MGT320 Final

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MGT320 Final
2010-12-14 15:11:18
MGT320 Final

MGT320 Final
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  1. Tacit Knowledge
    Information that is intuitive and difficult to articulate or codify in writing
  2. Codified Knowledge
    Information that can be easily captured in the form of text, tables, or diagrams
  3. Externalities
    Effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account
  4. Strategic Commitments
    Loyalty to a clearly defined business strategy which focuses on the future and keeps putting effort in improving its strategy, not changing it
  5. Exporting Advantages
    • Avoids costs of establishing manufacturing operations in the host country
    • Minimizes risk and investment
    • Rapid speed of entry
    • May realize experience curve and location economies
  6. Exporting Disadvantages
    • Current production location may not have location economies
    • Transportation costs
    • Trade barriers and tariffs
    • Company viewed as an outsider
    • May not learn about customers and competitors
    • Exchange rate risk
  7. Indirect Exporting Disadvantages
    • Limits access to local information
    • Lack of control over intermediaries
  8. Indirect Exporting
    Firm hires the expertise of someone else to facilitate the exchange for a fee
  9. Turnkey Projects
    When a firm agrees to set up an operating plant for a foreign client and then hand over the “keys” when the plant is fully operational
  10. Turnkey Advantages
    • Can earn a return on knowledge asset
    • Less risky than conventional FDI
  11. Turnkey Disadvantages
    • Arrangement does not create long-term interest in the foreign country
    • May create a competitor
  12. Licensing Advantages
    • Reduces development costs and risks of establishing foreign enterprise
    • Establish a physical presence without costs
    • Speed of entry
    • Reduces exposure to political risk
    • Overcomes trade and investment barriers
    • May be the only way to develop applications of intangible property
  13. Licensing Disadvantages
    • Difficult to maintain control over assets and know-how
    • Damage to firm reputation
    • Monitoring costs
    • Income dependent on licensee’s performance
    • Licensee earns the majority of the profit
    • Partners can become competitors
    • Inability to exploit experience curve
    • Cannot coordinate strategic moves
  14. Cross-Licensing Agreements
    Contract between two or more parties where each party grants rights to their intellectual property to the other parties
  15. Master Franchise Agreements
    A master franchise sells sub-franchises in its territory and takes on the role of supporting and schooling them to deliver the service.
  16. Strategic Alliances
    A formal relationship between two or more parties to pursue a set of agreed upon goals while remaining independent organizations
  17. Synergy
    Two or more agents working together to produce a result not obtainable by any the agents independently
  18. Relational Capital
    The cumulative trust, experience, and knowledge that forms the core of the relationship between businesses and their customers
  19. Wholly Owned Subsidiaries: Greenfield Investment
    Establishing a new operation
  20. Hubris Hypothesis
    Suggests that there is a tendency for acquisitor companies to pay too much
  21. Foreign Direct Investment
    When a firm invests resources in facilities to produce and/or market a product in a foreign country
  22. Horizontal FDI
    Investment in the same industry in which a firm operates at home
  23. Vertical FDI
    Investment in an industry that provides inputs for a firm’s domestic operations or that sells the outputs of the firm’s domestic operations
  24. Backward Vertical FDI
    An investment in an industry abroad that provides inputs for a firm’s domestic production processes
  25. Forward Vertical FDI
    An investment in an industry abroad that sells the outputs of a firm’s domestic production processes
  26. Market Imperfections
    When there are impediments to the free flow of products nations, the sale of technological, marketing, or management know-how
  27. Strategic Behavior
    Conscious behavior arising in a small number of competitors, in a situation where all are aware of their conflicting interests and interdependence of their decisions
  28. Location-Specific Advantages
    Contends that FDI patterns can be explained by the relationship between the advantages of combining resource endowments that are tied to a particular foreign location with a firm’s unique assets
  29. Impediments to the Sale of Know-How
    When licensing may result in a firm giving away its know-how to a potential foreign competitor, does not give a firm the tight control needed to achieve its strategic goals, when the firm’s know-how is not amenable to licensing
  30. Multipoint Competition
    Arises when two or more enterprises encounter each other in different regional markets, national markets, industries, or across multiple products
  31. Benefits of FDI for a Host Country
    • Resource-transfer effects
    • Employment effects
    • Effect on competition and economic growth
    • Balance-of-payments effect
  32. Costs of FDI for a Host Country
    • Adverse effects on competition
    • National sovereignty and autonomy
    • Adverse effects on the balance of payments
  33. Resource-Transfer Effects
    • Capital
    • Technology
    • Management
  34. Beneficial Balance-of-Payments Effects of FDI for Home Countries
    • Balance-of-payments account is improved by the inward flow of repatriated earnings
    • Balance-of-payments account is improved if the foreign subsidiary needs home country equipment, component parts, etc.
