Summary International Business

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ISBN-10 1408019566 ISBN-13 9781408019566
289 Flashcards & Notes
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This is the summary of the book "International Business". The author(s) of the book is/are Mike W Peng, Klaus E Meyer. The ISBN of the book is 9781408019566 or 1408019566. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

Summary - International Business

  • 1.1 ib

  • Define the concepts of IB
    is defined as a business that engages in international economic activities
  • explain how value is created from a firms resources and capabilities
    value is created through value adding activities, and getting rid of non-value- adding resources and capabilities
  • explain the differences between outsourcing and inhouse production
    Outsourcing: defined as turning an organzational activity to an outside supplier which will preform this on their behalf
    In- house production: doing this activity in house

    Through evaluation of the SWOT framework, firms decide if its better to outsource or do it in house, also known as benchmarking

    types of outsourcing
    -captive sourcing- setting up subsidiaries abroad (in house but foreign location)
    - offshoring- foreign outsourcing
    - inshoring- outsourcing domestically


    Advantages of outsourcing:
    low cost, high quality
    can focus on core activities
    Provides income for domestic and foreign firm 

    Disadvantages of outsourcing:
    What is left of the firm?
    critics argue it nurtures rivals
    Developed countries- experiences job losses 











  • explain how resources and capabilities can be analyzed using the VRIO framework
    focuses on VALUE, rarity, inimitability,organzational

    value- can lead to competitive advantage
    rarity- potential to provide temporary competitive advantage
    imitability- can lead to competitive advantage
    organzational- sustained competitive advantage
      
  • explain how formal institutions affect domestic and international competition
    Domestically: focuses on antitrust
    - Designed to combat monopolies and cartels
      antitrust policies seek to balance efficiency and fairness
    through- collusive price setting- price setting above competitive levels
    and predatory price setting- lowering prices below costs and raising after competition is wiped out

    International competition: focus on antidumping
    focuses on antidumping laws to prevent foreign companies to sell products below their costs to wipe out domestic firms 

    Often foreign firms are discriminated against- with the help of their government


    in america the antitrust policy is pro-consumer and pro-competition
    In japan the exact opposite  pro producer and pro- incumbent 
  • explain how resources and capabilities affect competitive dynamics
    value- Their attacks and counter attacks must create value, such as the ability to respond to rapid changes, or to attack in multiple markets
    another way is patenting this could offset opponents once used this patented product

    Rarity- by nature or nurture, certain assets are rare and generate large advantages, such as oil

    imitability- the ability to imitate successful rivals, Fast moving rivals preform better the slow ones dont make it

    Orgazation- 

    Resource similarity- firms with high resource similarity are likely to have similar actions, 

    high market comonality, low resource similarity= lowest intensity 
    high market commonality, high resource similarity= second lowest
    low market commonality, low resource similarity= second highest rivalry
    low market, high resource= high rivalry
  • how local firms compete with MNES
    Defender- strategy which focuses on local assets in which MNEs are weak
    Extender- strategy which focuses on leveraging homegrown competencies abroad
    dodger- cooperating though JOINT ventures
    contender- stratergy that centers on a firm engaging in rapid learning
  • use the resource-based view and the institutional trade view to show why nations trade
    Nations trade by importing and exporting, this is only done when it benefits both sides and therefore is a win/win situation for both parties

    resource based view- a nations must have a strong VRIO framework which makes this product, valueable, rare, hard to imitate and organizationally embedded which others nations dont have and therefore it has to be imported

    institutional based view- governments might help facilitate trade through the WTO, 
    however it can also limit the trade to protect domestic firms and infant industries, this can be achieved through tarrif barriers, and non tarrif barriers such as quotas
  • explain the classical and modern theories of trade
    Classical-
    mercantilism
    - theory that suggests that the worlds wealth is fixed and you can become richer through trade

    absolute advantage
    -a nation gains by specializing in economic activities in which a nation has an absolute advantage, the economic advantage one nation enjoys that is absolutely superior to other nations

    comparative advantage
    - a theory that focuses on the relative advantage in one economic activity that one nation enjoys in comparison with other nations2

