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22 Cards in this Set
- Front
- Back
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Regional EconomicIntegration
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Agreementsamong countries in a geographic region to reduce, and ultimately remove, tariffand nontariff barriers to the free flow of goods, services, and factors ofproduction between each other
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Levels of EconomicIntegration
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Free Trade Area
Customs Union Common Market Economic Union Political Union |
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European Union Institutions
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European Commission
European Council European Parliment Court of Justice |
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Forward Exchange Rate
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The exchange rate governing forward exchange transactions.Most forward exchange rates are quoted for 30 days, 90 days, and 180 days.
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Foreign Exchange Risk
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the possibility that unpredicted changes in future exchangerates will have adverse consequences for the firm
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International Fisher Effect
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states that for any two countries, the spot exchange rateshould change in an equal amount but in the opposite direction to thedifference in nominal interest rates between the two countries.· Since there is a link between inflation and exchangerates, and since interest rates reflect expectations about inflation, itfollows that there must also be a link between interest rates and exchangerates, which is the International Fisher Effect.·
Currencieschange in value in order to equalize interest rates between countries Moneygoes where it earns the highest return |
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Macroeconomic Causesof country financial crisis
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High relative price inflation rates·
A widening current account deficit· Asset price inflation (such as sharp increasesin stock and property prices)· High inflation· Excessive expansion of domestic borrowing, oftenagainst real property assets· Excessive real estate investment· Widening current account deficits· People unable to make mortgage and debt payments· Culminates in burst of real estate bubble |
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Organization Architecture
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The totality of a firms organization, including formalorganizational structure, control systems and incentives, organizationalculture, processes, and people
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Global StandardizationStrategy
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· A firm focuses on increasing profitability andprofit growth by reaping the cost reduction that come from economies of scale (spreading fixed costs over largevolume), learning effects, and location economies
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Localization Strategy
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· increasing profitability by customizing thefirms goods or services so that they provide a good match to testes andpreferences in different national markets
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Transitional Strategy
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· Attempt to simultaneously achieve low coststhrough location economies, economies of scale, and learning effects while alsodifferentiating product offering across geographic markets to account for localdifferences and fostering a multidirectional flow of skills between differentsubsidiaries in the firms global network of operations
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International Strategy
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Tryingto create value by taking products first produced for the domestic market andselling them internationally with only minimal local customization
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Cost Pressures
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· Responding to pressures for cost reductionrequires a firm to try to lower the costs of value creation. An example is amanufacture, for example, might mass produce a standardized product at theoptimal location in the world, wherever that might be, to realize economies ofscale, learning effects, and location economies. A firm might outsourcefunctions to low cost foreign suppliers
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Pressures for local Responsiveness
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Pressures for local responsiveness arise fromnational differences in consumer tastes and preferences, infrastructure,accepted business practices, and distribution channels, and from host governmentdemands. Responding to pressures to be locally responsive requires a firm todifferentiate its products and marketing strategy from country to country toaccommodate these factors, all of which tends to raise the firms cost structure
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Exporting (Entry Mode)
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Sale of products produced in one country to residents ofanother country
Exporting form the firms home base may not beappropriate if lower cost locations for manufacturing the product can be foundabroad High transport costs |
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Turnkey Project (Entry Mode)
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A project in which a firm agrees to set up an operatingplant for a foreign client and hand over the “key” when the plant is fullyoperational
The firm which enters will have no long terminterest in the foreign country The firm that enters a turnkey project mayinadvertently create a competitor If the firms process technology is a source ofcompetitive advantage, then selling this technology through a turnkey projectis also selling competitive advantage |
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Licensing (Entry Mode)
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occurs when a firm licenses the rights to produce itsproduct, its production processes, or its brand name or trademark to anotherfirm; in return, the licensor collects a royalty fee from the licensee.
Firm does not have a tight control overmanufacturing, marketing, and strategy A licensee is unlikely to allow a multinational firmto use its profits to support a different licensee operating in another country Lost control over its technology |
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Joint Ventures (Entry Mode)
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Establishing a firm that is jointly owned by two or moreotherwise independent firms
Risking giving control of its technology to itspartner Firm does not have tight control oversubsidiaries that might need to realize experience curve or location economies The shared ownership arrangement can lead toconflicts and battles for control between the investing firms if their goalsand objectives change or if they take different views as to what the strategyshould be. |
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Wholly Owned Subsidiaries (Entry Mode)
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A subsidiary in which the firm owns 100% of the stock
Most costly method |
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Technology Know-How
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· If a firm’s competitive advantage is based oncontrol over proprietary technological know how, licensing and joint venturearrangements should be avoided if possible to minimize the risk of losingcontrol over that technology
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Management Know-How
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· Risk of losing control over the managementskills to franchisees or joint venture partners is not that great.
Service firms favor a combination of franchisingand subsidiaries to control the franchises within particular countries orregions. The subsidiaries may be wholly owned or joint ventures, but mostservice firms have found that joint ventures with local partners work best forthe controlling subsidiaries |
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Pressures for costreductions
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The greater the pressures for cost reductionsare, the more likely a firm will want to pursue some combination of exportingand wholly owned subsidiaries.
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