Foreign Direct Investment: internationalization strategy where a firm establishes physical presence abroad through acquisition of productive assets.

• requires substantial resource commitment, global scale efficiency
• entails great risk

a concept of competition between companies as they attempt to "do more (better), with less"

Using the same resources to produce more; recycling.

• Re-using same resources to create different products.

collaboration between two or more firms to create a "jointly-owned" enterprise

• Joint Ventures are considered FDI because of ownership

refers to a cross-border business alliance in which partnering firms pool their resources and share costs and risks of the venture

Direct Investment:

Who is active?

Foreign Market Entry Strategies (FDI):

What are the "Trade-Offs"

• requires substantial resource commitment
• loses flexibility for reconfiguring due to it's long-term anchor in foreign market, and the changing country conditions
• long-term involvement implies considerable risk

Ultimately, to raise firm competition in global marketplace; profits

FDI motives are classified by:

• Market Seeking-- seeking out consumers
• Resource/Asset-Seeking-- "go where the gold is"
• Efficiency Seeking-- cut costs while keeping quality

Historically, FDI from advanced economies seek the security of FDI in other advanced economies

• strong GDP/per capita, sophisticated infrastructure...
• The "elite" stick together.

Type of FDI:

Greenfield Investment

when a firm invests to build a new facility (manufacturing ,marketing, administrative), as opposed to acquiring existing facilities.

• not very eco-friendly "green" if you ask me....

Type of FDI: M&A's

- Mergers

      - Acquisitions

Acquisition-- direct investment (purchase) of an existing company or facility

• Merger-- a type of acquisition where two firms join to form a new, larger firm                                       Ex: Merging of airlines-- Southwest and AirTran 

• Equity Participation-- partial ownership in a existing firm
• Wholly Owned Direct Investment-- FDI where the investor fully owns the foreign assets
• Equity Joint Ventures-- "two 'parent' firms co-build a new firm through each others assets, and jointly own the new legal entity"

MNE enters a foreign country to produce the same products as back home

MNE produces products not manufactured at home

Type of FDI: Vertical FDI

(Vertical Integration across borders)

An Intermediary or Finishing Stage in the production process

MNE either:

• produces intermediate goods that serve as outputs to the parent
• final access to a foreign market

The Value Chain: What is included in...

  -Upstream

      -Downstream

Upstream: raw materials, commodity products, natural resources, semi-finished product

Downstream: end-users, consumers, other firms, buyers of the product

refers to operating a business in a manner that exceeds the ethical, legal, commercial, and public expectations of stakeholders.

• Represents core values like: avoiding the abuse of human rights, upholding right to labor unions

What is Gross Domestic Product (GDP)?

- GDP per capita?

GDP: the value of all goods and services produced in a country within one year.

GDP per capita: a measure of GDP in a country over a year amongst the countries population

• give a more clear understanding of a countries wealth since country populations vary

the ongoing economic integration and growing interdependency of countries worldwide

"the value or belief systems held by a specific group of people that constrains their behavior and is passed down over time"

• captures how members of society live
• explains how members behave toward each other and with other groups
• defines their beliefs and values, and how they perceive the meaning of life

Culture is learned through: Socialization

- What is it?

Socialization-- process of learning the rules and behavioral patterns appropriate to one's given society

• cultural learning

Culture is learned through: Acculturation

- What is it?

Acculturation-- the process of adjusting and adapting to a culture other than one's own

• simply picking up on another culture's traditions and customs other than your own

A situation or event where a cultural miscommunication can lead to a less than desirable business outcome

• One of the four major risks in international business

What are some interesting things about this chart?

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• Market Factors: Size/growth of the market(s)
• Human Resource Factors: cost, availability, and productivity of skilled labor
• Infrastructural Factors: efficiency of physical distribution
• Political and Governmental Factors: political stability
• Legal and Regulatory Factors: nature of legal system and laws
• Economic Factors: cost of land/facilities
• Profit Retention Factors: rate of inflation

1. Commercial Risk:                                                   - i.e.~ competitive intensity, operational problems, etc.
2. Currency (financial) Risk:                                       - i.e.~ foreign taxation, inflationary/transfer pricing, etc.
3. Country Risk:                                                       - i.e.~ social and political unrest and instability, etc.
4. Cross-Cultural Risk:                                             
5. - i.e.~ cultural differences, ethical practices, etc.

What are three Cross-Cultural Orientations

- Define the main orientation

1. Ethnocentric Orientation
2. Polycentric Orientation
3. Geocentric Orientation: a global mindset where the manager is able to understand a business or market without regard to country boundaries                                                 - Tolerance for ambiguity                                                       - Perceptiveness                                                                  - Value Personal Relationships                                                - Flexibility and Adaptability                                      *A Geocentric approach can mitigate Cross-Cultural Risk*

• Teamwork
• Lifetime Employment
• Pay for Performance System
• Organizational Structure
• Union-Management Relationships
• Attitudes Toward Ambiguity

the culture adopted, developed, and diffused in an organization

• can deviate from national norms, depending on how strong the culture is, and the values and practices within it

1. Customs
2. Perceptions of time and space
3. Religion
4. Language

1. Individualism vs. Collectivism
2. Power Distance
3. Uncertainty Avoidance
4. Achievement vs. Nurturing

The Fifth Dimension:

Long-term Orientation vs. Short-term Orientation

the degree to which people/organizations defer gratification to achieve long-term success

Long-term Orientation: tends to take the long view of planning and living, focusing on years and decades (planning for the future)

Short-term Orientation: mainly focused on there here and now ("living in the moment") 

In a nutshell, what is "Guanxi" in regards to Relationship Orientation?

social connections in Chinese society; relationships are based on mutual benefits

In your opinion: Are Cultures Converging? 

Why or Why Not?

Yes-- I believe that cultures are converging. However, I do not believe that cultures are converging so much that they lose their own identity.

Ex: McDonald's in United States and Russia

     - Russia took after idea from the Western Culture with        McDonald's however they did not lose their Russian          identity in the fact that they still value and quality,          "sit-down" meal, even if it is just McDonald's.

What is Political Risk?

• a type of Country Risk
• risk comes from instability
• Examples include: Confiscation, Expropriation, Nationalization, Privatization

Country Risk is always present, but it's nature and intensity vary over time and from country to country.

• Systematic Country Risk: affects all industries, all firms in a country
• Unsystematic Country Risk: affects only a subset of (particular) firms

Examples of Political Risk: Terrorism

- What is it?

the threat or actual use of force or violence to attain a political goal through fear, coercion, or intimidation

Examples of Political Risk:

Sanctions and Embargoes

- What are they?

Sanctions: type of ban on international trade, usually undertaken by a country, or a group of countries, against another judged to have jeopardized peace and security

• "Ban on ALL goods from a specific country"              - Ex: Iraq

Embargoes: official bans on exports/imports that forbid trade in specific countries 

• "Ban on a SPECIFIC good, from a specific country"  - Ex: US enforced embargoes on Cuba, Korea, etc.          for being alleged sponsors of terrorism

Role of Government: Boycott

- What is it?

voluntary refusal to engage in commercial dealings with a nation or a company

One Measure of Political Risk:

International Country Risk Guide (ICRG)

- What is it?

produces political, economic, and financial risk ratings for countries important to international business

• these ratings form the basis for an early warning system for opportunities and pitfalls, country-by-country
• ratings are based on descriptive assessments and economic data

• to establish stability based on laws
• provide protection from external threats
• govern the allocation of valued resources

1. Totalitarianism
2. Socialism
3. Democracy

1. Private Property Rights
2. Limited Government

What are Legal Systems

- What are the two main types of Legal Systems?

a framework of rules and norms of conduct that mandate, limit, or permit specified relationships among people and organizations, and provide punishments for those who violate these rules and norms

• Common Law
• Civil Law

Role of Government:

Restrictions on Income Repatriation and Environmental Laws

- What are:  Laws regarding Income Repatriation 

Environmental Laws

Laws Regarding Income Repatriation: MNEs earn profits in various countries and try transfer funds back to their home country

Environmental Laws: laws enacted by government to preserve natural resources, combat pollution and the abuse of air, earth, and water resources, and ensure health and safety

Role of Government: Contract Laws

- What are the five types of contracts?

1. Sale of goods or services (basic contract)
2. Distribution of firm's products through foreign distributors (country to country contract)
3. Licensing and franchising; a contractual relationship
4. FDI
5. Joint Venture

Ethics and Legal Systems:

- Ethics

      - Corruption

Ethics: the moral behavior of people, firms, or governments

Corruption: an extreme form of unethical behavior-- involving the use of illegal or unethical practices, especially bribery or fraud, to achieve business objectives-- particularly common in developing countries

What does OECD stand for?

- What is it?

Organization for Economic Cooperation and Development

- group of the 30 richest countries

What is Competitive Disadvantage?

- What is the US's beef with it?

US feels it is getting the short end of the stick from the "Foreign Corruption Practices Act" because foreign countries and bribe one another but the US in not allowed to participate in such bribery.

How can we measure the level of Corruption?

- what is it?

Transparency International

• Transparency International's Bribe Payers Index (BPI): ranks the leading 30 exporting countries who are perceived to be paying bribes abroad

The U.S. has long complained that China undervalues the yuan, giving Chinese exports an unfair advantage.