    modern
    product life cycle
    - first dynamic theory to account for changes in patterns of trade
    new, maturing and standardized
    new- the first stage, demands a price premium and is exported to other developed nations
    maturing- demand and ability to produce and grow in other developed nations, worthwhile to produce there
    standardized- much production will move to low cost developing nations whom will export to the developed ones

    strategic trade
    - a theory that through government interventions by things such as subsidies and other supports, domestic firms can increase their odds of international success

    national competitive advantage of industries
    - diamond theory 
    focuses on countries factor endowments - resources
    focuses on domestic demand conditions- if domestic demand conditions are high the ability to meet international demand becomes easier
    focuses on firms structure, strategy and rivalry since this gives them good competition and makes them more able to survive
    focuses on supporting industries- if there is supporting industries they are more easility able to produce their products efficiently and with lowest cost


  • list the factors that influence the foreign exchange rate
    foreign exchange rate- price of a currency in terms of another

    - relative price differences PPP
    - interest rate & money supply
    - productivity & balance of payments
    - exchange rate policies
    - investor psychology
  • list the strategic responses firms take to respond to changes in the exchange rate
    financial exchange markets- similar to stock markets, however dealing with currencies. largerst and most active market in the world
    stratergies- forward currency swaps, to sell and buy currencies now for future delivery, to protect investors and traders from fluctuations in the exchange rates
    forward discount- once the forward rate is higher than the spot rate
    forward premium- once the forward rate is lower than the spot rate
    how banks make money, differences in offer rate and bid rate

    non financial firms- can experience currency risks- (potential risk for loss associated with fluctuations in the exchange rate) 
    1. currency hedging- buying at current exchange rate for future delivery, could potentially be benefitial or create losses
    2. strategic hedging- spreading out activities in different currency areas to make up for losses in one region by gains in another

    overall the importance of the exchange rate cant be overstressed, great profits and performance could be damanged by the exchange rates
  • define key terms associated with FDI
    The key word in foreign direct investment is direct. FDI provides management control rights

    horizontal FDI- duplicating its home based activities at the same value chain abroad
    Vertical FDI- a type of FDI where it moves upstream or downstream at different stages of the value chain abroad

    FDI flow- is the amount of FDI moving in a given year, could be inflow or outflow. FDI stock - is the accumulated FDI inflow or outflow  
  • explain how FDI creates OLI advantages
    FDI undoubtedly creates economic gains if the costs outweigh its outcome

    ownership- refers to MNES possession of centran VRIO properties overseas. owning these help MNE beat rivals overseas

    location- the advantages when doing business in different places. this location could provide natural and labor resources and closer access to markets which helps build on the VRIO framework.

    Internationalization- replacing cross-boarder markets, with one firm operating in two countries. this reduces transaction costs
  • Benefits of ownership, location and internationalization
    ownership- provides management control rights, reduces the risk of knowledge being taken advantage of- dissemilation risk- knowledge being spilt over.

    Location- agglomeration- clustering of similar firms in a certain location
    provides knowledge spillover- how to's and information from other firms
    creates a skilled labor force who could possible work for multiple similar firms
    creates a pool of specialized suppliers and buyings whom locate in this region

    Internationalization- reduces transaction costs and reduces uncertainty
  • distinguish between different political views of FDI
    radical view- a political view that is hostile to FDI, as it exploits domestic resources and labor

    Free market view on FDI- FDI is at its best with no government intervention, as it allows countries to tap into the absolute or comparative advantages

    pragmatic nationalism on FDI- only approves of FDI when its benefits outweigh its costs

    benefits of FDI for host countries:
    -capital inflow
    -technology
    -managment
    -job creation

    Costs of FDI for host countries:
    -loss of sovereignty
    -competition for local firms
    -capital outflow, profits wont go to them
  • discuss how resources and institutions can help overcome the liability of foreigners 
    Liability of foreigners- the inherit disadvantage foreign firms experience when doing business a host country

