International Business Exam 3

Modules 5 and 6

SME (small and medium-sized enterprise)

a firm with less than 500 employees in the US, or less than 250 employees in the EU

entrepreneurship

the identification and exploitation of previously unexplored opportunities

entrepreneur

founder and/or owner of a new business or a manager of existing firms, who identifies and exploits new opportunities

international entrepreneurship

combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create wealth in organizations

the development of entrepreneurship around the globe is

uneven

what does the development of entrepreneurship depend on?

ease of registration, licensing, and incorporation for new firms

entrepreneurial resources must (V)

create value

entrepreneurial resources must (R)

be rare

entrepreneurial resources must (I)

be inimitable

entrepreneurial resources must (O)

be organizationally embedded

growth

can be viewed as an attempt to more fully use currently underutilized resources and capabilities. trying to be more efficient

innovation

owners, managers, and employees at entrepreneurial firms tend to be more innovative and risk-taking than those at large firms. constantly trying to come up with new ideas and staying ahead of any competition

venture capitalist (VC)

investor who provides risk capital for early stage ventures

microfinance

a practice to provide micro loans (US $50-$300) used to start small businesses with the intention of ultimately lifting the entrepreneurs out of poverty

born global firm (international new venture)

a start-up company that attempts to do business abroad from inception

compared with domestic transaction costs

international business costs are qualitatively higher

direct export

the sale of products made by firms in their home country to customers in other countries

letter of credit (L/C)

a financial contract that states that the importer’s bank will pay a specific sum of money to the exporter upon delivery of the merchandise

franchising

firm A’s agreement to give firm B the rights to use A’s proprietary assets for a royalty fee paid to A by B; typically done in service industries

licensing

manufacturing industry. firm A’s agreement to give firm B the rights to use firm A’s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B

FDI advantages

more commitment to serving foreign markets, better able to control how its proprietary technology is used

FDI disadvantages

requires a nontrivial sum of capital, risky, requires a significant management commitment

indirect exports

a way to reach overseas customers by exporting through domestic-based export intermediaries

export intermediary

a firm that performs an important middleman function by linking domestic sellers and foreign buyers that otherwise would not have been connected

“traits” school of thought

argues that entrepreneurs possess certain personal traits, such as a strong desire for achievement and more willing to take risks, that make them good leaders

serial entrepreneur

an entrepreneur who starts, grows, and sells several businesses throughout their career

stage model

a model of internationalization that portrays the slow step-by-step (stage-by-stage) process an SME must go through to internationalize its business

stage models suggest that firms

need to enter culturally and institutionally close markets first, spend enough time there to accumulate overseas experience, then gradually move from more primitive modes, such as exports, to more sophisticated strategies, such as FDI in distant markets

liability of foreignness

the inherent disadvantage that foreign firms experience in host countries because of their non-native status

institution-based view

suggests that firms need to take actions deemed legitimate and appropriate by the various formal and informal institutions governing market entries

resource-based view

argues that foreign firms need to deploy overwhelming resources and capabilities to offset their liability of foreignness

location-specific advantage

the benefits a firm reaps from the features specific to a place

natural resource-seeking firms

go to particular foreign location where those resources are found

market-seeking firms

go to countries that have a strong demand for their products and services

efficiency-seeking firms

often single out the most efficient locations featuring a combination of scale economies and cost factors

innovation-seeking firms

target countries and regions renowned for world-class innovations

cultural distance

the difference between two cultures along identifiable dimensions such as individualism

institutional distance

the extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries

first-mover advantages

benefits that accrue to firms that enter the market first and that late entrants do not enjoy

late-mover advantages

benefits that accrue to firms that enter the market later and that early entrants do not enjoy

scale of entry

the amount of resources committed to entering a foreign market

benefits of large-scale entry

a demonstration of strategic commitment to certain markets, which helps assure local customers and suppliers and deters potential entrants

drawbacks of large-scale entry

limited strategic flexibility elsewhere and huge losses if these large-scale “bets” turn out to be wrong

benefits of small-scale entry

less costly

drawbacks of small-scale entry

lack of strong commitment, which may lead to difficulties in building market share and in capturing first-mover advantages

mode of entry

method used to enter a foreign market

non-equity mode

mode of entry (exports and contractual agreements) that reflects relatively smaller commitments to overseas markets

