International Business Midterm 2

2/25/2013
Chapter 6: Investing Abroad Directly
1. Key Terms:
a. Foreign Portfolio Investment (FPI): “foreign indirect management;” holding securities of
companies in other countries, but does not entail active management of foreign assets;
based on financial securities – the price of this investment depends on the stock market
b. Foreign Direct Investment (FDI): the direct, hands-on management of foreign assets. For
statistical purposes, the UN defines FDI as an equity stake of 10% or more in a foreign-based
enterprise; based on tangible investments – manage this investment through people
managers
c. Management Control Rights: without FDI, it is difficult to establish this - the authority to
appoint key managers and establish control mechanisms.
d. FDI Flow: the amount of FDI moving in a given period.
e. FDI Inflow: FDI moving into a country.
f. FDI Outflow: FDI moving out of a country.
g. FDI Stock: total accumulation of inbound FDI in a country of outbound FDI from a country.
2. Horizontal FDI: when a firm takes the same activity at the same value-chain stage from its home
country and duplicates it in a host country through FDI; refers to producing the same products or
offering the same services in a host country as firms do at home; e.g. BMW
3. Vertical FDI: when a firm moves upstream or downstream in different value-chain stages in a host
country through FDI
* Remember the Value Chain
Input
R&D
Components
Final Assembly
Marketing
Output
4. FDI Flow v. Stock:
a. FDI Flow:  is the amount of FDI moving in a given period (usually a year) in a certain
direction
i. FDI Inflow: moving into a country in a year
ii. FDI Outflow: moving out of a country in a year
b. FDI Stock: is the total accumulation of inbound FDI in a country or outbound FDI from a
country
5. Why Does FDI Take Place? FDI provides gains to a firm through OLI
a. Ownership Advantages: Possession and leveraging of certain valuable, rare, hard to
imitate, organizationally embedded resources.
i. Direct ownership provides combination of equity ownership rights and management
control rights.
ii. FDI vs. Licensing:
1. FDI reduces dissemination risk
2. FDI provides tight control over foreign operations
3. FDI facilitates the transfer of tacit knowledge through “learning or doing”
b. Location Advantages: Features unique to a place that provide advantage to a firm.
i. Some locations possess geographical features that are difficult to match.
 ii. Location advantage can arise from agglomeration – the clustering of economic
activities in certain locations.
iii. Results from:
1. Knowledge spillover
2. Industry demand for skilled workers
3. Industry demand that facilitates a pool of specialized suppliers and buyers in
a region.
iv. Acquiring and Neutralizing Location Advantages:
1. Location advantage does not entirely overlap with country-level advantages.
2. Refers to advantage that firm obtains when operating in a specific location
due to firm-specific resources.
3. When one firm enters a foreign country through FDI, competitors are likely to
increase FDI in order to acquire or neutralize location advantages.

c. Internalization Advantages: Replacement of cross-border markets with one firm locating

and operating in two or more countries.
i. Benefits:
1. Reduces cross-border transaction costs.
2. Replaces external market relationship with single organization spanning both
countries.

6. International Market Transaction:

a. A market transaction between two firms may suffer from high transaction costs, especially
due to opportunism on both sides. For example, NNPC may demand a higher price than
previously negotiated, while BP might refuse a shipment citing poor quality.
b. Once one side behaves opportunistically, the other wide will threaten or initiate law suits.
But, because the legal and regulatory frameworks governing such international transactions
are generally not as effective as those governing domestic transactions, the injured party
will generally be frustrated, while the opportunistic party will often get away with it.

7. One Company in Two Countries:

 a. FDI resolves the difficulties of an international market transaction through internalization,
which involves replacing the external market with in-house links. In this example, BP could
undertake upstream vertical FDI by owning oil production assets in Nigeria. Or, NNPC could
undertake downstream vertical FDI by owning oil refinery assets. In either case, the MNE
reduces cross-border transaction costs and increases efficiencies by replacing an external
market relationship with a single organization spanning both countries.

8. Different Political Views on FDI:

a. Radical view – hostile; treats FDI As an instrument of imperialism. e.g. Nike several years
ago, because they decided to go to foreign countries in order to exploit lower labor costs and
child labor
b. Pragmatic nationalism – considers both the pros and cons of FDI and approves it only
when benefits outweigh the costs, countries who see the benefits of FDI are more open to it
e.g. South America and South Africa – have lots of natural resources, but not the labor of
technology to take advantage of them, and both countries will benefit; HOL, Telefonica
Spanish companies who operate in South America, these Spanish countries are more
developed
c. Free market view – suggests that FDI will enable countries to tap into their absolute or
comparative advantages by specializing in the production of certain goods or services; the
general equilibrium between demand and supply

9. Benefits and Costs of FDI to Host Countries:

a. Benefits:
i. Capital inflow (FDI): can help improve a host country’s balance of payments.
ii. Technology spillovers: the domestic diffusion of foreign technical knowledge and
processes that benefit domestic firms and industries.
iii. Advanced management know-how: In many developing countries, it is often
difficult for the development of management know-how to reach a world-class level
if it is only domestic and not influenced by FDI.
iv. Creates jobs
b. Costs:
i. Loss of economic sovereignty: The loss of some (but not all) economic sovereignty
associated with FDI: Because of FDI, decisions to invest, produce, and market
products and foreigners are making services in a host country.
ii. Loss of domestic firms: Many MNEs invest abroad while simultaneously curtailing
domestic production—that is, they increase employment overseas but lay off
domestic employees.
iii. Capital outflow: Since host countries enjoy capital inflow because of FDI, home
countries naturally suffer from some capital outflow.
10.Benefits and Costs to Home Countries:
a. Benefits:
i. Repatriated earnings from FDI profits
ii. Increased exports - of components and services to host countries
iii. Learning via FDI from operations abroad
b. Costs:
i. Capital outflow: Since host countries enjoy capital inflow because of FDI, home
countries naturally suffer from some
 ii. Job loss: Many MNEs invest abroad while simultaneously curtailing domestic
production—that is, they increase employment overseas but lay off domestic
employees.
11. Three Things to Do:
a. Carefully asses whether FDI is justified in light of other foreign entry modes such as
outsourcing and licensing
b. Pay careful attention to the location advantages in combination with the firm’s strategic
goals
c. Be aware of the institutional constraints and enablers governing FDI, and enhance
legitimacy in host countries

12.Most important things, questions form this chapter:

a. Difference between FDI and FPI:
i. Foreign Portfolio Investment (FPI): holding securities of companies in other
countries, but does not entail active management of foreign assets. Essentially, FPI is
foreign indirect investment; based on financial securities – the price of this
investment depends on the stock market
ii. Foreign Direct Investment (FDI): the direct, hands-on management of foreign assets.
For statistical purposes, the UN defines FDI as an equity stake of 10% or more in a
foreign-based enterprise; based on tangible investments – manage this investment
through people managers
b. Horizontal FDI: When a firm takes the same activity at the same value-chain stage from its
home country and duplicates it in a host-country.
c. Upstream and Downstream Foreign investment: changing places on the value chain
i. Upstream –
ii. Downstream –
d. What is the OLI advantage?
i. Ownership Advantages:
ii. Location Advantages:
iii. Internalization Advantages:
e. Agglomeration Advantage: the clustering of economic activities in certain locations; e.g.
Detroit’s clustering of everything in the automotive industry
f. 3 Political Views of FDI:
i. Radical
ii. Free Market
iii. Pragmatic Nationalism

2/27/2013
Chapter 7: Dealing With Foreign Exchange
1. What Determines Foreign Exchange Rates? (5 determinants of the exchange rate)
a. Long term:
i. Price differential / Relative price differences and PPT: the relative inflation level;
some countries have expensive prices, while others have cheap ones.
1. Purchasing power parity - a conversion that determines the equivalent
amount of goods and services that different currencies can purchase, after
converting your dollars to euros, you should be able to buy the exact amount
a. The PPP does not hold, because
 i. Transaction costs – fees paid to change the money
ii. Differing taxation systems
iii. Information – the markets are not perfect, they don’t have real
time information

2. Higher inflation – less demand for US goods and more demand for foreign
goods, leading to lower exchange rate for US dollar and higher demand for
euros and higher exchange rate for the euro
a. If domestic inflation is higher than foreign inflation - If the US inflation
level was higher, then the inflation would go up, there will be more
demand for the British pound because it is worth more and can buy
more, so the exchange rate will go up
b. If foreign inflation is higher - the value of the foreign currency goes
down, because there is less of a demand for the foreign currency, so the
exchange rate goes down

ii. Interest rate differential / Interest rates and money supply: If a country’s
interest rates are high, it will attract foreign funds, and vice versa.
1. Higher interest rate – more demand for US, and then the exchange rate goes
up
a. Domestic interest rate higher than foreign interest rate – people will
invest in the US with the higher interest rate, and the demand for the
British pound will decrease, and the British pound exchange rate will
decrease
b. Foreign interest rate is higher than Domestic interest rate – there is
more of a demand for the foreign currency British pounds, and then
the exchange rate increases
2. Three quotations:
a. Direct Quotation: the number of American dollars per foreign
currency (US $ / euro)
b. Indirect Quotation: the number of (euro / US $)
iii. Productivity and balance of payments:
1. A rise in a country’s productivity relative to others will improve its
competitive position in international trade and attract more FDI, fueling more
demand for its currency.
a. Higher productivity – the exchange rate increases, because people have
more money to spend, and demand more foreign goods
2. A country in account surplus will see its currency appreciate, while a
country in account deficit will see its currency depreciate.
iv. Exchange rate policies:
1. 2 Policies:
a. The floating (flexible) exchange rate policy the policy which is
adopted by most economies; is the willingness of a government to let
demand and supply conditions determine exchange rates.
i. The policy can involve either a clean (free) float, which is a
pure market solution
ii. Or a dirty (managed) float, with selective governmental
interventions.
 b. A fixed rate policy adopted fixed the exchange rate of a domestic
currency relative to other currencies. A specific version of the policy
involves pegging the domestic currency, which means to set the
exchange rate of the domestic currency in terms of another currency
(the peg).

b. Short term:
i. Investor psychology: The factors noted above predict long-run movements, but
most short-term movements are affected by investor psychology / or expectations;
depend on market perception
1. Bandwagon effect
2. Capital flight
3/4/ 2013
Chapter 7, continued
1. Balance of Payments: A country’s international transaction statement.
a. 2 different accounts:
i. Current Account: considers Goods and services
ii. Financial Account: considers the movement of capital
2. The Evolution of the International Monetary System:
a. The Gold Standard (1870-1914): the price of different currencies was based on how much
gold a certain economy had, the price of the currency was stronger or weaker; the price of
currencies was determined based on the amount of gold the entire economy had
b. Bretton Woods System (1944-1973): during this period, the other currencies different
than the dollar were based on an exchange rate based on the dollar
c. The Post Bretton Woods System (1973-present): the system where the exchange rate of
the most important currencies is allowed to fluctuate freely, and there is a diversity of
exchange rates; determined by the market equilibrium of demand and supply
3. International Monetary Fund: IMF
a. Legacy of the Bretton Woods system
b. Lender of last resort for countries experiencing balances of payment problems
c. Each member country is assigned a quota that determines the required contribution
i. Quota: depends on the economic size of a country
1. The amount of its financial contribution
2. Its capacity to borrow from the IMF
3. Its voting power
d. Loans typically require long term policy reforms, recommends policies to country members
4. Strategic Responses to Foreign Exchange Movements:
a. Strategies for Financial Companies:
i. The Exchange Rate: how companies can make or lose money based on the exchange
rate, how to manage exchange rate risk
1. Main goal – to profit from the foreign exchange market
ii. Three strategies to reduce the exchange rate risk or to make profit from
exchange rate:
1. Passive:
a. Spot transactions – single shot exchange of one currency for another,
this is called a passive exchange rate policy – because the company
does not do much to lower exchange rate risk
2. Active:
 a. Forward / Future transactions – one transaction of a currencies for
future delivery you are obligated to buy a foreign currency at a price
decided today; today, you lock in the exchange rate in order to execute
a future operation, and in 6 months, you lock in that exchange rate for
the purchase of another item in a business contract, no matter what
the actual market exchange rate is
b. Currency – swap – two transactions, because you only need a foreign
currency for a certain amount of time; conversion of one currency into
another at time 1, with agreement to revert it back to the original
currency at time 2 in the future; the biggest difference – there are 2
transactions
b. Strategies for Non financial companies:
i. Currency hedging: a transaction that protects trades and investors from exposure
to the fluctuations of the spot (daily) exchange rate
1. Three types of currency hedging:
a. Obligated:
i. Swap: obligated to swap something in the future at the
exchange rate today
ii. Forward: obligated to buy something in the future at the
exchange rate today
b. Not obligated:
i. Option: not obligated to buy something, it depends on the
exchange rate in the future
ii. Strategy hedging: spreading out activities in a number of countries in different
currency zones to offset losses in any one region, you are diversifying your risk by
holding different currencies in the places you are operating
5. Strong v. Weak Dollar:
a. Weak Dollar:
i. Positive – helps remedy the US balance if payments, results in more global balancing
ii. Negative - If the dollar is weak, then you are fostering exporting activities,
1. Then the domestic unemployment rate goes down
2. The demand for cheap US goods increases and the inflation rate goes up
b. Strong dollar:
i. Positive – rest of the world likes this because it keeps their currency down,
promoting exports
ii. Negative - If the dollar is strong,
1. There is more of a demand for foreign goods, the unemployment rate goes up,
2. Then the demand for foreign goods is higher and the prices for these foreign
goods increases, “importing inflation”
c. Common sense: you want a strong dollar, but it costs us higher inflation and higher
unemployment

6. Most important things from this chapter questions:

a. Current account: the amount of money a country has depending on its importing and
exporting activities
i. Strong dollar – deficit, because you will import more than export
ii. Weak dollar – surplus, because you will export more than import
b. Types of floats
 c. Describe the IMF’s roles and responsibilities

*no class on the 3/20 – no class for 2 weeks

*pick group members for group project
*group projects due april 24
*april 22, second quiz
*april 29, last day of class
*two more essays, Chapter 9 and Chapter 11

3/6/2013
Chapter 8: Capitalizing on Global and Regional Integration
1. The Case for Global Economic Integration:
a. Global economic integration: efforts to reduce trade and investment barriers around the
globe
i. Political benefits:
1. Promotes peace by promoting trade and investment
2. Builds confidence in a multilateral trading system - because it involves all
participating countries (the key word being multilateral) and not just two
countries (bilateral)
3. Nondiscrimination: country can not make distinctions between its trading
partners; if a country lowers a trade barrier, it has to do the same for all WTO
member countries
ii. Economic benefits:
1. Disputes are handled constructively
2. Rules make life easier and discrimination impossible for all participating
countries
3. Free trade and investment raise incomes and stimulate economic growth
iii. Problems:
1. Environmental impact
2. Uneven distribution between the “haves” and “have-nots”
2. The Evolution of the GATT and WTO
a. GATT (General Agreement on Tariffs and Trade): 1948-1994
i. Reduced level of tariffs through multilateral negotiations
ii. Three areas of concern:
1. No protection for services or intellectual property
2. Loopholes needed reform –
a. Multifber Arrangement (MFA) – was designed to limit free trade in
textiles
3. Global recessions led governments to invoke non-tariff barriers (NTBs) – such
as subsidies and local content requirements
b. WTO (World Trade Organization): 1995 – present
i. Transformed GATT from provisional treaty to full-fledged international organization
ii. New features:
1. Agreement governing trade of services (GATS)
2. Agreement governing intellectual property rights (TRIPS)
 3. Trade dispute settlement mechanisms – old GATT trade dispute settlement
mechanisms experienced long delays
a. However, WTO rulings are recommendations not orders – so the WTO
has no real power to enforce its rulings
b. Country can either:
i. Change its laws
ii. Defy the ruling by doing nothing, and suffer trade retaliation by
the winning country
4. Trade policy reviews
3. The Case for Regional Economic Integration:
a. Regional economic integration: efforts to reduce trade and investment barriers within
one region
i. Pros:
1. Promotes Peace
2. Disputes handled constructively
3. Consistent rules
4. Raise incomes and stimulate economic growth
5. Larger market
6. Simpler standards
7. Reduced distribution costs
8. Economies of scale for firms in the region
ii. Cons:
1. Discrimination against firms outside of region
2. Some loss of sovereignty
iii. E.g. Norway and Sweden chose not to join the EU
b. 6 Types of Regional Economic Integration:
i. Free Trade Area (FTA): A group of countries that remove trade barriers among
themselves. Each country still maintains different external policies regarding non-
member. There is no freedom of movement among people. E.g. NAFTA
ii. Customs Union: One stop beyond an FTA, so in addition to FTA policies, a customs
union has common external policies on non-participants in order to combat trade
diversion. e.g. Benelux – Belgium, the Netherlands, and Luxembourg
iii. Common Market: In addition to Customs Union, allows the free movement of goods
and people. E.g. EU used to be a common market
iv. Economic Union: Has all the features of Common Market, but members also
coordinate and harmonize economic policies in order to blend their economies into a
single economic entity. E.g. EU is now an economic union
v. Monetary Union: a group of countries that use a common currency E.g. 12 countries
of the Euro area
vi. Political Union: The integration of all political and economic affairs of a region. E.g.
United States or the Soviet Union
4. Accomplishments of the European Union:
a. 1951 – Belgium, France, Germany, Italy, Luxembourg, and the Netherlands signed the
European Coal and Steel Community (ECSC) Treaty, which integrated the coal and steel
industries among the 6 countries to promote trade and prevent future wars form breaking
out (because the coal and steel industries have traditionally provided the raw materials
necessary for war)
 b. 1957 – ECSC signed the Treaty of Rome, which launched the European Economic
Community (first a customs union, and then a common market)
c. EU and predecessors have delivered over 50 years of peace
d. Introduction of common currency, the euro – it account for approximately 21% of the
world’s GDP
e. Formation of a single market
f. Benefits:
i. Reduces currency conversion costs
ii. Facilitates direct price comparison
iii. Imposes monetary disciplines on governments
g. Costs:
i. Countries unable to implement independent monetary policy
ii. Limits the flexibility in fiscal policy (in areas such as deficit spending)
5. Five Organizations in the Americas:
a. NAFTA (North American Free Trade Agreement; 1994): Mexico, US, and Canada
b. Andean Community (1969):
c. Mercosur (1991):
d. Union of South American Nations (USAN; 2005)
e. United States-Dominican Republic-Central America Free Trade Agreement (CAFTA; 2005)

6. Three Organizations in Asia:

a. Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER;
1983)
b. Association of Southeast Asian Nations (ASEAN; 1967)
c. ASIA-Pacific Economic Cooperation (APEC; 1989)

7. The Influence of Regional Trade on Global Business?

a. Think regional, downplay global.
b. Understand the rules of the game and their transitions at both global and regional levels.
8. Questions:
a. Most important - know types of integration levels
b. Advantages and Disadvantages of Economic Integration
c. Difference between a custom union and a common market

Chapter 9: Growing and Internationalizing the Entrepreneurial Firm

1. Terms to know:
a. Entrepreneurship – identification and exploration of previously unexplored opportunities.
b. Entrepreneurs – founders and owners of new businesses or managers of existing firms. In
this unit, term is limited to owners, founders and managers of small and medium-sized
enterprises (SMEs).
c. International entrepreneurship - combination of innovative, proactive, and risk seeking
behavior that crosses national borders and is intended to create wealth in organizations.
2. Institutions, Resources, and Entrepreneurship:
 a. Formal Institutions and Entrepreneurship: In general, governments in developed
economies impose fewer procedures and a lower total cost than governments in poor
economies, where entrepreneurs confront harsher regulatory burdens.
b. Informal Institutions and Entrepreneurship: Individualistic, low uncertainty avoidance
societies tend to foster more entrepreneurs than collectivistic, high uncertainty-avoidance
societies.
c. Entrepreneurial Resources must be:
i. Valuable
ii. Rare
iii. Imitable
iv. Organized
3. Characteristics of a Growing Entrepreneurial Firm:
a. Growth: The growth of an entrepreneurial firm can be viewed as an attempt to more fully
use underutilized resources and capabilities. An entrepreneurial firm can leverage its vision,
drive and leadership in order to grow, even though it may be shorter on resources such as
financial capital than a larger firm would be.
b. Innovation: Innovation is the heart of entrepreneurship, and allows for a higher sustainable
basis for competing advantage. Entrepreneurial firms are uniquely ready for innovation,
since their owners, managers and employees tend to be more innovative and risk-taking.
c. Financing: All start-ups need to raise capital.
4. Financing the Entrepreneurial Firm:
5. Internationalizing the Entrepreneurial Firm:
a. Myth: only large MNEs do business abroad, SMEs operate domestically
b. Born global firms: start ups that do international business from inception
6. Entering Foreign Markets:
a. Direct exports: involves the sale of products made by entrepreneurial firms in their home
country to customers in other countries.
i. Sporadic (or passive) exporting refers to sales that are prompted by unsolicited
inquiries.
b. Franchising / Licensing:
i. Licensing: refers to Firm A’s agreement to give Firm B the rights to use Firm A’s
proprietary technology or trademark for a royalty fee.
ii. Franchising: is essentially the same idea, except it is used typically in service
industries, while licensing is usually used in manufacturing industries.
c. Foreign Direct Investment: FDI has several advantages over direct export or
franchising/licensing. A firm becomes more committed to serving foreign markets and
psychologically closer to foreign customers. A firm is better able to control how its
 proprietary technology and brand name are used. However, it does have one major
drawback – cost and complexity.
7. An Export – Import Transaction:
a. Export transactions are complicated, especially by the problem of how to overcome the lack
of trust between exporters and importers when receiving an order. Such a transaction can
be facilitated by banks on both sides thorough a letter of credit, a financial contract which
states that the importer’s bank will pay a specific sum of money to the exporter.
8. The Stage Model:
a. Suggests that required level of complexity and resources increase as firm moves from direct
export to licensing to FDI.
b. But, there are many counter-examples (born global firms).
c. The key to rapid internationalization – the international experience of the entrepreneurs.
9. Staying in Domestic Markets:
a. Indirect exports: while direct exports are lucrative, many SMEs do not have the resources
to handle such work. Indirect exports, which involve exporting through domestic-based
intermediaries, can allow these SMEs to reach overseas customers.
b. Supplier of foreign firms: SMEs can reach foreign markets by becoming a supplier to a
foreign firm.
c. Franchisee or licensee of foreign brands: An SME can become a licensee or franchisee of
a foreign brand, which allows it to access training and technology transfer from the
licensor/franchiser.
d. Alliance partner of foreign direct investors: Becoming an alliance partner allows an SME
to work with an MNE, rather than losing to them.
e. Harvest and exit strategy involves selling an equity stake or the entire firm to foreign
entrants.

10. Debate: Slow vs. Rapid Internationalization

a. Slow: According to stage model, firms need to enter culturally and institutionally close
markets first, accumulate overseas experience, then move to more sophisticated strategies,
such as FDI.
b. Rapid: Every industry has become global, and entrepreneurial firms should go after
opportunities rapidly. Firms that internationalize earlier do not face obstacles of domestic
orientation.

Chapter 10: Entering Foreign Markets

1. The Liability of Foreignness
a. The inherent disadvantage foreign firms experience in host countries because of their non-
native status
b. Differences in formal and informal institutions
c. Discrimination against foreign firms.
2. Overcoming Liability of Foreignness
a. Under the Institution based view, firms need to take action deemed legitimate by
formal and informal institutions
i. Institution based view:
1. Regulatory risks
2. Trade and investment barriers
3. Differences in cultures, norms, and values
 b. Under the resource based view, firms offset liability by deploying overwhelming
resources
i. Resource based view:
1. Value
2. Rarity
3. Imitability
4. Organization
3. Location Specific Advantages:
a. Location-specific advantages – benefits a firm reaps from features specific to a particular
place.
b. Agglomeration – location specific advantages that come about from clustering of economic
activities.
i. Given that different locations offer different benefits, it is imperative that a firm
match its strategic goals with potential locations.
4. Location Specific Advantages and Strategic Goals:
a. Natural resource seeking: Firms have to go to a specific location where particular
resources are found.
b. Market seeking: Firms go to countries that have strong demand for their products and
services.
c. Efficiency seeking: Firms single out the most efficient locations featuring combination of
scale economies and low cost-factors.
d. Innovation seeking: Firms target countries and regions renowned for generating world-
class innovations.

