EXAM 3

extreme

Taliban in Afghanistan and Saudi Arabia

liberal

Jordan and Lebanon

sanctions

ex

embargo

ex

dispute resolution

a contract should state ?

social stratification

Ex

Lowest

untouchables ? if born one, always one

Highest

Brohmand ? businesspeople

4 different kinds of law

Common law
Civil law
Religious law
Bureaucratic law

common law

based on wisdom of judges decisions on individual cases through history
based on past decisions
changes and adapts

judges in common law system

take neutral role

some countries that use common law

US
Canada
Australia
Etc.--> countries that came out of the British empire

social mobility

ex

largest legal system in the world

Civil law
Used by all Europe, Asia, etc.

civil law

aka. Code law
based on codification of what is and is not permissible
laws written down in books not open to interpretation by the courts

where does civil law opinionate

In biblical times with the Romans
Reinforced by French Napoleonic code

judge?s role in Civil Law

determines the scope of evidence collected and presented
could be 1 to many judges that are very active

Religious Law

Based on the officially established rules governing faith and practice of a particular region

2 types of religious law

Sharia law- based on Muslim religion
Talmudic law- Israel- based on Jewish religion

Theocracy

Country that applies religious law to civil and criminal conduct

God in Islamic religion

Allah

holy book of Islamic religion

Qur?an

largest Muslim nation in the world

Indonesia

second largest Muslim nation in the world

India
15% of the population is Muslim and the rest Hindu

most populous Arab Muslim nation

Egypt

____, ____, and ____ are not Arabs but are Muslim nations

Iranians, Indians, and Indonesians

key issue in the Middle East

that country boundaries are not aligned with tribal or ethnic groups
political boundaries do not correspond to tribal boundaries

2 major sects of Islam

Sunnis Iraq (Sadaam Hussain), Saudi Arabia
Shiites (Shi?as) Iran

Sunnis Iraq (Sadaam Hussain), Saudi Arabia

Vast dominant majority of Islam strong supporters of Sharia

Sharia is based on

The Qur?an and the teachings of Muhammad

different interpretations of the Sharia

extreme: Taliban in Afghanistan and Saudi Arabia
liberal: Jordan and Lebanon

women in Saudi Arabia

cant be seen in public without a male escort
can only show the palms of their hands
women and men eat and attend school separately

week in Islamic countries

Islamic holy day is Friday
Weekend starts Thursday
Saturday is the first day of the week

Bureaucratic law

Legal system in the communist countries and in dictatorships
?I?m the boss, I say what goes?

countries with Bureaucratic law

Myanmar, Burma, Libya, Cuba

laws affecting international business transactions

sanctions
embargos
extraterritoriality

Official language

Mandarin

sanctions: ex.

restraints against commerce with another country
may be used to induce a second country to change an undesirable policy
ex. A citizen of the US that engages in pedophilia in another country can be tried in the US

embargo: ex.

a comprehensive sanction against all commerce with a given country
we have an 100% embargo against Iran
don?t have an 100% embargo against Cuba

extraterritoriality

attempt to regulate business activities that are conducted outside the border
Helms Burton Act

Helms Burton Act

Restricted trade with Cuba until Castro brothers are gone
Other companies who do business with Cuba we can sue them for trading with Cuba if they have operations in the US

4 laws directed against foreign firms

Nationalization
Expropriation
Confiscation
Privatization

nationalization

when governments take over the assets of a local company
ex. A leftist government may choose to transfer ownership of resources from the private to the public sector
ex. Saudi Arabia took over all oil companies and compensated them

2 types of nationalization

Expropriation
Confiscation

expropriation

when the host government compensates the private owners for their losses

confiscation

when the host government offers no compensation
take over EVERYTHING public and private property

ex. Of confiscation

Cuba?> Castro
Chavez took over oil companies for very little compensation

advantages of MNC?s in host countries

greater selection
higher standards
job creation
tax benefits
technology transfers

Chavez took over oil companies for very little compensation

Exxon sued and froze assets

disadvantages of MNC?s in host countries

competition
job loss
dependency on economic health of MNC
political power

role of domestically-oriented law

the laws of the countries in which an international business operates play a major role in shaping the opportunities available to that firm

domestically oriented laws (laws of the other country) affect

managing its workforce
financing operations
marketing its products
developing and utilizing technology

managing its workforce

some countries you cant fire people (Mexico, Brazil, Europe)
ex. Cant fire someone for drinking in Germany because beer is thought of as a food and alcoholism is an illness

financing its operation, ex.

Ford inc. retrieves royalty and dividend payments from Ford Brazil

marketing its products, ex.-->

illegal to advertise to children (toys) in Europe can only run toy commercials while kids are in school
also cant use comparative advertising in Europe
cant under price the competition in Europe

repatriation

taking money out of one country and into another country
a lot of time the money is taxed
governments control your ability to invest

dispute resolution: a contract should state

which country?s law applies
in which country should the issue be resolved
which technique should be used to resolve the conflict
how will the settlement be enforced

Asia

very rude to brag on themselves

5 elements of culture

Values
Behaviors
Beliefs
Attitudes
Customs

4 characteristics of culture

Learned behavior we are all born the same and we develop who we are
Interrelated elements
Adaptive you change and adapt to certain environments, focuses, attitudes
Shared part of a group: share values of the group

important elements of social structure

individuals, families, and groups
importance/definition of family
importance of individual relative to the group

Adaptive you change and adapt to certain environments, focuses, attitudes

Ex. Freshman on campus

country that stresses independence

USA

country that stresses the family

Latin America

countries that stresses the importance of groups

Japan and Asia
If group doesn?t function, individual suffers
Group has to agree involves everyone but slows down process

social stratification: Ex.

categorization based on birth, occupation, educational achievements
India cast system

social mobility: ex.

ability to move from one stratum of society to another
can move from class to class
class system in USA can go from poverty to being a president (Ronald Reagan)

India cast system

13 or 14 casts
Lowest: untouchables if born one, always one
Highest: Brohmand businesspeople
Don?t marry outside cast

primary delineator of cultural groups

language

____ languages worldwide and ____ dialects

3,000, 10,000

____ official languages in India

37

language in China

37 official languages
5 principal dialects
Official language: Mandarin
No matter what language you speak, you can still read all the languages

language can be used as a ____. Ex.

Weapon
Chrysler v. Mercedes cultural clash

Lingua Franca

English is the common language of international business
Dominates every aspect of the world

Meaning of ?Manana? in Latin America

Sometimes it means ?tomorrow?
But other times it means ?sometime in the near future?

?Yes? and ?No? in Japan and Latin America

Yes can mean ?yes, I understand? in Latin America and Japan
?Hai? in Japan can be yes or no
Never directly say no

hora inglesa

be there on time

?Hai? in Japan can be yes or no

Means we are studying, thinking about it

hora Latina

be there an hour late

meeting in Germany

considered rude to arrive on time
shake everyone?s hands

meeting in Latin America

also arrive late
hug everyone

shoes in Japan

very rude

interviews in Asia vs. the US

Asia: very rude to brag on themselves
US: sell ourselves
Very hard for Asians to get jobs in the US

strategic planning

ex. Making estimates for different quarters
foreign idea in Latin American cultures because of fatalism

personal space

Latin Americans and Arabs stand very close to each other

types of nonverbal communication

hand gestures and body language
facial expressions
clothing/ hair style
touching
eye contact
etc.

ex. Of problems with nonverbal communication

crossing legs rude in Arab world
ok sign giving the finger in Latin America
show bottom of foot biggest insult you can give Sadaam Hussain

Christianity includes

Catholicism
Protestant
Eastern orthodox

72% of the world adheres to one of what four languages

Christianity
Islam
Hinduism
Buddhism

values

accepted principles and standards

attitudes

actions, feelings, and thoughts that result from values
ex. Time, age, education, status

high vs. low context cultures

high context culture stuff is understood, don?t have to say anything directly
low context culture what I say I mean

high context culture stuff is understood, don?t have to say anything directly

very hard for the low context cultures to understand

high context culture is reflected in the cultures of

Asia China, Korea, Japan

Low context culture is reflected in the cultures of

Germany, Swiss, Scandinavian, US, Canada

1 US dollar

10 Mexican Pesos

1 US dollar

3.1566 Argentinean Pesos.

10 pesos

1 US dollar

free trade

minimal influence from government

fair trade

active intervention from government
aka. Managed trade
USA

2 issues of trade intervention

Should a national government intervene to protect the country?s domestic firms by taxing foreign goods entering the domestic market or constructing barriers against imports
Should a national government directly help the country?s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs

4 industry-level arguments for trade protection

National defense
Infant industry
Maintenance of existing jobs
Strategic trade theory

national defense argument

country must be self-sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats
appeals to general public

national defense argument protects

steel, electronics, and machine tools industries, and merchant marines

ex. Of national defense argument

Japan has high imports tariffs on rice, and subsidizes their farmers very well

translation risk

ex

infant industry argument

imposition of tariffs to give US firms temporary protection from foreign competition until firms are fully established
powerful economic development strategy

ex. Of infant industry argument

Fuji-Film when Japan started producing Fuji products they had higher tariffs

most powerful and most used argument

maintenance of existing jobs

jobs in high-wage countries threatened by imports from low-wage countries
used by every country to protect our jobs, factories, etc.

2 forms of assistance for ?maintenance of existing jobs?

Tariffs
Quotas

3 national trade policies

Economic Development Programs
Industrial Policy
Public Choice Analysis

Economic Development Programs 2 types

Different types of subsidies
2 types

Industrial policy

Key domestic industries are chosen, protected, and promoted

2 types

Export promotion strategy
Import substitution strategy

Public Choice Analysis

?Made in the USA?, etc,
Consumers vs. special interest groups

Jones Act

Foreign flag vessel (registered in another country where there are little or no taxes). Vessel cannot pick up or deliver in another country other than their own.
Ex. If you want to take an Alaskan cruise that visits Canada, ship must be registered in Canada (cannot be registered in the US)
Ships are registered in small countries that do not have high taxes but they cant pick up and deliver both between US ports, only US ships can do that.

2 types of barriers to international trade

Tariff barriers
Non-tariff barriers

Ex. If you want to take an Alaskan cruise that visits Canada, ship must be registered in Canada (cannot be registered in the US)

Ship leaves from Vancouver, Seattle gets hurt because it loses business

3 types of tariff barriers

Export tariff
Transit tariff
Import tariff

transit tariff

tariff on the shipment as it moves across the US
ex. Bringing something from China to San Fran to NY could be a transit tariff to transport across the country

3 types of import tariffs

Ad Valorem shipping tariff normally about 10% (always a percentage)
Specific an actual amount
Compound 10% + something for every pound (5 for every pound)

Ad Valorem shipping tariff normally about 10% (always a percentage)

Invoice value of goods at shipping point

Compound 10% + something for every pound (5 for every pound)

A combination of both

Where

Must have global perspective because competition is global

Would you do it again

--> if no, get out

currency

commodity
way to measure value
can change over night

what has happened to the Canadian dollar

It has gone up in value
Makes things in Canada more expensive

Currency as commodities. EX.

1 bottle of champagne is equal to 100 Mexican bottles of beer
If it takes more bottle of beer (110) to buy a bottle of wine the value has gone down
Same with currencies

forward contract

contract to buy materials (dollars) at a fixed amount one month from now
one month forward

spot rate

rate at a point in time

Do it on

products, adv

forward discount

buy money in the future at a lower rate than I can buy it for today
forward rate < spot rate

forward premium

buy money in the future at a greater value than I can buy it for today (pay more in the future)
forward rate > spot rate

3 definitions of foreign exchange

A commodity that consists of currencies issued by countries other than one?s own
The market place where currencies are exchanged
The act of trading two currencies

direct exchange rate

direct quote quote your country?s currency first
If I am American

indirect exchange rate

indirect quote quote the other country?s currency first
price of home country in terms of the foreign currency
If I am American

the role of banks in foreign exchange

wholesale market for foreign exchange
retail market for foreign exchange
market makers bring buyers and sellers of currency together

null

If I am American

10 pesos=1 US dollar

clients of banks (foreign exchange);

commercial customers (businesses)
Government agencies
Speculators- estimate the values of the future exchange rates
Arbitrageurs
Individuals

commercial customers (businesses)

MNC?s (largest type of customer), MNE?s

how to the banks make money off of foreign exchange

On the spread take part (%) of the money from the exchange

spot markets

for foreign exchange transactions that are to be consumed immediately or in the near future
rate when currency will be traded now (or in 15 min)
rate of a currency at a specific moment in time

forward market

for foreign exchange transactions that are to occur at some time in the future
contract with a bank to buy a currency into the future