equity mode

mode of entry (joint ventures and wholly owned subsidiaries) that indicates a relatively larger, harder-to-reverse commitment

turnkey project

clients pay contractors to design and construct new facilities and train personnel

build-operate-transfer (BOT) agreement

a nonequity mode of entry used to build a longer term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm

research and development (R&D) contract

an outsourcing agreement in R&D between firms

co-marketing

efforts among a number of firms to jointly market their products and services

joint venture (JV)

a new corporate entity created and jointly owned by 2 or more parent companies

wholly owned subsidiary (WOS)

a subsidiary located in a foreign country that is entirely owned by the parent multinational

greenfield operation

building factories and offices from scratch (on a proverbial piece of “greenfield” formerly used for agricultural purposes)

contrasting view of liability of foreignness

argues that under certain circumstances, being foreign can be an asset (comparative advantage)

country-of-origin effect

the positive or negative perceptions of firms and products from a certain country

the majority of the largest MNEs

are not necessarily very “global” in their geographic scope

the OLI framework is based on

the experience of MNEs headquartered in developed economies that typically possess high-caliber technology and management know-how

many emerging multinationals do not own world-class technology or management capabilities and thus

do not conform to the OLI framework

LLL

linking with local partners, leveraging resources and knowledge across borders, and learning to adapt to local environments

LLL advantages

a firm’s quest of linkage, leverage, and learning advantages. these are typically associated with multinationals from emerging economies

competitive dynamics

actions and responses undertaken by competing firms

competitor analysis

the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response

collusion

collective attempts between competing firms to reduce competition

tacit collusion

firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels

explicit collusion

firms directly negotiate output and pricing and divide markets

cartel (trust)

an output-fixing and price-fixing entity involving multiple competitors

antitrust law

law that makes cartels (trusts) illegal

game theory

a theory that studies the interactions between two parties that compete and/or cooperate with each other

prisoners’ dilemma

in game theory, a type of game in which the outcome depends on two parties deciding whether to cooperate or to defect

concentration ratio

the percentage of total industry sales accounted for by the top 4, 8, or 20 firms

price leader

a firm that has a dominant market share and sets “acceptable” prices and margins in the industry

capacity to punish

sufficient resources possessed by a price leader to deter and combat defection

market commonality

the overlap between two rivals’ markets

multimarket competition

firms engage the same rivals in multiple markets

mutual forebearance

multimarket firms respect their rivals’ spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion

cross-market retaliation

retaliatory attacks on a competitor’s other markets if this competitor attacks a firm’s original market

competition policy

government policy governing the rules of the game in competition

antitrust policy

government policy designed to combat monopolies and cartels

collusive price setting

price setting by monopolists or collusion parties at a level higher than the competitive level

predatory pricing

an attempt to monopolize a market by setting prices below cost and intending to raise prices to cover losses in the long run after eliminating rivals

dumping

an exporter selling goods below cost

antidumping law

law that makes it illegal for an exporter to sell goods below cost abroad with the intent to raise prices after eliminating local rivals

resource similarity

the extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm

attack

an initial set of actions to gain competitive advantage

counterattack

a set of actions in response to attack

blue ocean strategy

strategy that focuses on developing new markets (”blue ocean”) and avoids attacking core markets defended by rivals, which is likely to result in a bloody price war (”red ocean”)

defender strategy

centers on local assets in areas in which MNEs are weak

extender strategy

centers on leveraging homegrown competencies abroad

dodger strategy

centers on cooperating through joint ventures with MNEs and sell-offs to MNEs

contender strategy

centers on a firm engaging in rapid learning and then expanding overseas

those that are in support of legalizing “dumping” argue that

competition can be fostered, aggressiveness rewarded, consumer welfare enhanced

antitrust laws were often created

in response to the old realities of mostly domestic competition and does not take into account global competition

strategic alliance

a voluntary agreement of cooperation between firms

contractual (nonequity) alliance

alliance between firms that is based on contracts and does not involve the sharing of ownership

equity-based alliance

alliance based on ownership or financial interest between firms

strategic involvement

one firm investing in another as a strategic investor

cross-shareholding

both firms investing in each other to become cross-shareholders

acquisition

a transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter