees should come from—the home country, the host country, or third countries. The optimal mix of employees may differ according to the location of the firm's operations. A firm is likely to hire more employees from its home country to work in production facilities there than to work in foreign facilities. Local laws also must be considered because they may limit or constrain hiring practices.

FDI/greenfield venture

Investments made for the purpose of actively controlling property, assets, or companies located in a host country

What is liability of foreignness? How can companies minimize the risks through choice of entry mode?

Liab: The informational, political, and cultural disadvantages that foreign firms face when trying to compete against local firms in the host country. As discussed later in this chapter, the nature of the firm's ownership advantage affects its selection of entry mode. Embedded technology, for example, is often best transferred through an equity mode, while firms whose competitive advantage is based on a well-known brand name sometimes enter foreign markets through a licensing or franchising mode. Further, firm advantages are primary determinants of bargaining strength; thus, they can influence the outcome of entry mode negotiations.

forward market

Market for foreign exchange involving delivery of currency at some point in the future.

Subsidies

National, state, and local governments often provide economic development incentives—another type of subsidy—to entice firms to locate or expand facilities in their communities to provide jobs and increase local tax bases. These incentives may be in the form of property tax abatements, free land, training of workforces, reduced utility rates, new highway construction, and so on. Competition among different localities can be fierce. Because subsidies reduce the cost of doing business, they may affect international trade by artificially improving a firm's competitiveness in export markets or by helping domestic firms fight off foreign imports. Subsidies, however, can grow so large as to disrupt the normal pattern of international trade.

Risk

Of course, few benefits are achieved without some degree of risk. Many of the previous chapters provided overviews of the specific types of risks facing international businesses. Generally, a firm entering a new market incurs the risks of exchange rate fluctuations, additional operating complexity, and direct financial losses resulting from inaccurate assessment of market potential. In extreme cases, it also faces the risk of loss through government seizure of property or as a result of war or terrorism.

What are offshore financial centers? Why do financial companies establish base here?

Offshore financial centers focus on offering banking and other financial services to nonresident customers. Many of these centers are located on island states, such as the Bahamas, Bahrain, the Cayman Islands, Bermuda, Curaçao, and Singapore. Luxembourg and Switzerland, although not islands, are also important "offshore" financial centers. MNEs often use offshore financial centers to obtain low-cost Eurocurrency loans. Many MNEs locate financing subsidiaries in these centers to take advantage of the benefits they offer: political stability, a regulatory climate that facilitates international capital transactions, excellent communications links to other major financial centers, and availability of legal, accounting, financial, and other expertise needed to package large loans. The efficiency of offshore financial centers in attracting deposits and then lending these funds to customers worldwide is an important factor in the growing globalization of the capital market.

How can culture shock be minimized?

One simple solution is to provide expatriates (and their families) with predeparture language and cultural training, so they can better understand and anticipate the cultural adjustments they must undergo. In addition to straightforward training, firms also might make initial foreign assignments relatively brief and make sure the expatriates understand the role each assignment plays in their overall career prospects. The bottom line is that expatriation and repatriation problems can be reduced if international businesses systematically provide organizational career development programs for their expatriate managers.

What is the exchange rate and its significance in international business?

Price of one currency in terms of a second currency. An exchange rate is a rate at which one currency can be exchanged for another between nations or economic zones. It is used to determine the value of various currencies in relation to each other and is important in determining trade and capital flow dynamics. Direct Quote: Price of a foreign currency in terms of the home currency. Indirect Quote: Price of the home currency in terms of the foreign currency.

The four Ps in international marketing and how each is influenced by national culture, laws, political system and economic factors.

Product Policy Pricing Policy Promotion Distribution

direct exporting

Product sales to customers, either distributors or end users, located outside the firm's home country

How does Dunning's eclectic theory help a firm make a choice of a mode of entry

Recall that the eclectic theory considers three factors: ownership advantages, location advantages, and internalization advantages. Other factors a firm may consider include the firm's need for control, the availability of resources, and the firm's global strategy.

VER (Voluntary Export Restraint)

Promise by a country to limit its exports of a good to another country.

Trade Promotion policies and mechanisms

Promote international business, including subsidies, establishment of foreign trade zones, and export financing programs. Typically, these programs are designed to create jobs in the export sector or to attract investment to economically depressed areas.

How can firms use public relations to their advantage in international marketing?

Public relations consists of efforts aimed at enhancing a firm's reputation and image with the general public, as opposed to touting the specific advantages of an individual product or service. The consequence of effective public relations is a general belief that the firm is a good "corporate citizen," that it is reputable, and that it can be trusted. Savvy international firms recognize that money spent on public relations is money well spent because it earns them political allies and makes it easier to communicate the firms' needs to the general public. They also recognize that, as "foreigners," they often are appealing political targets; thus, the firms attempt to reduce their exposure to political attacks. . Consumers are more likely to resist "buy local" pitches when the foreign firm also is perceived to be a good guy. Good public relations also can help the firm when it must negotiate with a host country government for a zoning permit or an operating license or when it encounters a crisis or unfavorable publicity

Currency options

Publicly traded contract giving the owner the right, but not the obligation, to sell or buy a specific amount of foreign currency at a specified price at a stated future date (see also call option; put option).

Currency futures

Publicly traded contract involving the sale or purchase of a specific amount of foreign currency at a specified price with delivery at a stated future date.

ownership advantages

Resources owned by a firm that grant it a competitive advantage over its industry rivals

two-point Arbitrage

Riskless purchase of a product in one geographic market for immediate resale in a second geographic market to profit from price differences between the markets; also called geographic arbitrage.

indirect exporting

Sales of a firm's products to a domestic customer, which in turn exports the product, in either its original form or a modified form

intracorporate transfer

Selling of goods by a firm in one country to an affiliated firm in another country

Geocentric

Should it adopt a geocentric approach, that is, analyze the needs of customers worldwide and then adopt a standardized marketing mix for all the markets it serves? Management approach in which a firm analyzes the needs of its customers worldwide and then adopts standardized operating practices for all markets it serves. The geocentric approach calls for standardization of the marketing mix, allowing the firm to provide essentially the same product or service in different markets and to use essentially the same marketing approach to sell that product or service globally.

Polycentric

Should it adopt a polycentric approach, that is, customize the marketing mix to meet the specific needs of each foreign market it serves? Management approach in which a firm customizes its operations for each foreign market it serves. The polycentric approach is far more costly because international marketers attempt to customize the firm's marketing mix in each market the firm enters to meet the idiosyncratic needs of customers in that market. Customization may increase the firm's revenues if its marketers are successful in this task. Firms that adopt this approach believe customers will be more willing to buy and more willing to pay a higher price for a product that exactly meets their needs than a product that does not. Often international firms that view themselves as multidomestic adopt this approach.

Ethnocentric

Should the firm adopt an ethnocentric approach, that is, simply market its goods internationally the same way it does domestically? Managerial approach in which a firm operates internationally the same way it does domestically. The firm simply markets its goods in international markets using the same marketing mix it uses domestically, thereby avoiding the expense of developing new marketing techniques to serve foreign customers. When some firms first internationalize, they adopt this approach, believing that a marketing mix that worked at home should be as successful abroad. The ethnocentric approach may not be desirable, however, if the firm loses sales because it fails to take into account the idiosyncratic needs of its foreign customers. Should this be the case, successful firms will modify their marketing mixes to meet local conditions and needs after the firms learn more about the local market.

What is the difference between spot markets and forward markets?

Spot: Market for a foreign exchange involving immediate delivery of the currency in question. Forward: Market for a foreign exchange involving the delivery of currency at some point in the future.

Difference between franchising and licensing?

Still another popular strategy for internationalizing a business is franchising, a special form of licensing. Franchising allows the franchisor more control over the franchisee and provides for more support from the franchisor to the franchisee than is the case in the licensor-licensee relationship. Like licensing agreements, franchising agreements are spelled out in formal contracts, with a typical set of terms. The franchisor generally receives a fixed payment plus a royalty based on the franchisee's sales for the rights to use the franchisor's name, trademarks, formulas, and operating procedures. The franchisee usually agrees to adhere to the franchisor's requirements for appearance, financial reporting, and operating procedures. However, franchisors are likely to allow some degree of flexibility to meet local customs and tastes. In fact, as with other licensing arrangements, one of the services the franchisee offers the franchisor is knowledge about the local market's culture and customs

What are Euroloans and Eurobonds? Where are they used/what purpose do they serve in the FOREX market?

