MANT217
Forging Direct Investment
- FDI
- refers to physical existence of a company abroad through either;
- establishment of a wholly owned subsidy
- acquisition of or merger with another company
Risks of International Expansion
- Cross-cultural risk: cultural differences and misunderstandings
- Country risk (or political risk): developments in the political, legal and economic environment
- Currency risk (or financial risk): fluctuations in exchange rates
- Commercial risk: poorly executed business strategies, tactics or procedures can be more costly when committed abroad and can harms a firms' reputation
Globalisation
- shift towards a more integrated and interdependent world economy
- Economic: increasing interdependence of national economies
- Social: sharing of ideas and information between and through countries
- political: growth of the worldwide political system
Free Trade Agreement
- FTA
- set of rules for how countries treat each other when it comes to doing business together
Protectionism
- opposite of free trade
- restrictive trade
Who wins from Globalisation?
- Globalisation opportunities are not equally dispersed
- Helps advance the more developed countries
Positives of Globalisation
- improved quality of products, lower prices
- job creation
- cultural exchange
-decreased poverty rate
- increased standard of living
Negatives of Globalisation
- contagion (financial crisis)
- loss of national sovereignty
- flight of jobs
- effect on environment
- effect on culture (Cultural Imperialism)
- Cultural Appropriation
Multinational Enterprise (MNE)
- a firm with foreign direct investment, whether in manufacturing or in services, over which it maintains effective control
Types of MNEs
- Internationally committed: lacks presence in major regions
- Multidomestic: multiple independent subsidiaries
- Global: closely integrated subsidiaries
- Transnational: diverse subsidiaries playing different roles at the strategic level
Pros of MNEs
- greater efficiency and lower prices
-more research and development
- jobs and wealth
- meeting consumer preferences
Cons of MNEs
- scope for tax avoidance
- monopoly power leads to higher prices
- monopsony power in setting lower wages
- environment
- cultural issues as locals struggle to compete
Strategic Triangle
- Customer, Company, Context
Mercantilist view
- maximising exports, minimising imports
Absolute Advantage
- Free Trade
- nation benefits by producing products it has an AA in
Comparative Advantage
- trade w/o barriers if one is more efficient than the other
Entry Mode Strategies
- Exporting
- Licensing
- Franchising
- Strategic Alliance
- Joint Venture
- Wholly Owned Subsidiary