5. Cultural and Institutional Distances:

a. Cultural Distance: difference between two cultures along identifiable dimensions. Ex:
individualism
b. Institutional Distance: similarity or dissimilarity between regulatory, normative and
cognitive institutions.
6. First and Late Mover Advantages:
a. Location is only one aspect of entry decisions; entry timing and entry modes are also critical
i. First Mover Advantages:
1. Proprietary technology
2. Preemptive investments
3. Establish entry barriers for late entrants
 4. Relationships and connections with key stakeholders (customers,
governments)
ii. Late Mover Advantages:
1. Free ride on pioneering investment of first movers
2. First movers face greater technological and market uncertainties.
3. First movers may be inflexible.
7. How to Enter?
a. Scale of entry – amount of resources committed to entering a foreign market.
i. Large-scale entries:
1. Demonstrate strategic commitment to certain markets, assuring local
customers and suppliers for the long haul
2. Deters potential entrants hard-to-reverse strategic commitments
3. Limit strategic flexibility elsewhere and incur huge losses if these large-scale
“bets” turn out wrong
ii. Small-scale entries:
1. Less costly
2. Focus on organization learning.
3. Limits downside risk.
4. Lack of strong commitment may lead to difficulties in building market share
and capturing first mover advantages.
8. The Comprehensive Model of Foreign Market Entries:
a. First Step – Equity v. Non Equity mode
i. Equity mode – include JVs and WSOs; larger, hard to reverse commitments. Calls for
the establishment of independent organizations overseas.
ii. Nonequity mode – includes exports and contracts; tend to be smaller commitments.
b. Second step – Making actual selection
c. Modes of Entry
Chapter 11: Making Alliances and Acquisitions Work
1. Strategic alliances: voluntary agreements between forms involving exchange, sharing or co-
developing products, technologies, or services
2. Acquisitions:
3. Graph of alliances and acquisitions – main difference is ownership
a. Alliance – non-ownership contracts, e.g. a contract of co-marketing, research and
development, turnkey project
i. Non- Equity:
 1. Co-marketing – two or more companies approach their marketing together
for strategic reasons
2. Turn key project – a project where formal institutions protect domestic
industries preventing foreign firms from acquiring firms; the foreign firms
pay someone in the country in order to build the new domestic company
there, and then after that, the contractor will sell the company “gives the keys”
to the foreign firm; a way to enter the foreign market
3. Strategic supplier – where you agree with someone else, a major supplier, in
order to get certain inputs for your production system, specific to your
industry
4. Strategic distributer – you contract with a distributer for distributing your
product in the foreign countries
5. Licensing / Franchising –
a. Licensing – intellectual assets
b. Franchising – real assets
ii. Equity: higher risk and higher compromise
1. Strategic investment: where the foreign firms buys certain equity (10%
51%) in the target company, and through this, you can take advantage of the
technology the target company provides
2. Cross share holdings: the foreign firm and the target company buy shares
from each other, so then the interest between the two companies is much
higher, each company controls part of the other
3. Joint venture: where two companies and then decide to create a third
company, for example one provides the financial backing and one provides
the technology
4. Acquisition: company A buys company B and creates a much bigger company
A
b. Acquisitions – ownership contracts
4. Strategic Alliances
a. (Non- Equity) Contractual alliances: associations between firms that are based on contract,
with no sharing of ownership
i. Co-marketing
ii. Research and development
iii. Contracts (non-ownership)
iv. Turnkey projects
v. Strategic suppliers
vi. Strategic distributors
vii. Licensing / franchising
b. Equity based alliances: based on ownership or financial interest between firms
i. Strategic investment: one firm invests in another, basically for technological reasons
ii. Cross-shareholding: indirect control companies can have through ownership
structures, the pyramid; e.g. A owns B and C, and C owns D and E, so A owns part od
D indirectly
iii. Joint ventures
5. Merger and Acquisitions:
a. Merger: combinations of operations of management of two firms to establish a new legal
entity, accounts for only 3% of all M and As
i. Consolidation: equal
 ii. Statutory: only one firm survives
b. Acquisitions: transfer of the control of operations and management from one firm (target)
to another (acquirer) ; 97% of all M and As
6. Influence of Institutions:
a. Institution based view: formal and informal institutions
i. Formal
1. Antitrust concerns: antitrust authorities are more likely to approve alliances
than acquisitions
2. Entry requirements: many governments place limitations on foreign firm’s
mode of entry
ii. Informal
1. Normative pillar: firms copy other reputable organizations to establish
legitimacy
2. Cognitive pillar: internalized, taken for granted values that guide alliances and
acquisitions
b. Resource based view: how a firm’s internal resources determine success with the VRIO
framework (Value, Rarity, Imitability, Organization)
i. Value:
1. Advantages:
a. Reduce costs, risks, and uncertainties.
b. Access complementary assets and learning opportunities.
c. Possibility to use alliances as real options.
i. Real option – the option to buy the real assets of the target
company in the future
2. Disadvantages:
a. Choosing the wrong partners
b. Potential partner opportunism
c. Risk of helping nurture competitors (learning race): when you learn
quickly the tricks of your partner to use that information in your own
interest
ii. Rarity: relational (collaborative) capabilities, the ability to manager inter-firm
relationships, may be rare
iii. Inimitability:
1. Alliances make it easier to observe and imitate firm-specific capabilities
a. Learning race – the race in which partners aim to learn the other’s
tricks
2. Trust and understanding between allies is difficult to imitate
3. Firms that excel in post-acquisition integration possess hard to imitate
capabilities
iv. Organization: some successful alliances are organized in a way that is difficult to
imitate
1. How firms are organized to take advantage of benefits or acquisition while
minimizing the costs
a. Strategic fit: effective matching of complementary strategic capabilities
b. Organizational fit:
7. Alliances:
a. Formation of Alliances:
i. Stage 1: To cooperate or to not cooperate?
 1. Market transactions: importing and exporting activites (non-e)
2. Cooperative inter-firm relationships: through alliances (non-e)
3. Mergers and acquisitions (e)
a. Competitive Challenges as a stand alone firm –
i. Economies of scale
ii. Stand alone market risk
iii. Unable to satisfy higher foreign demand
iv. Not enough funding to enter a foreign market alone
b. Drawbacks of acquisitions –
i. High financial risk in acquisitions
ii. Partner can take advantage of weaker partner’s knowledge –
from an uneven balance of power
iii. Less flexibility as a firm

ii. Stage 2: Contract or equity?

1. Contract
2. Equity – level of compromise and risk higher
a. Allows firms to learn tacit capabilities
b. Allow firms to have some control over joint activities

iii. Stage 3: Specification of the relationship?