  35. Adverse Balance-of-Payments Effects of FDI for Home Countries
    • Initial capital outflow has a negative impact on the balance of payments
    • It is detrimental if the purpose of the foreign investment is to serve the home market from a low-cost production location
    • It is detrimental if the FDI is a substitute for exports
  36. Beneficial Balance-of-Payments Effects of FDI for Host Countries
    • Initial capital inflow when MNC establishes business
    • FDI substitutes for imports of goods and services
    • MNC uses its foreign subsidiary to export to other countries
  37. Adverse Balance-of-Payments Effects of FDI for the Host Country
    • Subsidiary earnings will eventually be repatriated back to the home country
    • Foreign subsidiaries could import a substantial number of component part inputs and this will reduce the positive impact of subsequent exports
  38. National Sovereignty
    Supremacy of authority or rule as exercised by a sovereign state
  39. Benefits of FDI for a Home Country
    • Employment effects
    • Resource-transfer effects
    • Balance of payment effects
  40. Costs of FDI to the Home Country
    • Employment effects
    • Balance of payment effects
  41. Home Country Policies to Encourage Outward FDI
    • Foreign risk insurance
    • Capital assistance
    • Tax incentives to invest abroad
    • Political pressure
  42. Home Country Policies to Restrict Outward FDI
    • Limits on capital outflows
    • Tax incentives to invest at home
    • Nation-specific prohibitions
  43. Host Country Policies to Encourage Inward FDI
    • To gain from the resource
    • To capture FDI away from other potential host locations
  44. Host Country Policies to Restrict Inward FDI
    • Ownership restraints
    • Performance requirements
  45. Draft / Bill of Exchange
    An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated
  46. Sight Drafts
    A draft or bill that is payable on demand or upon presentation
  47. Time Drafts
    A draft which is payable at a specified point in the future, or under certain circumstances
  48. Export Credit Insurance
    An insurance policy offered to businesses wishing to protect their balance sheet asset, accounts receivable, from loss due to credit risks such as protracted default, insolvency, bankruptcy, etc.
  49. Types of Countertrade
    • Barter
    • Counterpurchase
    • Offset
    • Switch Trading
    • Buybacks
  50. Factors favoring concentrated production
    • High political risk costs
    • High culture distance implications
    • Factor costs have substantial impact
    • Low trade barriers
    • Externalities favor a certain location
    • Stable exchange rates
    • High fixed costs
    • Product’s value-to-weight ratio is high
    • Product serves universal needs
  51. Factors favoring decentralized production
    • Factors do not have substantial impact
    • High trade barriers
    • Location externalities not important
    • Exchange rates volatile
    • Low fixed costs
    • Flexible manufacturing technology unavailable
    • Products value-to-weight ratio is low
    • Significant differences in consumer tastes and preferences exist between nations
  52. Minimum Efficient Scale
    Smallest output that a plant or firm can produce such that its long run average costs are minimized
  53. Flexible Manufacturing Technology
    • Flexible automation in which several machine tools are linked together by a material-handling system, and all aspects the system are controlled by a central computer
    • Is able to process more than one product style simultaneously
  54. Mass Customization
    • Use of flexible computer-aided manufacturing systems to produce custom output
    • Combines low unit costs of mass production processes with the flexibility of individual customization
  55. Value-to-Weight Ratio
    Method of comparing the weight on an item to its value
  56. Transfer Prices
    Setting and adjustment of charges made between related parties for goods, services, or use of property
  57. Components of the Marketing Mix
    • Product attributes
    • Distribution strategy
    • Communication strategy
    • Pricing strategy
  58. Fragmented Retail Systems
    Many retailers supply a market with no one having a major share
  59. Concentrated Retail Systems
    Few retailers supply a market, having a major share
  60. Barriers to International Communication
    • Cultural barriers
    • Source and country of origin effects
    • Noise levels
  61. Country of Origin Effects
    How the consumer perceives the product based on what country it came from
  62. Country of Origin Labeling
    Requires retailers to notify their customers with information regarding the source of certain foods (i.e. Beef, pork, chicken)
  63. Reasons for standardized advertising campaigns
    • Significant economic advantages
    • Scarce creative talent
    • Global brand names
  64. Reasons for non-standardized advertising campaigns
    • Cultural differences
    • Advertising regulations can be a restriction
  65. Media Availability
    An event at which a politician is made available for questioning by the media
  66. Comparative Advertising
    Advertisement in which a particular product specifically mentions a competitor by name for the express purpose of showing why the competitor is inferior to the product naming it
  67. Price Discrimination
    When sales of identical goods or services are transacted at different prices from the same provider
  68. Price Elasticity of Demand: Elastic versus Inelastic Demand Curves
    Measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price
  69. Predatory Pricing
    Practice of selling a product or service at a very low price, intending to drive competitors out of the market or create barriers of entry for potential new competitors
  70. Multipoint Pricing
    When a pricing strategy in one market may have an impact of a rival’s pricing strategy in another market
  71. Experience Curve Pricing
    Aggressive pricing designed to increase volume and help the firm realize experience curve economies
  72. Competition Policy
    Laws that promote or maintain market competition by regulating anti-competitive conduct
  73. Determinants of National Accounting Standards
    • Providers of capital
    • Political and economic ties
    • Level of inflation
    • Level of economic development
    • National culture
  74. How uncertainty avoidance impacts accounting practices
    • More likely to use conservative accounting practices
    • Are more likely to prefer secrecy in reporting
  75. Financial Accounting Standards Board (FASB)
    Organization who develops generally accepted accounting principles (GAAP).
  76. Generally Accepted Accounting Principles (GAAP)
    Accounting rules used to prepare, present, and report financial statements
  77. EU Directives
    Requires member states to achieve a particular result without dictating the means of achieving that result. Normally leave member states with a certain amount of leeway as to the exact rules to be adopted
  78. Consolidated Financial Statements
    Merge the accounts of the parent company and each subsidiary into a single set of accounting statements denominated in a single currency and using a single set of accounting principles
  79. Current Rate Method
    Method of foreign currency translation where most items in the financial statements are translated at the current exchange rate
  80. Temporal Rate Method
    Method of foreign currency translation that uses exchange rates based on the time assets and liabilities are acquired or incurred
  81. Statement 52 of the Financial Accounting Standards Board
    • Defines the US generally accepted accounting principles for foreign currency translation
    • Firms must classify their international operations as “self-sustaining” or “integral”
  82. Self-Sustaining Subsidiaries
    Relatively self-contained and operates in the local economy more or less independently of the parent firm.
  83. Integral Subsidiaries
    Integral subsidiary is a direct extension of the parent firm’s domestic operations
  84. Functional Currency
    Refers to the main currency used by a business or unit of a business
  85. Investment Decisions
    Used by managers to compare different investment alternatives within and across countries
  86. Capital Budgeting
    Quantifies the benefits, costs and risks of an investment
  87. Discount Rates
    Interest rate a central bank charges depository institutions that borrow reserves from it
  88. Expropriation
    The taking of US industry situated in a foreign country, by a foreign government
  89. Techniques for adapting capital budgeting methods for political and economic risk
    • Use a higher discount rate for higher risk locations
    • Lower future cash flow estimates
  90. Financing Decisions
    • How the investment will be financed
    • What will be the source of the external financing
    • How should the financial structure of the foreign affiliate be configured
  91. Financial Structure
    The right side of a firm’s balance sheet, detailing how its assets are financed, including debt and equity issues
  92. Transaction Costs
    Costs incurred in making an economic exchange, or the cost of participating in the market
  93. Unbundling
    Occurs when a company purchases another for its most valuable divisions with little desire for the other aspects of the business
  94. Dividend Remittances
    Most common method of moving funds from foreign subsidiaries to the parent company
  95. Arm’s-Length Price
    The price at which two unrelated and non-desperate parties would agree to a transaction. Most often an issue in the case of companies with international operations whose international subsidiaries trade with each other
  96. Fronting Loans
    Loan by a parent company to its subsidiary through a financial intermediary, usually a large international bank
  97. Bilateral Netting
    The process of consolidating swap agreements between two parties into a single agreement
  98. Multilateral Netting
    Offsetting of receivables and payables among three or more parties to a transaction, with each making payments to an agent or clearing house for net obligations due to others
  99. Mortgage-Backed Securities
    An asset backed security or debt obligation that represents a claim on the cash flows from mortgagee loans through a process known as securitization
  100. Credit Default Swaps
    The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product