Study guide for the MGT 456 Final Exam The following topic areas should be the focus as you study for the final exam. However, keep in mind that the questions are meant to be an illustrative guide to help you structure the new information and do not represent an exhaustive list of possible questions that can appear on the exam. Internationalization process What is balanced/traditional vs. entrepreneurship-based internationalization process? Traditional Sequence of predictable stages Tradeoff between risk/investment and the level of ownership/control and potential return Gradually increasing psychosocial distance between domestic environment and foreign markets Entrepreneurship-Based Deviation form traditional by matching resources and opportunities in international level Enablers ? technology, networks, global mindset What liabilities are faced by international entrepreneurs Liabilities Liability of Foreignness - Imperfect info about local markets (Culture, industry, competitive dynamics), Barriers raised by local competition, Barriers raised by local govt Liability of Smallness ? lack of resources makes risk of int. more difficult to absorb than large MNE Liability of Newness ? young venture haven?t had time to establish legitimacy and obtain support What affects the timing of internationalization? When is as important as whether to internationalize. delayability vs. reversibility graphs Delayability: Firms competitive position and First Mover Advantage matrix. Strong Competitive Advantage- can afford to wait! Reversability: Ability to recover costs of physical assets and intangible assets; positive correlation ( / ) Y-AXIS Physical Asset recoverability difficulty low to high X-AXIS importance of nonrecoverable intangibles low to high : Factors Can uncertainty be resolved over time? What is proximity of negative events? What is the extent of consequences of such events Cost of waiting (delayability) Cost of exiting (reversibility) When should entrepreneurs adopt ?wait-and-see? strategy when planning for entry into a new, uncertain market? Ok to wait when they have a strong competitive position and Low importance of early mover advantage The value of wait and see depends on delayability and reversibility. The value of waiting and seeing increases when it is a highly delayable opportunity (can delay), and it is not very reversible. Strategic international partnerships/alliances? What are the issues related to managing international partnerships/alliances? Degree of involvement Ease of dissolution-May want 1 yr contract, so if the market is good, can exit in 1 yr! Visibility to competitors Contract Requirements Legal Entity Creation Equity: joint Ventures New entity jointly formed by 2 or more firms (shared 50-50) Non-Equity Cooperation without creating new entity Contact not required Often unknown to competitors Risks Partnership opportunism/Decreasing Commitment Strategic and organizational complexity Conflict of interest Communication problems Opportunism-Big company can take advantage of small company-They just pull out and say OH WELL! Strategic and organizational commitment, conflict of interest, communication, infusion of capital may dissuade Venture capitalists Seek connected partner, complimentary and compatible mgmt styles, and right level of mutual dependency! AVOID Anchor Partner-enthusiastic at first, don?t provide right resources Elephant and ant complex-Partner bc resources, but, can become anchor partners NEED to assess: operating policy differences, and cross cultural differences Prevention Walling off critical technology Establish contractual safeguards Offering ore than a single technology Building trust Socialization Intellectual property in the international context How can entrepreneurs protect their knowledge in the international context? Wall of Critical technology- Don?t give everything up! Contractual safeguards?BUT? Offer more than 1 technology Build Trust-small and medium companies are more involved Socialization-make them a friend, create a social tie!! What is the role of WIPO? Patent secure in all pct countries? T/F World Intellectual Property Organization Exporting What are the options for entrepreneurs to export their goods? What are the advantages/disadvantages of the various options? Indirect Exporting EMC (Export Management Company), Piggyback Exporting (OEM, white labeling), Domestic Distributors/Gray Marketing To domestic buyers who represent foreign end users or to EMC Adopted by companies with little international experience Packaging, shipping protocol, terms and conditions same as sellind domestically Pros No international exp. required Little distraction to management Fast Little to no increase in financial commitment Low risk Cons Poor control Inadequate market feedback Potentially lower sales/lower return Direct Exporting Cooperation with partners in foreign markets More risky Involves foreign trading companies, sales agents or establishing a foreign sales office (beware of dealing with foreigners) Can be more expensive Receive more feedback AVOID LINE COLLECTORS What should an entrepreneur consider before signing a distribution contract? Errors and omissions clause, Exclusivity, Length of Contract, Marketing/Support, Price, Termination, Territory, Volume What are Incoterms? What do they determine? DAB? PAB?How do they affect pricing? Internationally Accepted Commercial Terms - defining roles of buyer and seller in arrangement of transport to clarify when ownership takes place Determines: Geographic location at which buyer becomes responsible for the goods Delivery - when obligation of the seller was met Who bears risk (pays shipping, handling, insurance and inland freight costs) ALWAYS INCLUDE A NAME OF A GEOGRAPHICAL PLACE/PORT. Affects Pricing depending on which group: GROUP E: Departure. Sellers only responsibility is to SELL! EXW=Ex works GROUP F: Seller delivers goods to carrier FCA: seller puts goods on a truck FAS: Free alongside ship-loading done by buyer! FOB: Free on Board-seller gets on board GROUP C: Carriage Paid excluding insurance CFR: Cost and Freight CIF: Cost, Insurance, Freight GROUP D: Arrival-Seller bears all costs and risks to bring goods to country of destination DAT: Delivered at Terminal DAP: Delivered at Place-don?t pay duty and customs DDP: Delivered Duty Paid-seller pays everything! Why is it important to purchase marine insurance? 110% of final value of delivery General Average Clause-in case of emergency and some things have to be dumped (ECT), each party responsible for a portion of loss even if their goods were safe! To cover loss when big losses are incurred in saving a vessel or its cargo from danger at seas. All parties contribute to the incurred loss, whether or not cargo is damaged. What documents are typically involved in exporting? Quotation Pro forma invoice Commercial invoice Packing list Shipper?s export declaration (SED) - issued by government-how they keep track of exports Bill of lading or air waybill Certificate of origin - ensures goods were made in us, avoid tariffs! Insurance certificate Draft - order for buyer to pay What payment methods are available to international entrepreneurs? How do they compare/differ? IN ORDER OF RISK-LEAST TO MOST Cash in Advance SWIFT (wire transfer) or credit card/Pay-Pal Buyer receives goods after payment No risk to seller - High risk to buyer Low cost Letters of Credit Foreign Bank acts as intermediary and pays L/C if seller meets certain conditions Compromise between cash in advance and open account Low Risk/High cost Problems Packing list Discrepancies and typos Date of shipment Partial Shipments Late shipments Cost - expensive Time consuming Collections After goods are shipped, seller forwards document to foreign buyers bank which holds the documents until payment term is met Risky for seller if foreign bank not reliable Buyer receives goods after payment terms met Lower cost Open Account Long-term relationships Large risk to seller Little risk to buyer Low cost Foreign receivables insurance-private sector, ex-im banks How can entrepreneurs manage non-payment (credit) risk? Small Businesses under 3million annually can get insured by ExIm Bank Insures against non payment ? 100% for political and 95% for all other risks What are the options for financing exports? SBA of ExIm (Export Working Capital program) ? Loan guarantee program Both designed for financing deals less that $1M International deal making How should an international entrepreneur prepare for international negotiations? Self knowledge Good at it? Avoid John Wayne Approach! Do it alone, just call me John, Excuse my French? Reservation Point: how low willing to go, at point which you are indifferent. Understand your partner Cultural Background Research Determine opponents BATNA (Best Alternative to Negotiated Agreement) Create Alternatives ? know what?s important Brainstorm and evaluate Select/Improve your BATNA Determine Issue mix Think about best way to position offer or counter-offer Reservation Point ? point at which negotiator is indifferent between reaching an agreement and walking away from the deal. Lowest acceptable offer What are some of the negotiation tactics he/she can use? What are their advantages and disadvantages? Invisible Partner Make other side believe you have limited negotiating authority Gives you opportunity to say ?No? gracefully (My manager/VP/Boss wont let me) press pause and assess situation Soft Push from the Bottom Offer less than offering price saying ?that?s all the money we have available? Gives illusion you NEED them, and ask for help, boosts their ego! Allows you to: Push other side?s ego by asking for help push seller to sell push seller to search for a better deal Price Pinch - good with several bidders, tell individually, you can do better. Think about selling used car...don?t really know what to ask for it, and when someone says you can do better, think "Is my price to high?" Solicit Bids and inform sellers to ?do better? Creates strong psych impact on seller ?buyer likes me? I?m getting a second chance Pricing is too high Buyer knows something I don?t What can you when faced with a price pinch? How to React. Defend your price Emphasize quality and other non price aspects Stand on your ?track record? Ask the buyer to be more specific about what the problem is Ask the buyer what price he needs to close the deal Don?t walk away too quickly What If? Gathering info that wouldn?t normally be offered; testing assumptions What if we double the order? What if we give you a longer term contract What if we pay cash? Etc Dessert ? sweeten the deal Asking to include something else ? usually of small relative value ? at closing of deal Rationale Other party has made investment, probably will do this to Dessert is relatively small and inexpensive May enhance prospects of long term relationship Informal Pow-Wow Send low level reps wth other low level reps of other side Allows for communicating acceptable terms privately Effective in ?losing face? cultures Deadlock t/f mediator only option - Most difficult to negotiate Dealing with deadlock Consider changing a team member or leader Examine goals and limits to consider concessions Consider a ?summit? meeting Call mediator International networking Why is international networking important in the context of international entrepreneurship? Connections! Motivating Internalization/link to opportunities Access to new markets, channels, opportunities and internationalization Source of knowledge Most born globals engage in aggressive cross-border networking Social Capital ? one of most important resources Size of network Weak and strong ties ? family v. acquiantaces Diversity and density Structural holes. What are some of the characteristics of international networks and how do they affect entrepreneurs? Combination of people skills, interaction and opportunity Facebook Twitter Linkedin What are the opportunities for international networking? Trade Associations Trade shows/Conventions/ trade missions Chamber of commerce events Meeting international editorial staff, community social events How does one effectively manage one?s network? First time and periodic follow-ups Reciprocity/spread the good news Gifts Maintain database of international contacts Manage Impressions: first impressions, elevator pitch, opening lines, exit strategy Social Butterfly Maintenance: first call and follow ups, gift giving Short aswers: Incoterm expenses, freight costs, Doccuments: transmission of ownership Which financial forms to freight contractors fill
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