IB: Chapter 13 – Flashcards

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Acquistion
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If a firm is seeking to enter a market via a wholly owned subsidiary where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence
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Absence of prior foreign entrants
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A risk of entering developing nations like India and China on a large scale
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Patents
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in terms of licensing; is an intangible property
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Exporting
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A product that is not widely available in a foreign market and satisfies an unmet need
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First-mover disadvantages
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associated with entering a foreign market before other international businesses
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Wholly Owned Subsidiaries
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entry modes into a foreign market best serves a high-tech firms
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International firms considering foreign expansion
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the difficulty of building market shares and capturing first-mover advantages
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Turnkey Project
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Exporting process technology to other countries
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Licensing is NOT attractive to
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firms requiring tight control of operations for realizing experience curve and location economics
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In exporting, problems with local marketing agents can be overcome by
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Setting up wholly owned subsidiaries in foreign nations to handle local marketing
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An early entrant may find itself at a disadvantage if it:
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is entering a foreign market before other international businesses
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Setting up wholly owned marketing subsidiaries
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gives a firm tight control for coordinating a globally dispersed value chain
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Advantage of acquisitions as a means of entering foreign markets
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they are quick to execute and help firms to rapidly build their presence in the target foreign market
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How can firms avoid incurring high transport costs when exporting bulk products
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by manufacturing bulk products regionally
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The attractiveness of a country as a potential market for an international business
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depends solely on the size of its consumer market
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Acquisitions Fail
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because there is a clash between the cultures of the acquiring and acquired firm
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If an international firm's core competence is based on proprietary technology
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entering a joint venture might risk losing control of that technology to the joint-venture partner
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Acquiring firms
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often overpay for the assets of the acquired firms
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In international business, joint ventures
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when firms can use cross-licensing agreements or link the agreement with the decision
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Firms pursuing global standardization or transnational strategies
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tend to prefer setting up wholly owned marketing subsidiaries
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Turnkey Deal/ Project Disadvantages
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-no long-term interest in the country -can create a competitor -process technology is a source of competitive advantage
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Advantages of Turnkey Deal/Project
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-allow firms to earn great economic returns from the know-how required to assemble and run a technologically complex process -less risky in countries where the political and economic environment is such that a longer-term investment might expose the firm to unacceptable political and/or economic risk
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Under a cross-licensing agreement
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companies can reduce this risk by linking the agreement with the decision to form a joint venture
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Franchising
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as a mode of entry into foreign markets is employed primarily by service firms
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When an international firm makes an acquisition in a foreign market,
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it acquires valuable intangible as well as tangible assets
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The most typical joint venture is
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a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control.
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Licensing
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increases the risk of losing control over a firm's proprietary technological know-how.
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A firm contemplating expansion should
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choose a foreign market based on an assessment of the nation's long-run profit potential
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Shared ownership agreements can
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lead to conflicts and battles for control between investing firms.
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A drawback of exporting is that
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tariff barriers can make it uneconomical as a mode of entry into a foreign market
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Disadvantage of Greenfield Ventures
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it is slower to establish than acquistions
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A reason why firms often overpay for the assets of an acquired firm
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The price of the target firm can get bid up if more than one firm is interested in
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Wholly Owned Subsidiary
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Jupiter Systems is a high-tech firm looking to set up operations in a foreign country. The firm's core competency is in technological know-how. Which of the following modes of entry would be most favorable to the firm if it wants to keep a tight control over its technology
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Rapid Economic Growth
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is a reason why a relatively poor country may be an attractive target for inward investment
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The risks associated with learning to do business in a new culture are less if the firm
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acquires an established host-country enterprise
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High costs and risks
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is a disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets
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Turnkey Project
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A firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational
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Small-Scale Entry
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allows a firm to learn about the foreign market while limiting the firm's exposure to that market
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Favorable benefit-cost-risk trade off scenario for foreign expansion
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a country with a free market
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The liability associated with foreign expansion is greater for foreign firms that:
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enter a national market early
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Disadvantage of large-scale entry into a foreign market
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availability of fewer resources to support expansion in other desirable markets
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Factors determines the value that an international business can create in a foreign market
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Nature of indigenous competition
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Biotechnology
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is an industry in which cross-licensing agreements are increasingly becoming common
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An international firm that perceives its technological advantage to be transitory
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and susceptible to rapid imitation might want to license its technology to foreign firms
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If an international firm's core competence is based on proprietary technology,
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entering a joint venture might risk losing control of that technology to the joint-venture partner
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