GEB Capter 7

What are the five general modes of entry into foreign markets?

Exporting, licensing, franchising, establishing a subsidiary through acquisition or greenfield development, and strategic alliances or joint ventures with foreign companies.

What is exporting?

Producing goods in the company's home country and selling them in foreign markets.

What is licensing?

Allowing a foreign firm to produce or distribute products using the licensing company's intellectual property or other authorized assets.

What is franchising?

Allowing another party to operate a business using the company's business model and brand under an agreement. The study guide notes that franchising involves local ownership.

What is a subsidiary?

A business entity established in a foreign market by the parent company through acquisition or by building a new operation.

What is a greenfield venture?

A subsidiary established by building the entire operation from the ground up.

What is the key characteristic of a greenfield venture?

The company creates a wholly owned subsidiary rather than acquiring an existing local business or operating through partners.

What is the difference between a greenfield venture and an acquisition?

A greenfield venture builds a new operation from scratch, while an acquisition involves purchasing an existing business.

What is a strategic alliance?

A cooperative arrangement between companies from different countries to pursue shared business objectives.

What is a joint venture?

A business arrangement in which two or more parties establish or jointly own a venture, often sharing resources, investment, risks, and rewards.

True or false

A profit sanctuary is one of the five general modes of entry into foreign markets.

Scenario

A company builds a new foreign factory from scratch and retains complete ownership. Which entry mode is this?

What is a global strategy?

A strategy in which a company strives to build global brands, sell the same products worldwide, and use consistent competitive capabilities and marketing approaches across countries.

What does Think-Global, Act-Global mean?

The company develops and coordinates its competitive approach globally, emphasizing standardized products and worldwide consistency.

What role does headquarters play in a global strategy?

Headquarters exercises strong control and coordinates activities worldwide.

What does a global strategy generally avoid regarding local brands?

It avoids using separate local brand names to cater to the specific needs of individual countries.

What is a transnational strategy?

A strategy that combines global coordination with local adaptation, allowing a company to maintain a global presence while responding to different local markets.

What is another term for a transnational strategy?

Glocalization.

What does Think-Global, Act-Local mean?

The company maintains a global perspective but adapts certain products or activities to local markets and customer preferences.

What is a key advantage of a transnational strategy?

It is more conducive to transferring and leveraging subsidiary skills and capabilities across national borders.

What company is used as an example of a transnational strategy in the study guide?

Electronic Arts (EA).

How does Electronic Arts illustrate a transnational strategy?

EA distributes design studios across locations such as Tokyo and London, enabling it to create games suited to different cultures while maintaining a global presence.

A company sells the same products worldwide, uses consistent marketing, and maintains strong headquarters control. Which strategy is it using?

Global strategy.

A video game company has studios in different countries that adapt games to local cultures while maintaining a global presence. Which strategy is it using?

Transnational strategy.

What is the main difference between a global and a transnational strategy?

A global strategy emphasizes standardized products and worldwide coordination. A transnational strategy combines global coordination with local adaptation and facilitates the transfer of capabilities across borders.

What are the five reasons companies expand internationally listed in the study guide?

Capture economies of scale; lower input costs through pooled purchasing power; accelerate the learning curve; acquire resources or capabilities unavailable at home; and reach sufficient volume to achieve economies of scale when domestic volume is insufficient.

What are economies of scale?

Cost advantages that occur when a company increases the scale of its operations, allowing costs per unit to decrease.

Why might a company need to enter foreign markets to achieve economies of scale?

Its domestic market may not provide enough sales volume to support the most efficient scale of production, product development, or marketing.

How can international expansion lower input costs?

A company can pool its purchasing power across markets and potentially negotiate better prices for materials and other inputs.

What does it mean to accelerate the learning curve?

To gain experience and improve knowledge, skills, and operating efficiency more quickly through international activities.

Why might a company seek resources or capabilities abroad?

Certain resources, technologies, specialized personnel, or capabilities may be unavailable or less accessible in its home country.

True or false

Companies expand internationally to decrease the rate at which they learn.

True or false

Concentrating risk is listed as a reason companies expand internationally.

What does it mean to concentrate value-chain activities?

To locate particular business activities in a limited number of locations rather than spreading them across many countries or regions.

When is it advantageous to concentrate activities in one location?

When a location offers superior technological resources, specialized personnel, or greater headquarters oversight.

What example does the study guide give of concentrating activities?

Locating a robotic factory in Germany to benefit from technological resources, specialized personnel, or stronger oversight.

When is it useful to disperse value-chain activities across locations?

When doing so shortens delivery times to customers or helps hedge against risks such as exchange-rate fluctuations.

What is the relationship between centralized activities and just-in-time inventory practices?

Centralizing or concentrating activities is generally preferred to foster just-in-time inventory practices.

True or false

Dispersing activities is generally preferred over centralizing them to support just-in-time inventory practices.

A manufacturer establishes a factory in Germany because of advanced robotics technology and specialized engineering workers. Should the company concentrate or disperse this activity, and why?

Concentrate the activity because the location offers technological and personnel advantages that support efficient operations.

A company distributes its operations across several locations to shorten delivery times and reduce exposure to exchange-rate fluctuations. Is it concentrating or dispersing activities?

Dispersing activities. The company uses multiple locations to improve delivery speed and hedge against certain risks.

What five factors make international strategy more complex?

Different home-country advantages; location-based value-chain advantages; differences in government policies and economic conditions; currency exchange-rate risks; and differences in buyer tastes and preferences.

Why do differences in home-country advantages matter?

Countries offer different advantages that can influence where and how a company competes internationally.

Why do location-based value-chain advantages matter?

Certain locations may be better suited for particular activities because of their technology, personnel, resources, or other operating advantages.

Why are exchange rates a concern for international businesses?

Exchange rates can change, affecting the costs, revenues, and profitability of cross-border transactions.

Why must companies consider differences in buyer tastes and preferences?

Customers in different countries may want different products, features, or experiences, influencing product and marketing decisions.

What are political risks?

Risks arising from instability or weakness in national governments and hostility toward foreign businesses.

What are economic risks?

Risks arising from the stability of a country's monetary system, its economic and regulatory policies, and inadequate protection of property rights.

What is the key difference between political and economic risks?

Political risks focus on government instability or hostility toward foreign businesses. Economic risks focus on monetary stability, economic and regulatory policies, and property-rights protections.

A foreign company operates in a country where the government is unstable and officials are hostile toward foreign-owned businesses. What type of risk is this?

Political risk.

A company enters a country with an unstable monetary system and inadequate protection of property rights. What type of risk is this?

Economic risk.

Which is an example of political risk

fluctuating currency exchange rates, government hostility toward foreign businesses, lack of property-rights protections, or monetary instability?

Which is specifically identified as a source of economic risk

strong headquarters control, local product customization, lack of property-rights protections, or a wholly owned subsidiary?

What is dumping?

Selling goods in foreign markets at prices either well below their home-market prices or well below their full cost per unit.

What role does the World Trade Organization (WTO) play regarding dumping?

It actively polices dumping and promotes fair trade.

Does the WTO set countries' tariff rates, according to the study guide?

No. The study guide specifically states that the WTO does not set countries' tariff rates.

What is a profit sanctuary?

A country market or region where a company derives substantial profits because of a strong or protected market position.

Why is a profit sanctuary not a mode of entry into a foreign market?

It describes where a company generates substantial profits, not the method it uses to enter a foreign market.

What is cross-border transfer of core competencies, and why is it useful?

It involves transferring a company's core competencies from one country to another. It can be a cost-effective way to build competitive advantage, leverage existing strengths, and develop broader or deeper capabilities.

A company sells its product in a foreign country at a price well below both its home-market price and its full cost per unit. What is this practice called, and which organization polices it?

Dumping. The World Trade Organization (WTO) polices dumping and promotes fair trade.