2 currency derivatives

Currency future
Currency option

currency future

publicly traded on exchanges worldwide
a contract that resembles a forward contract
however, unlike the forward contract the currency future is for a standard amount on a standard delivery date
less expensive than forwards

currency option

allows, but does not require, a firm to buy or sell a specific amount of foreign currency at a specific price at any time up to a specific date
includes a call option or a put option
don?t HAVE to buy it in the future just an option

call option

right to buy a currency in the future

put option

right to sell a currency in the future

ex. Of currency option

if the value of the Euro becomes weaker can decide to exercise that option

3 types of economic risks

Economic exposure and risk
Transaction exposure and risk
Translation risk

Dell computers

mostly computers

economic exposure and risk

if the value of a currency is expected to change in the future, it will impact the plans for your investment in equipment, marketing, market entry, expansion, etc. in that country
if a country or market is impacted by civil strife, war, strikes, or other political change, it will likely affect the value of the currency thus creating economic exposure

how can economic exposure be reduced

By locating operations in another market, hedging earnings and currency in the forward and futures market, having back up geographic operations, being sure to plan in local currency, etc.

hedging earnings

protecting by forward currency options, futures

GE, Tyco

conglomerates

ex. Of economic risk and exposure

Dell Brazil entry plan planned in US $, not in Real
Forecasted profits will drop because Real drops every 2 years

Transaction exposure and risk: ex.

when there is a purchase or sale, or if money is lent or borrowed, and then afterwards the exchange rate of the local currency vs. you company functional currency changes, there is an exchange gain or loss that directly hits your income statement
ex. If you buy some equipment from a German company for 100,000 euros and agree to be invoiced in euros and the exchange rate is $1 US dollar=1 euro and you get 30 days credit

Objective

produce a smooth growth curve

speculating

going naked
hoping your currency will increase in value

ex. If you buy some equipment from a German company for 100,000 euros and agree to be invoiced in euros and the exchange rate is $1 US dollar=1 euro and you get 30 days credit

during the 30 days the Euro appreciates 10% vs. the dollar so the exchange rate is now $1.10=1 euro then it now takes $110,000 to buy 100,000 euro
you have suffered an exchange loss of $10,000

what do you put on your income statement for transaction exposure and risk

?gains or losses from exchange?

translation risk: ex.

Balance sheet issue
If you have money in a foreign bank account and you translate it or convert it into dollars...
If the exchange rate was $1 US dollars =1 euro, and then the euro crashes making the...
Have suffered a translation loss of 50%
Aka. Accounting risk or exposure

translation loss

when converting if making a sale have 50% less in accounts receivable

translation gain

if you owe money have 50% less in accounts payable

GM

make many different models around the world ? focus very closely on the specific market

Motorola

is splitting into 2 businesses because they need more focus on mobile phones

US

retailers

Other countries

wholesalers

when does strategic planning begin

At the beginning of the year

objective of strategic planning

forecast business into the future and offset shortfalls
fairly steady growth

International Strategic Management

Comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally
How will we compete on a multi-national scale

fundamental questions of International Strategic Management

what products and/or service does the firm intend to sell
Where and how will it make those products or services
Where and how will it sell them
Where and how will it acquire the necessary resources
How does it expect to outperform its competitors

a company can either ____ or ____, but not both.

Grow
Liquidate

Where and how will it sell them

Where: Must have global perspective because competition is global
How: E-Commerce? Direct sales force? Direct mail? Etc.

What should you ask yourself in deciding whether to stick with a business strategy/plan

Would you do it again?--> if no, get out

sources of competitive advantage for international mustiness

global efficiencies
multinational flexibility
worldwide learning

multinational flexibility

too expensive? Legal problem? If so move to a different place

worldwide learning

transfer knowledge that you gain in other countries
ex. Dishwashing detergent in Japan

3 strategic alternatives

Home replication strategy
Multi-domestic strategy
Global strategy

home replication strategy

?we will do it in Europe just like we do in the US?
Ex. Pringles
Can?t completely replicate (except commodities)

multi-domestic strategy

alter product or marketing strategy to adapt it to a different country
ex. Unilever
car companies

global strategy

global products commodities

4 components of international strategy

Distinctive competence
Scope of operations
Resource deployment
Synergy

distinctive competence

something you do exceptionally well compared to your competitors
represents important resource to the firm
can be intangible
ex. Marketing (P & G)

scope of operations

width (not depth)
Where are we going to conduct business
Ex. How many types of Crest toothpaste can you buy

ex. Marketing (P & G)

high quality performance (BMW)

scope of operations may be defined by

Geographic region
Market or product niches within regions
Specialized market niches

resource deployment

where will we get the funds and people
Given that we are going to compete in these markets, how will we allocate our resources to them
Ex. Do we have anyone who speaks the language

Resource deployment may be specified by

Product lines
Geographical lines

Ex. Do we have anyone who speaks the language

How will we put our culture into that company

synergy

how can different elements of our business benefit each other
Focus on teams
2 heads are better than one

goal of synergy

to create a situation where the whole is greater than the sum of the parts -1 + 1 is greater than 2.

steps to international strategy formulation (don?t have to memorize just be familiar)

develop a mission statement
perform a SWOT analysis
set strategic goals
develop tactical goals and plans
develop a control framework

mission statements

this is what were all about
clarifies the organization?s purpose, values, and direction
communicates the firm?s strategic direction

SWOT analysis

Strengths, Weaknesses, Opportunities, Threats
Do it on: products, adv. Campaigns, capital investments, etc.

control framework

set or managerial and organizational processes that keep the firm moving toward its strategic goals
accounting, process control, manuals, procedures, regulations and rules, feedback, performance reviews used to control budgeting and strategic planning

the value chain

Have inputs into an organization
Transform and convert inputs and transfer them through supply chain to end customers

3 levels of international strategy

Corporate strategy
Business strategy
Functional strategy

3 kinds corporate strategies

Single-business strategy ex. Dell computers: mostly computers
Related diversification ex. P & G: primary focus: women?s personal care products
Unrelated diversification ex. GE, Tyco: conglomerates

business strategy

different divisions

Unrelated diversification ex. GE, Tyco: conglomerates

Buy many different kinds of businesses
Objective: produce a smooth growth curve

3 kinds of business strategies

Differentiation ex. GM: make many different models around the world focus very closely on the specific market
Overall Cost Leadership ex. Bic Pens costs under 3 cents to make a pen and can buy a dozen for $1
Focus ex. Motorola: is splitting into 2 businesses because they need more focus on mobile phones

functional strategies include?

financial
marketing
operations
human resource
R & D

Overall Cost Leadership ex. Bic Pens costs under 3 cents to make a pen and can buy a dozen for $1

BMW wants to make cars cheaply but wont sacrifice quality

direct exporting

ex

intracorporate transfers

ex

like licensing

royalty fees

unlike licensing

franchising also has upfront fees

advantage

minimized financial exposure

disadvantage

transfer proprietary knowledge ? giving away expertise to possible client before actually getting contract

3 types of ?new markets?

Additional products
New company
International business

entry strategies

ways that companies enter markets

if you are new, the 1 st entry strategy you will do is?

export
(e-commerce)

what does Foreign Market Analysis involve

Assess alternative markets look at different markets
Evaluate the respective costs, benefits, and risks of entering each
Select those that hold the most potential for entry or expansion

Assess alternative markets look at different markets

Usually go to Canada first

9 factors in assessing new market opportunities

Produce-market dimensions how big is the market
Major product-market differences ex. Measurement systems
Structural characteristics of the national product market
Competitor analysis how touch are they
Potential target markets
Relevant trends
Explanation of change
Success factors how can we win
Strategic option

Evaluate the respective costs, benefits, and risks of entering each

What would it cost for you to enter the country? Transaction risks? Currency risk? Translation risk

other issues you have to deal with in assessing alternative foreign markets

legal and political environment
sociocultural influences

Structural characteristics of the national product market

infrastructure

US: retailers
Other countries: wholesalers

legal and political environment exs.

A firm may choose to forego exporting its goods to a country that ahs high tariffs and other trade restrictions in favor of exporting to one that has fewer and less significant barriers
Have to use your own currency to buy another country currency risk
A lot of time you have to do a joint venture with another company

sociocultural influences

subjective nature difficult to quantify
issues surrounding the products
ex. In China- 1 child policy with 6 people spoiling 1 child

to avoid the problem with sociocultural influences

many firms often focus their initial internationalization efforts in countries culturally similar to their home markets: cultural clustering
ex. Canada and US

ex. In China- 1 child policy with 6 people spoiling 1 child

good for toy companies

2 types of costs of entering foreign markets

Direct costs
Opportunity costs

direct costs

those the firm incurs in entering a new foreign market and include costs associated with setting up a business operation

opportunity costs

those that result from entering one market as opposed to another- a firm forfeits or delays it opportunity to earn profits in one market by dedicating its resources to another
ex. If we invest in Germany, will we have enough money to invest in China

benefits of entering foreign markets: (don?t memorize)

expected sales are profits from the market
lower manufacturing costs
foreclosing of markets to competitors
competitive advantage
new technology
opportunity to achieve synergy with other operations
cash flow
market growth/share

risks of entering foreign markets

exchange rate fluctuations
additional operating complexity
possible direct financial losses due to inaccurate assessment of market potential