    1. there are numerous differences between formal and informal institutions in different countries, to overcome the liability of foreigners, firms have to be well prepared and learn about these differences
    2. foreign firms often are discriminated against, and due to differences in cultures values and norms they can experience the liability of foreingers
    this can be balanced by deploying overwhelming resources and capabilities to off set this liability

    What to do, be well prepared and have knowledge about informal and formal instit
  • discuss advantages and disadvantages of modes of entry
    modes of entry- method used to enter a foreign market

    non equity mode- a mode of entry that tent to reflect relatively smaller commitments to overseas markets - exports, indirect exports, contractual agreements etc. 

    equity mode- a mode of entry (joint ventures and wholly owned subsidaries) that indicates relatively larger commitments, which is also more difficult. 

    advantages of non equity- 
    lower risk, can focus on core, easier to set up
    disadvantages of non equity 
    less control, inability to learn of others, lack of long term precense, may help other companies with your knowledge

    advantages of equity-
    sharing of costs, risks, access to partners assets, politically acceptable, lots of control, 

    disadvantages of equity-
    different goals and interest of partners, difficult to coordinate, high costs, 


  • compare and contrast first mover, versus later movers
    First mover- advantages
    -proprietary technology
    -ride the learning curve
    -get the scarce resources
    -creates entry barriers of later movers
    -may build good relationships with stakeholders

    late mover advantages
    -opportunity of the free ride
    -less technological and market uncertainty
    -can adapt to first movers bad sides.
  • discuss characteristics of an entrepreneurial firm
    a firm that is, innovative, proactive, risk-seeking behavior, low success rate. 

    value- their innovations must add value
    rare- best performing entrepreneurial firms tend to have the best, rarest and insights of opportunities
     inimitable- difficult to imitate
    organizational- must be organizationally embedded

     
  • how are alliance formed, preform and dissolve?
    alliances can be formed by stratergically deciding that exchanging, sharing or co-developing products benefits both parties.

    formed- in stage one they have to decide of growth can be achieved through alliances
    stage two- decide whether to use contractual or equity approaches. 

    perform- 
    see if performance enhanced through the VRIO framework analysis

    equity- a greater equity at stake, higher level of commitment, likely higher performance

    learning by doing- whether firms have successfully learned from their partners is an good indicative of performance

    nationality- alliances where firms have similar backgrounds are more stable, international alliances experience more problems compared to domestic alliances

    relational capabilities- the art of relational capabilities, which are firm specific and difficult to codify and transfer make or break alliances.


    how alliances dissolve 
    similar to a divorces. the firm who enters a file for dissolution is the initiator which then is followed by divorce  
  • explain why firms undertake acquisitions?
    acquisitions- transfer of control of operations and management from one firm to another. 

    motives for acquisitions
    -synergistic- have superior capabilities and resources- leverage superior managerial capabilities, enhances market power and scale economies, access to complementary resources
    humbristic- overconfidence in managers ability to manage a firm better than themselves
    managerial motives- self interest action 
  • explain why acquisitions often fail
    because managers often fail to address pre and post acquisition problems
  • explain how institutions and resources influence acquisitions and alliances
    formal institutions- formal legal and regulatory frameworks- can be shown through anti-trust concerns and entry mode requirements

    antitrust concerns- are more likely to approve of alliances compared to acquisitions 

    entry mode requirements- they can simply ban or discourage asquisitions which therefore forcefully creating alliances with local firms

    informal institutions- cognitive pillar, the taken for granted values and beliefs that guide firms behavior
    and the collective norms and actions, firms might follow and copy other firms to protect theirs. even without direct knowledge of how this will benefit their company- bandwagon effect. 
  • discuss the relationship between MNE strategy and structure
    integration-responsiveness framework centered on cost reduction and local responsiveness. 
    international competition is a unique pressure of local responsiveness which can be defined as reacting to different consumer preferences and host country demands. however adapting to host country's demands also increase the costs which causes firms to often downplay local responsiveness.

    four strategic choices for MNEs
    home replication- leverages home country-based advantages, relatively easy to implement, however lack of local responsiveness, may result in foreign customer alienation

    localization- maximizes local responsiveness, however increased costs and local autonomy

