MGT320 Final

Information that is intuitive and difficult to articulate or codify in writing

Information that can be easily captured in the form of text, tables, or diagrams

Effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account

Loyalty to a clearly defined business strategy which focuses on the future and keeps putting effort in improving its strategy, not changing it

• Avoids costs of establishing manufacturing operations in the host country
• Minimizes risk and investment
• Rapid speed of entry
• May realize experience curve and location economies

• Current production location may not have location economies
• Transportation costs
• Trade barriers and tariffs
• Company viewed as an outsider
• May not learn about customers and competitors
• Exchange rate risk

• Limits access to local information
• Lack of control over intermediaries

Firm hires the expertise of someone else to facilitate the exchange for a fee

When a firm agrees to set up an operating plant for a foreign client and then hand over the “keys” when the plant is fully operational

• Can earn a return on knowledge asset
• Less risky than conventional FDI

• Arrangement does not create long-term interest in the foreign country
• May create a competitor

• Reduces development costs and risks of establishing foreign enterprise
• Establish a physical presence without costs
• Speed of entry
• Reduces exposure to political risk
• Overcomes trade and investment barriers
• May be the only way to develop applications of intangible property

• Difficult to maintain control over assets and know-how
• Damage to firm reputation
• Monitoring costs
• Income dependent on licensee’s performance
• Licensee earns the majority of the profit
• Partners can become competitors
• Inability to exploit experience curve
• Cannot coordinate strategic moves

Contract between two or more parties where each party grants rights to their intellectual property to the other parties

A master franchise sells sub-franchises in its territory and takes on the role of supporting and schooling them to deliver the service.

A formal relationship between two or more parties to pursue a set of agreed upon goals while remaining independent organizations

Two or more agents working together to produce a result not obtainable by any the agents independently

The cumulative trust, experience, and knowledge that forms the core of the relationship between businesses and their customers

Establishing a new operation

Suggests that there is a tendency for acquisitor companies to pay too much

When a firm invests resources in facilities to produce and/or market a product in a foreign country

Investment in the same industry in which a firm operates at home

Investment in an industry that provides inputs for a firm’s domestic operations or that sells the outputs of the firm’s domestic operations

An investment in an industry abroad that provides inputs for a firm’s domestic production processes

An investment in an industry abroad that sells the outputs of a firm’s domestic production processes

When there are impediments to the free flow of products nations, the sale of technological, marketing, or management know-how

Conscious behavior arising in a small number of competitors, in a situation where all are aware of their conflicting interests and interdependence of their decisions

Contends that FDI patterns can be explained by the relationship between the advantages of combining resource endowments that are tied to a particular foreign location with a firm’s unique assets

When licensing may result in a firm giving away its know-how to a potential foreign competitor, does not give a firm the tight control needed to achieve its strategic goals, when the firm’s know-how is not amenable to licensing

Arises when two or more enterprises encounter each other in different regional markets, national markets, industries, or across multiple products

• Resource-transfer effects
• Employment effects
• Effect on competition and economic growth
• Balance-of-payments effect

• Adverse effects on competition
• National sovereignty and autonomy
• Adverse effects on the balance of payments

• Capital
• Technology
• Management

• Balance-of-payments account is improved by the inward flow of repatriated earnings
• Balance-of-payments account is improved if the foreign subsidiary needs home country equipment, component parts, etc.

• Initial capital outflow has a negative impact on the balance of payments
• It is detrimental if the purpose of the foreign investment is to serve the home market from a low-cost production location
• It is detrimental if the FDI is a substitute for exports

• Initial capital inflow when MNC establishes business
• FDI substitutes for imports of goods and services
• MNC uses its foreign subsidiary to export to other countries

• Subsidiary earnings will eventually be repatriated back to the home country
• Foreign subsidiaries could import a substantial number of component part inputs and this will reduce the positive impact of subsequent exports

Supremacy of authority or rule as exercised by a sovereign state

• Employment effects
• Resource-transfer effects
• Balance of payment effects

• Employment effects
• Balance of payment effects

• Foreign risk insurance
• Capital assistance
• Tax incentives to invest abroad
• Political pressure

• Limits on capital outflows
• Tax incentives to invest at home
• Nation-specific prohibitions

• To gain from the resource
• To capture FDI away from other potential host locations

• Ownership restraints
• Performance requirements

An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated

A draft or bill that is payable on demand or upon presentation

A draft which is payable at a specified point in the future, or under certain circumstances

An insurance policy offered to businesses wishing to protect their balance sheet asset, accounts receivable, from loss due to credit risks such as protracted default, insolvency, bankruptcy, etc.

