ib chapter 6

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kelc0104
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ib chapter 6
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2015-03-24 21:03:08
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ib chapter 6
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  1. Identify the four entry modes used by international companies in entering new markets.
    exporting, licensing/franchising, joint ventures, and wholly/fully owned subsidiaries.
  2. What are some of the advantages (at least 2) and disadvantages (at least 2) of exporting?
    • PROS: small and large companies to tap into a new market with minimal time and effort with minimal risk
    • CONS: higher transportation costs and logistical costs
  3. Why and when do international companies use joint ventures?
    (1) when the market potential is high and at the same time (2) their own market knowledge is limited, when it wants to (3) limit its financial exposure, (4) to avail of incentives provided by host governments that encourage joint ventures, and to (5) comply with host country laws that restrict wholly owned subsidiaries
  4. M & A
    a foreign company acquires a local company that will shorten the set up time and have it operational very quickly and, hence, beat out competitors who might choose other modes of entry
  5. Greenfield
    the establishment of a wholly new operation in a foreign country. It is good to begin with a fresh start and can mold the firm into the type it wants.
  6. Compare the four entry modes. Which is the best?
    šIf an international company has limited capital and not sure of the market potential, then it is better for the company to use exports or licensing/franchising. On the other hand, capital is not an issue and the market potential is high, it is better for an international company to enter into a joint venture arrangement or set up a wholly owned subsidiary. The best depends.
  7. List and define six main instruments of trade policy (L)
    Tariffs, subsides, Import Quotas, (Voluntary Export Restraints), šLocal Content Requirements, Administrative Polices, Antidumping Policies
  8. specific tariffs
    šlevied as a fixed charge for each unit of a good imported
  9. Ad valorem tariffs
    šlevied as a proportion of the value of the imported good
  10. tariffs
    taxes levied on imports that effectively raise the cost of imported products relative to domestic products, proproducer and anticonsumer
  11. Subsidies
    šgovernment payments to domestic producers, šConsumers typically absorb the costs of subsidies
  12. šImport quotas
    directly restrict the quantity of some good that may be imported into a country
  13. Tariff rate quotas
    ša hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota
  14. Voluntary export restraints
    quotas on trade imposed by the exporting country, typically at the request of the importing country’s government
  15. local content requirements
    some specific fraction of a good be produced domestically, benefit domestic producers, but consumers face higher prices
  16. administrative policies
    šbureaucratic rules that are designed to make it difficult for imports to enter a country. These polices hurt consumers by denying access to possibly superior foreign products
  17. antidumping policies
    špunish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition
  18. two main economic arguments for intervention (L)
    the infant industry argument, strategic trade policy
  19. infant industry argument
    industry should be protected until it can develop and be viable and competitive internationally, has been accepted as a justification for temporary trade restrictions under the WTO
  20. strategic trade policy
    in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages
  21. What are the two major arguments against “the infant industry argument?”(L)
    1. difficult to gauge when an industry has “grown up”  2. if a country has the potential to develop a viable competitive position its firms should be capable of raising necessary funds without additional support from the government

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