3 things to consider when choosing a mode of entry

Ownership advantages
Location advantages
Internalization advantages

possible direct financial losses due to inaccurate assessment of market potential

downside risk
ex. If government took over the company and we got nothing for it what would we lose

ownership advantages

tangible or intangible resources owned by a firm which grant it a competitive advantage over its industry rivals
how much do we want to own
Willing to do a joint venture
American companies like to control want to own companies

location advantages

factors that affect the desirability of host country production relative to home country production
how important is it to be in a certain country
Should we manufacture in that country or export

internalization advantages

factors that make it desirable for a firm to produce a good or service itself rather than contracting with another firm to produce it.
Affected by the level of transaction costs
Make or buy decision
Should we make the products ourselves

2 motivations that push companies into international business

Proactive motivation
Reactive motivation

proactive motivation

those that pull a firm into foreign markets as a result of opportunities available there
positive
market opportunities

reactive motivation

those that push a firm into foreign markets, often because opportunities are decreasing in the domestic market
if we don?t do it what will happen
Companies will follow competition into other countries
Don?t have a choice anymore because competition is global

WOFE

wholly owned foreign enterprise

modes of entry

exporting
international licensing
international franchising
specialized modes
foreign direct investment

largest US exporter

Boeing
Also CAT, GM, chemical co?s

example of exporting

selling off a website

3 forms of exporting

Indirect exporting
Direct exporting
Intracorporate transfers

indirect exporting: example

car part made in US and sent to Mexico where it is put into a car and then sent back to the US

direct exporting: ex.

Direct sale to a company
Ex. Lumbering to Lowes

intracorporate transfers: ex.

Ford makes engines in US and sends them to Ford Mexico
Your own company is your customer
Intercompany or affiliate

licensing

paying royalty for logo

largest amount of licensing is done between?.

2 companies

licensor

leases the right to use its intellectual property
earns new revenues with relatively low investment

licensee

uses the intellectual property to create products for local sale
pays a royalty back to the licensor

basic issues of licensing

set boundaries of agreement
establish compensation rates
agree on the rights, privileges, and constraints
specify the duration of the agreement

good way to introduce a product to different companies

find licensees in different countries

one of the major disadvantages of licensing

the licensees aren?t honest
usually can perform audits as part of the contract

how is franchising like and dislike licensing

like licensing: royalty fees
unlike licensing: franchising also has upfront fees

franchising usually involves?

buildings
but can also franchise technology

why franchise

Don?t want the risk
Lower risk entry

3 specialized entry modes

Contract manufacturing
Management contracts including consulting, services, etc.
Turnkey projects

contract manufacturing

manufacture in another country
just manufacture and provide that product to another company

management contracts

ex. Public accounting
advantage: minimized financial exposure
disadvantage: transfer proprietary knowledge giving away expertise to possible client before actually getting contract

turnkey project

ill build it for you and get it running and then I will give it to you
ex. Aztec Asphalt co.

foreign direct or equity investment

Greenfield strategy
Brownfield strategy
Participating in a joint venture

Greenfield strategy

Building new facilities
Ex. Dell
Best site modern facilities
Economic development incentives
Clean slate
Slower to market

Brownfield strategy

buying existing assets in a foreign country (acquisition strategy)
enter a market that is already existing
environmental or financial risks unwanted baggage

Foreign Direct Investment (FDI)

Company buys all or part of a company in another company
Buy assets or equity

if you buy 100% of the other company

WOFE: wholly owned foreign enterprise

2 disadvantages of FDIS

Higher exposure to political risk
Complexity

ownership advantage

penetrate foreign market through the FDI

internalization

do it yourself
how important is it for me to run the business
Should I protect my technology with patents

reason for internalization

protection of intellectual property

when is a FDI most likely to occur

When transaction costs with a second firm are high, when proprietary issues at stake or other options don?t exist

transaction costs

costs associated with negotiating, monitoring, and enforcing a contract

EXAM 3

Business Administration 361 with Anderson/baker at University of Tennessee - Knoxville

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