Chapter 1 Takeaways

The four risks of internalization

Cross-Cultural Risk - differences in language, lifestyles, mindsets, customs, and
religion, where differences may put human value at stake.
Country Risk (Political Risk) potentially adverse effects on company
operations and profitability caused by developments in poltical, legal, and economic
environment in a foreign country
-

Country intervention in firms activities

Currency Risk refers to the risk of fluctuations in exchange rates the value of
firms earnings can be reduced
Commercial Risk potential loss or failure from poorly developed or executed
business strategies, tactics, procedures
Who participates in IB
Multinational Enterprises (MNE) large company with substantial resources that
performs various business activities through a network of subsidiaries and affiliates
Born Global Firm a young entrepreneurial company that initiates international
business activity very early in its evolution
Non-governments Organizations (NGOs) Non-profit organizations conduct
cross border activities. These purse special causes and serve as advocates for the
arts, education, politics, religion, and research.
Why do firms internationalize?
Seek opportunities for growth through market diversification Foreign
markets can extend the life of products of services that have reached maturity at
home
Earn higher margins and profits foreign markets are underserved/unserved
Gain new ideas about products, services, business methods unique foreign
environments + new ideas
Better serve key customers that have relocated abroad example: Nissan
moves, supplier moves with them
Be closer to supply sources, benefit from global sourcing advantages, gain
flexibility in product sourcing countries move where raw materials are located
Gain access to lower-cost or better-value factors of production lower
labour costs, access to capital/tech
Develop economies of scale more production, lower distributed cost
Confront international competitors more effectively or thwart the growth
of competition in the home market

Invest in a potentially rewarding relationship with a foreign partner long

term relationships =joint ventures / project-based alliances
COMPETITIVE ADVANTAGE + TO SEEK GROWTH AND PROFIT
OPPORTUNITIES

Chapter 3 Takeaways
Four types of Participants in International Business
Focal Firm initiator of an international business transaction; conceives, designs,
and produces offerings intended for consumption by customers worldwide. Primarily
MNEs, SMEs, privately owned companies, stock-held firms, state enterprises owned
by govts.
Distribution channel intermediary provides logistics and marketing services
for focal firms, both in the home country and abroad. Sales reps, independent
distributors.
Facilitator form or an individual with special expertise in banking, legal advice,
customs clearance, etc that help an international business conduct transactions.
A freight forwarder is a specialized logistics service provider that arranges
international shipping for exporting firms
Governments
International entry strategies
Licensor a firm that enters a contractual agreement with a foreign partner to
allow the partner the right to use intellectual property for a period of time in
exchange for royalties.
Franchisor a firm that grants another the right to use an entire business system
in exchange for fees, royalties, etc.
Turnkey contractors Focal firm that plan, finance, organize, manage, and
implement all phases of a project and then hand it over to a foreign customer after
training local employees
Joint Venture Partner focal firm that creates and jointly owns a new legal entity
through equity investment or pooling of assets. Shared costs and risks, fain access
to needed resources, economiesof scale.
Project based, nonequity venture Focal firms that collaborate to take a given
project, no new entity
Intermediaries Based in the Foreign Market
Foreign distributor foreign market based intermediary that works under
contract for an exporter and takes title to and distributes the exporters products in
a national market or territory.
Agent (broker) handlers orders to buy and sell commodities, products, services
in international business transactions for a commission.
Manufacturers Representative intermediary contracted by the exporter to
represent and sell its merchandise or services in a designated country or territory.
Facilitators in International Business

Logistics service provider a transportation that arranges for physical

distribution and storage of products on behalf of focal firms, and controls info
between point of origin to consumption.
Customs brokers arranges clearance of products through customs in the
destination country.
Chapter 6 Takeaways
Comparative Advantage superior features of a country that provide unique
benefits in global competition, typically derived from either natural endowments or
deliberate national policies.
Competitive Advantage organizational assets and competencies that are
difficult for competitors to imitate and thus help firms enter and succeed in foreign
markets.
Why do nations trade?
Classical Theories
Mercantilism national prosperity is the result of a positive balance of trade
achieved by maximing exports and minimizing imports.
-

Harms countries that import raw materials

Harms consumers, less choice of products to buy due to less imports

Absolute Advantage Principle a country benefits by producing only those

products in which it has absolute advantage or that it can produce using fewer
resources than another country
-

Nations benefit from most free trade

Benefits from product in which it has an absolute advantage, and secures
the other product
through trade

Comparative Advantage Principle states that it can be beneficial for two

countries to trade without barriers as long as one is relatively more efficient at
producing goods or services needed by the other. What matters isnt the cost
rather the relative efficiency with which a country can produce a product.
Factor Proportions Theory how abundant production factors give rise to
national advantages
International Product Life Cycle Theory New product -> Mature Product ->
Standardized Product
New Trade Theory Economies of scale are important to superior international
performance in industries that succeed best as their production volume increases
Contemporary Theories

The competitive advantage of nations competitive advantage/tech innovation

(innovation) as a result of R&D
Michael Porters Diamond Model competitive advantage at both the company
and national levels originates from the presence and quality in the country of four
major elements:
-

Firm strategy, structure, and rivalry

Factors conditions
Demand conditions
Related and supporting industries

National Industry Policy a proactive economic development plan initiated by

the govt, often in collab with the private sector that aims to develop or support
particular industries within the nation
Internationalization Process
Domestic Focus -> Pre-Export Stage -> Experimental Involvement -> Active
Involvement -> Committed Involvement
How can Internationalizing Firms Gain and Sustain Competitive Advantage?
FDI Based
Monopolistic Advantage Theory one or more resources or capabilities a
company possessed that few other firms have; the business leverages these to
generate profits and other returns
Internalization Theory where firms acquire and retain one or more value-chain
activities inside the firm, minimizing the disadvantages of dealing with external
partners and allowing for greater control over foreign operations
Dunnings Eclectic Paradigm ownership-specific advantages, location-specific
advantages, internationalization advantages
Non FDI Based
International Collaborative Ventures equity based joint ventures, non-equity
based
Networks and Relational Assets long term relationships the firm undertakes
with other business entities; represents a distinct competitive advantage.

Chapter 8 Takeaways
Government Intervention
Protectionism national economic policies designed to restrict free trade and
protect domestic industries from foreign competition
Tariff a tax imposed on imported products, increasing the cost of acquisition
Nontariff Trade Barrier a govt policy, regulation, or procedure that impedes
trade through means other than tariffs.
Customs Checkpoints at the ports of entry where govt officials inspect imported
products and levy tariffs.
Quota a quantitative restriction placed on imports of a specific product over a
period of time
Local Content Requirements requirement that a manufacturer must include a
minimum percentage of added value through local sources
Regulations and technical standards - Safety, health, or technical regulations;
labeling requirements.
Administrative and bureaucratic procedures - Complex procedures or
requirements imposed on importers or foreign investors that hinder their trade or
investment activities.
FDI and ownership restrictions - Rules that limit the ability of foreign firms to
invest in certain industries or acquire local firms.
Subsidy - Financing or other resources that a government grants to a firm or group
of firms, intended to ensure their survival or success.
Countervailing duty - Increased duties imposed on products imported into a
country to offset subsidies given to producers or exporters in the exporting country.
Antidumping duty - Tax charged on an imported product whose price is below
usual prices in the local market or below the cost of making the product
Why?
Defensive
Protection of the National Economy
Protection of an infant industry
National Security
National Culture and Identity
Offensive
National Strategic Priorities

Increase Employment
Chapter 9 Takeaways