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Global CH 8
Terms in this set (28)
the potential financial loss that entrepreneurs are willing to take in a business
a relatively low-risk business operation that involves penetrating foreign markets (by exporting) or importing merchandise (of all kinds) at competitive prices for domestic consumption
the practice in which a company or individual provides the foreign partner with the technology (patented technology, copyright, process, trademark, etc.) to manufacture and sell products or services in a target country for an annual license fee
the practice in which the parent firm is obligated to provide specialized equipment and/or service (e.g., product specification and adaptation, pricing, promotion, and distribution strategies), and sometimes to fund some startup costs, to franchisees in return for an annual fee
an agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time- Airlines
international joint venture
a business that is jointly owned and operated by two or more firms (usually one from the host country and the other from another country) that pool their resources (labor, capital, technology, and management) to penetrate host country markets, generate and split profits, and share commercial risk- Coca Cola
purchase of established firms abroad with the goal of using the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm's global strategy
new facilities built and operated overseas that require large investment of capital because these new establishments are tailored to the exact needs of the home country firm
Multinational enterprises (MNEs)
firms that are headquartered in one country, but own and control manufacturing, services, R&D (research and development) facilities, or other business entities on foreign soil
Entering High-Growth Markets
will witness rising per-capita income and a growing middle class with high demand for goods and services.
Entering Stable, High-Income Markets
economic growth rates in these stable economies may be low- United States, Japan, and Canada, as well as regions such as the European Union
Entering Countries with Monopolistic Market Structures
Market structure refers to the degree of competition in specific industries within a country, cases where there are few players in a particular industry in a country
Entering Trade Restricted Sectors
trade barriers like tariffs, quotas, and subsidies lead to decreased competition from abroad, and raise prices and profits of domestic firms. over time will often lead to lesser-quality domestic products and services
Cost Minimizing Strategies
MNEs go abroad is to minimize costs. domestic market for a product is highly competitive, then the MNE may not make much profit
Economies of Scale in Production
as a firm continues to increase output, the average cost per unit will decrease until it reaches an optimum level because the firm will be using its fixed assets (plant and machinery) most efficiently
Minimizing Factor Input Cost
unit cost of factors of production (i.e., land, labor, capital, and technology) vary from country to country because of factor endowments and productivity. A country such as Brazil is rich in agricultural and mineral resources and also has relatively inexpensive productive labor.
Risk Minimizing Strategies
MNEs to maximize profits apart from maximizing revenues and minimizing costs is to minimize risk. A key approach to minimizing risk is through diversification abroad
establish operations abroad is to diversify and minimize risk so that global corporate cash flows and earnings will be relatively stable. "all their eggs in the domestic basket."
Correlation of Returns
If the correlation coefficient is one or close to one, the international project's returns are very highly correlated to those of the domestic project. This implies that risk is not diversified, and one might as well invest or expand domestically
Product Life Cycle Theory
explains what happens to a product's revenue and profits at the different stages-introduction, growth, maturity, and decline—before the product is discontinued
Dunning's three key economic "advantages"
(1)ownership advantages or firm-specific advantages;
(2) location advantages or country-specific advantages; and
Ownership, or firm-specific, advantages
internal to the firm that can be transferred at a very low cost within a MNE regardless of location: brand name, trademark, or patent; supply chain and production process; entrepreneurial and management skills; and financial strength.
Locational, or country-specific, advantages
economic, political, and social systems of a particular country
mode of entry abroad, ie. he only way it can operate abroad will be through full control of its foreign operations
Benefits of Foreign Direct Investment
significant financial inflows, FDI creates new jobs, allows access to new technologies, and facilitates transfer of important management (and employee) skills; it also increases domestic competition and choice. In addition, FDI generates tax revenues (corporate, income, and sales taxes) needed for government services, reduces poverty, and accelerates economic development.
Costs of Foreign Direct Investment
FDI has tremendous positive effects on countries as indicated above, developing countries in particular are concerned that they may become exploited by MNEs. Some host countries are concerned that in the rush to exploit natural resources, foreign MNEs may sacrifice the environmental quality, health, and social fabric of host countries. lack of corporate social responsibility. host countries have also been concerned about political interference by MNEs in their country's affairs when things do not go the way the foreign company wants
Improving Host Country's Investment Climate
good investment climate is one in which government policies enable firms (domestic and MNEs) and entrepreneurs to invest profitably, create jobs, contribute to economic growth, and reduce poverty.
describes how countries exercise authority and how efficiently they deliver basic infrastructure services like water, sanitation, roads, electricity, security, and the like for public as well as private firms
THIS SET IS OFTEN IN FOLDERS WITH...
Global CH 9
Chapter 5 Global Business
WGU Global Business CHp 10
Global Ch 1
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