The Euroloan market is extremely competitive, and lenders operate on razor-thin margins. Euroloans are often quoted on the basis of the London Interbank Offered Rate (LIBOR), the interest rate that leading international banks in London charge each other for short-term Eurocurrency loans. The Euroloan market is often the low-cost source of loans for large, creditworthy borrowers, such as governments and large multinational enterprises (MNEs), for three reasons. First, Euroloans are free of costly government banking regulations, such as reserve requirements, that are designed to control the domestic money supply but that drive up lending costs. Second, Euroloans involve large transactions, so the average cost of making the loans is lower. Third, because only the most creditworthy borrowers use the Euroloan market, the risk premium that lenders charge also is lower. A Eurobond is a bond denominated in one country's currency but sold to residents of other countries. For example, American Airlines could borrow $500 million to finance new aircraft purchases by selling Eurobonds denominated in dollars to residents of Denmark and Germany Like the Euroloan market, the international bond market is highly competitive, and borrowers are often able to obtain funds on favorable terms. Large transaction sizes, creditworthy borrowers, and freedom from costly regulations imposed on domestic capital markets all help to lower the interest rates charged on such loans.

Transnational Strategy

The firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness The transnational strategy is most appropriate when pressures for global integration and local responsiveness are both high. The Ford Motor Company has been attempting to employ this strategy. For example, Ford now has a single manager responsible for global engine and transmission development. Other managers have similar responsibilities for product design and development, production, and marketing. But each manager is also responsible for ensuring that Ford products are tailored to meet local consumer tastes and preferences. For instance, Ford products sold in the United Kingdom must have their steering wheels mounted on the right side of the passenger compartment. Body styles may also need to be slightly altered in different markets to be more appealing to local customer tastes.

What are the different ways in which the foreign exchange market facilitate exchange rate risk reduction?

The forward market, currency options, and currency futures facilitate international trade and investment by allowing firms to hedge, or reduce, the foreign-exchange risks inherent in international transactions.

What is LIBOR? Where is it used?

The interest rate that international banks in London charge each other for short-term Eurocurrency loans. LIBOR is used by world banks when charging each other for short-term loans.

What are the issues involved in international licensing?

The use of licensing as an entry mode may be affected by host country policies. Firms are not advised to use licensing in countries that offer weak protection for intellectual property because they may have difficulty enforcing licensing agreements in the host country's courts. On the other hand, the use of licensing may be encouraged by high tariffs and NTBs, which discourage imports, or by host country restrictions on FDI or repatriation of profits. Normally the terms of a licensing agreement are specified in a detailed legal contract, which addresses such issues as (1) specifying the boundaries of the agreement, (2) determining compensation, (3) establishing rights, privileges, and constraints, and (4) specifying the duration of the contract.

Heckscher-Ohlin Theory

Theory stating that a country will have a comparative advantage in producing goods that intensively use factors of production it has in abundance; also called Hecksher-Ohlin theory. 1. Factor endowments (or types of resources) vary among countries. For example, Argentina has much fertile land, Saudi Arabia has large crude oil reserves, and Bangladesh has a large pool of unskilled labor. 2. Goods differ according to the types of factors that are used to produce them. For example, wheat requires fertile land, oil production requires crude oil reserves, and apparel manufacturing requires unskilled labor. The Heckscher-Ohlin theory suggests a country should export those goods that intensively use those factors of production that are relatively abundant in the country.

comparative advantage

Theory stating that trade between countries occurs when one country is relatively more productive than others in the production of a good. Absolute advantage looks at absolute productivity differences; comparative advantage looks at relative productivity differences. The distinction occurs because comparative advantage incorporates the concept of opportunity cost in determining which good a country should produce. The opportunity cost of a good is the value of what is given up to obtain the good. The theory of comparative advantage, on the other hand, indicates that trade should still occur

absolute advantage

Theory stating that trade between nations occurs when one nation is absolutely more productive than other nations in the production of a good and thus should export that good. Smith advocated free trade among countries as a means of enlarging a country's wealth. Free trade enables a country to expand the amount of goods and services available to it by specializing in the production of some goods and services and trading for others. But which goods and services should a country export and which should it import? To answer this question, Smith developed the theory of absolute advantage, which suggests that a country should export those goods and services for which it is more productive than other countries are and import those goods and services for which other countries are more productive than it is.

What are the systematic steps MNCs typically adopt when choosing a market to enter, to estimate market potential?

They often achieve these goals by entering new markets or by introducing new products into markets in which they already have a presence. A firm's ability to do this effectively hinges on its developing a thorough understanding of a given geographical or product market. To successfully increase market share, revenue, and profits, firms must normally follow three steps: (1) assess alternative markets, (2) evaluate the respective costs, benefits, and risks of entering each, and (3) select those that hold the most potential for entry or expansion.