• Barter
• Counterpurchase
• Offset
• Switch Trading
• Buybacks

• High political risk costs
• High culture distance implications
• Factor costs have substantial impact
• Low trade barriers
• Externalities favor a certain location
• Stable exchange rates
• High fixed costs
• Product’s value-to-weight ratio is high
• Product serves universal needs

• Factors do not have substantial impact
• High trade barriers
• Location externalities not important
• Exchange rates volatile
• Low fixed costs
• Flexible manufacturing technology unavailable
• Products value-to-weight ratio is low
• Significant differences in consumer tastes and preferences exist between nations

Smallest output that a plant or firm can produce such that its long run average costs are minimized

• Flexible automation in which several machine tools are linked together by a material-handling system, and all aspects the system are controlled by a central computer
• Is able to process more than one product style simultaneously

• Use of flexible computer-aided manufacturing systems to produce custom output
• Combines low unit costs of mass production processes with the flexibility of individual customization

Method of comparing the weight on an item to its value

Setting and adjustment of charges made between related parties for goods, services, or use of property

• Product attributes
• Distribution strategy
• Communication strategy
• Pricing strategy

Many retailers supply a market with no one having a major share

Few retailers supply a market, having a major share

• Cultural barriers
• Source and country of origin effects
• Noise levels

How the consumer perceives the product based on what country it came from

Requires retailers to notify their customers with information regarding the source of certain foods (i.e. Beef, pork, chicken)

• Significant economic advantages
• Scarce creative talent
• Global brand names

• Cultural differences
• Advertising regulations can be a restriction

An event at which a politician is made available for questioning by the media

Advertisement in which a particular product specifically mentions a competitor by name for the express purpose of showing why the competitor is inferior to the product naming it

When sales of identical goods or services are transacted at different prices from the same provider

Measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price

Practice of selling a product or service at a very low price, intending to drive competitors out of the market or create barriers of entry for potential new competitors

When a pricing strategy in one market may have an impact of a rival’s pricing strategy in another market

Aggressive pricing designed to increase volume and help the firm realize experience curve economies

Laws that promote or maintain market competition by regulating anti-competitive conduct

• Providers of capital
• Political and economic ties
• Level of inflation
• Level of economic development
• National culture

• More likely to use conservative accounting practices
• Are more likely to prefer secrecy in reporting

Organization who develops generally accepted accounting principles (GAAP).

Accounting rules used to prepare, present, and report financial statements

Requires member states to achieve a particular result without dictating the means of achieving that result. Normally leave member states with a certain amount of leeway as to the exact rules to be adopted

Merge the accounts of the parent company and each subsidiary into a single set of accounting statements denominated in a single currency and using a single set of accounting principles

Method of foreign currency translation where most items in the financial statements are translated at the current exchange rate

Method of foreign currency translation that uses exchange rates based on the time assets and liabilities are acquired or incurred

• Defines the US generally accepted accounting principles for foreign currency translation
• Firms must classify their international operations as “self-sustaining” or “integral”

Relatively self-contained and operates in the local economy more or less independently of the parent firm.

Integral subsidiary is a direct extension of the parent firm’s domestic operations

Refers to the main currency used by a business or unit of a business

Used by managers to compare different investment alternatives within and across countries

Quantifies the benefits, costs and risks of an investment

Interest rate a central bank charges depository institutions that borrow reserves from it

The taking of US industry situated in a foreign country, by a foreign government

• Use a higher discount rate for higher risk locations
• Lower future cash flow estimates

• How the investment will be financed
• What will be the source of the external financing
• How should the financial structure of the foreign affiliate be configured

The right side of a firm’s balance sheet, detailing how its assets are financed, including debt and equity issues

Costs incurred in making an economic exchange, or the cost of participating in the market

Occurs when a company purchases another for its most valuable divisions with little desire for the other aspects of the business

Most common method of moving funds from foreign subsidiaries to the parent company

The price at which two unrelated and non-desperate parties would agree to a transaction. Most often an issue in the case of companies with international operations whose international subsidiaries trade with each other

Loan by a parent company to its subsidiary through a financial intermediary, usually a large international bank

The process of consolidating swap agreements between two parties into a single agreement

Offsetting of receivables and payables among three or more parties to a transaction, with each making payments to an agent or clearing house for net obligations due to others

An asset backed security or debt obligation that represents a claim on the cash flows from mortgagee loans through a process known as securitization

The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product