    Global standardization- leverages low costs advantages, lack of responsiveness, too much centralized control

    Transnational- cost efficient while being locally responsive, engages in global learning and diffusion of innovations, however organizationally complex and difficult to implement


    four organizational structures
    international division- an organizational structure that is typically set up when firms initially expand abroad, often engaging home replication strategy

    geographic area structure- an organizational structure that organizes the MNE according to different geographical areas (countries or regions)

    global product division structure- an organizational structure that assigns global responsibilities to each product division

    global matrix- an organizational structure often used to alleviate the disadvantages associated with both geographic area and global product area and global product division structure, especially for MNEs adopting a transnational stratergy 


  • explain how institutions and resources affect strategy, structure and learning
    formal institutions- several institutional frameworks to guide firm behavior
    - they often encourage undertaking activities which would not otherwise take place. can use tax incentives and free infrastructure upgrades to attract MNEs to invest in higher value adding activities. 
  • describe the four p's
    the 4 p's that collectively make up the marketing mix

    product-  the product or service, including follow ups and maintenance

    price- the expenditures customers are willing to pay for a product. 

    promotion- refers to all communications that marketers insert into a market place. in international marketing, country of origin effect is the positive or negative perception of firms and products of a certain country

    place- the location where products and services are provided, supported by the distribution channel, that facilitates the movement of goods from producers to consumers. 
  • discuss the the A's of the supply chain management.
    agility- the ability to react quickly to unexpected shifts in supply and demand. for example the ability to adjust the supply chain to either quickly create new demanding products (zara) or to react quickly to a fall in supply caused by a storm, by changing supplies as shown by Nokia, which also lead to erricson missing out

    Adaptability- refers to the ability to change the supply chain configurations in response to longer-term changes in the environment and technology. this is done by continuously monitoring geopolitical, social and technological changes to decide whether to make-or-buy with the lowest cost, highest quality and greatest efficiency.

    alignment- refers to the alignment of various interests of the different players of a supply chain, firms must coordinate together to make the supply chain work. efficiently and to each others profit maximizing point. 
    two ways to achieve this goal power and trust, bigger firms exercise greater power. Trust is also important since all firms have to be well in line with each other, to reassure trust, late suppliers could be penalized 
  • discuss how resources and institutions affect the supply chain management and marketing
    formal rules- formal rules can be implemented to restict or ban advertisements on taboo subjects, or to negatively advertise other products

    informal rules- the guiding principles of cultures, norms and ethics to guide marketing stratergies
    and it is also the norm for many firms to outsource to asia, to tap into low costs

    resources-
    value-does the activity add value?
    rarity- doing similar to others can add value, however exploying different options can also
    imitable- they have to be careful of other companies follow their path, 
    organizationally- is the firm capable organizationally to do these activites?
  • compare and contrast various ownership patterns around the word
    owners provide capital, bear risks, and own the firm

    concentrated and diffused ownership- those whom start up the business own the business and this is known as concentrated ownership and control.
    however to raise capital the needs to be different shareholders which buy shares of the business, this is known as diffused ownership, this reduced risks, in UK and the US, small firms are not closely monitored by shareholders and only are there to ride the free ride. 

    family ownership- large firms in europe, asia latin america and africa feature family ownership. this provides better incentives to perform in the longrun, also minimizes conflict, however this could lead to less qualified managers, destruction of value due to family conflicts, and minimal capital raised by other shareholders

    state ownership- ownership of where the government owns, since everything is owned by the government and they don't receive dividends, there is little motivation for managers to preform better 
  • explain the principal-agent conflicts and the principle-principle conflicts
    the relationship between shareholders and managers, also known as principal (owners) and agent (managers) this conflict is because the interest of both parties dont overlap. in coorporate world principals will focus on maximixing profits where as agents will want to maximize their income, power and perks


    principal-principal

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Example questions in this summary

Define the concepts of IB
1
explain how value is created from a firms resources and capabilities
1
explain the differences between outsourcing and inhouse production
1
explain how resources and capabilities can be analyzed using the VRIO framework
1
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