Licensing

Transaction in which a firm (the licensor) sells the right to use its intellectual property to another firm (the lincensee) for a fee

Cost

Two types of costs are relevant at this point: direct and opportunity. Direct costs are those the firm incurs in entering a new foreign market and include costs associated with setting up a business operation (leasing or buying a facility, for example), transferring managers to run it, and shipping equipment and merchandise. The firm also incurs opportunity costs. Because a firm has limited resources, entering one market may preclude or delay its entry into another.

internationalization of firms

Understanding new cultures

Arbitrage of money

Whenever the foreign-exchange market is not in equilibrium, professional traders can profit through arbitraging money. Numerous forms of foreign-exchange arbitrage are possible, but we discuss three common examples: two-point, three-point, and covered interest. In summary, arbitrage activities are important for several reasons. Arbitrage constitutes a major portion of the $5.1 trillion in currencies traded globally each working day. It affects the supply and demand for each of the major trading currencies. It also ties together the foreign-exchange markets, thereby overcoming differences in geography (two-point arbitrage), currency type (three-point arbitrage), and time (covered-interest arbitrage). Arbitrage truly makes the foreign-exchange market global.

Adaptation

With time employee begins to understand patterns of new culture, gains language competence, and adjusts to everyday living

franchising

an arrangement in which a firm from one country authorizes a firm in a second country to use its operating systems, brand names, and trademarks in return for a royalty payment.

What is expatriate failure and what role does HR play in mitigating it?

expatriate failure: Early return of an expatriate manager to his or her home country because of an inability to perform in the overseas assignment. As a result, international HR managers increasingly are evaluating the nontechnical aspects of a candidate's suitability for a foreign assignment. Assessing certain skills and abilities is relatively easy. For example, measuring a prospect's language proficiency is a straightforward undertaking. Most firms use a combination of tests (such as personality and aptitude tests) and interviews in their selection process. Assessment centers, which offer programs of exercises, tests, and interviews that last several days, are also useful because they provide an in-depth look at a set of prospective candidates under the same circumstances Another important consideration is the prospect's motivation for and interest in the foreign assignment.

Different modes of entry

exporting licensing franchising contract manufacturing FDI/greenfield venture

internalization advantages.

factors that affect the desirability of a firm's producing a good or service itself rather than relying on other firms to control production

Location Advantages

factors that affect the desirability of host country production relative to home country production

What are the different rationales for trade intervention used by governments (understand what each means with examples)

o National defense argument o Infant industry argument o Industry Level argument

Currency speculation

purchase or sale of a currency with the expectation that its value will change and generate a profit Sometimes international banks act as speculators, betting that they can guess in which direction exchange rates are headed. Such speculation can be enormously profitable, although it is always risky.

two-tiered pricing policy

pricing policy under which a firm sets one price for all its domestic sales and a second price for all its international sales

contract manufacturing

process of outsourcing manufacturing to other firms to reduce the amount of a firm's financial and human resources devoted to the physical production of its products

exporting

selling of products made in one's own country for use or resale in other countries

home replication strategy

the firm uses core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign market it enters The home replication strategy is often adopted by firms when both the pressures for global integration and the need for local responsiveness are low. Caterpillar, for instance, has adopted this approach to internationalizing its operations. The manufacturing, marketing, logistics, and distribution strategies that led to its success in the United States have been replicated in the 180 countries that it now serves. Of particular importance are its reliance on local dealerships that know their local markets and can provide high levels of services to their customers.

multidomestic strategy

the firm views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. The multidomestic approach is often used when the need to respond to local conditions is high, but the pressures for global integration are low. Many companies selling brand-name food products have adopted this approach. Although not unmindful of the benefits of reducing manufacturing costs, such marketing-driven companies as Kraft, Unilever, and Nestlé are more concerned with meeting the specific needs of local customers, thereby ensuring that these customers will continue to pay a premium price for the brand-name goods these companies sell. Moreover, they often rely on local production facilities to ensure that local consumers will readily find fresh, high-quality products on their supermarket shelves.

Global Strategy

the firm views the world as a single marketplace, and its primary goal is to create standardized goods and services that will address the needs of customers worldwide The global strategy is most appropriate when the pressures for global integration are high but the need for local responsiveness is low. In such cases, the firm can focus on creating standardized goods, marketing campaigns, distribution systems, and so forth. This strategy has been adopted by many Japanese consumer electronics firms such as Sony and Matsushita, which design their products with global markets in mind. Aside from minor adaptations for differences in local electrical systems and recording formats, these firms' digital cameras, TVs, smartphones, and Blu-ray players are sold to consumers throughout the world with little need for customization. Thus, these firms are free to seek global efficiencies by capturing economies of scale in manufacturing and concentrating their production in countries offering low-cost manufacturing facilities.