1. Specify one of 8 options, either a contract or equity based choice
a. Contract
i. Co-marketing
ii. R and D contracts
iii. Turnkey project
iv. Strategic supplier / distributor
v. Licensing / Franchising
b. Equity
i. Strategic investment
ii. Cross-shareholding
iii. Joint venture
iv. Stage 4: Dissolution of Alliances: 70% of these fail after a few years or they don’t
continue
1. Initiation – Reconciliation
2. Going Public – Mediation by 3rd Parties
3. Uncoupling – Last minute salvage
4. Aftermath - Go alone or New relationship
b. Performance of Alliances
i. Four key factors:
1. Equity: greater equity stake may mean firm is more committed, likely to
result in higher performance
2. Learning and experience:
a. Has a firm successfully learned from its partners?
b. Experience often used as a proxy
3. Nationality: dissimilarities in national culture may create strains in alliances
4. Relational capabilities: alliance performance may fundamentally boil down
to soft, hard-to-measure, relational capabilities
8. Acquisitions
a. Why make acquisitions?
i. Institutional based view
1. Add value –
a. Synergistic motives –
i. To respond to formal institutional constrains and transitions,
and take advantage of economies of scale
2. Reduce value –
a. Hubristic motives –
i. Herd behavior: following norms and chasing fads of M&As
b. Managerial motives –
i. Self interested actions such as empire buildings guided by
informal norms and cognitions
ii. Resource based view
1. Add value –
a. Synergistic motives –
i. Leverage superior managerial capabilities
ii. Enhance market power and scale economies
iii. Access to complementary resources
2. Reduce value –
a. Hubristic motives –
i. Managers’ over-confidence in their capabilities
b. Managerial motives –
i. Agency problems – mangers might decide to do an acquisition,
so that they can work for their own interest, so that they can
use the new resources for their own benefits
b. Acquisition Failures:
i. Problems for all M&As:
1. Pre-acquisition: overpayment for targets
a. Mangers over-estimate their ability to create value
b. Inadequate pre-acquisition screening
c. Poor strategic fit
2. Post-acquisition: failure in integration
a. Poor organizational fit
b. Failure to address multiple stakeholder groups’ concerns
ii. Cross-Border Acquisition Failures:
1. Pre-acquisition: overpayment for targets
a. Lack of familiarity with foreign cultures, institutions, and business
systems
b. Nationalistic concerns against foreign takeovers (political and media
levels)
2. Post-acquisition: failure in integration
a. Clashes of organizational cultures compounded by clashes of national
cultures
b. Nationalistic concerns against foreign takeovers (firm and employee
levels)
9. Questions:
a. In what two primary areas do formal institutions affect alliances?
 i. Anti-trust concerns
ii. Entry requirements
b. Under what conditions would you choose an acquisition over an alliance?
i. Acquisition - strategic information, like a software company – and what adds value to
the company is the knowledge, so if you share that information, you could lose your
competitive advantage - if you wanted total control over a company
c. When does majority JV seem more appropriate? When does minority JV appeal?
d. Is it necessary that managers pay attention to politics of M&As?
e. Key factors you must take into consideration before formation of alliance or acquisition?
i. Informal institutions
f. Organizational fit and Strategic fit:
i. Organizational fit: similarity in cultures between firms
ii. Strategic fit: the matching of complementary assets

Group project: Market Entry Strategy Project

Due April 24, 2013
Very general – probably won’t fit exactly the country of your choice

Four sections:
1. Market Intelligence Report – include the most important facts regarding the company of your
choice, focus the analysis on the formal and informal institutions
a. Depending on your product – maybe an analysis of per capita income is appropriate,
depending on how expensive your product is
b. Demographic Analysis – will be interesting, if our product is focused on most of the
population
c. Infrastructure – if you need certain logistics in order to distribute your product across the
country, then this is relevant
d. Formal and informal - Domestic laws and Domestic regulations that could affect your
product
2. BEAR – resource based view, analysis of internal factors
3. ROME – assess the different potential market entry strategies
a. Why do you want to go to your country by exporting directly, or licensing, or franchising?
b. Joint ventures
c. Or even direct acquisition through FRE?
d. So – analyze each of them, and then pick the strategy of your choice
4. MESA – the most important
a. Description of the final choice made regarding the market entry strategy
5. 3-4 members per group
6. No more than 12 pages, but it doesn’t matter – could be 6-7-8
7. Content – sound analysis

Most important – market strategy entry analysis

Chapter 12: Strategizing, Structuring, and Learning

1. Two pressures for MNE:
 a. Cost reduction: to cut costs, calls of global integration, which means that we should cut
costs by creating uniform products for everyone
b. Local responsiveness: calls for local adaptation, which means that we should provide
products / services depending on what location we are
2. Multinational Strategies and Structures:
a. Strategy v. Structure:
i. Strategy: the way you will adopt in order to achieve your goals
ii. Structure: the way your organization is set up; the way the firm is organized
iii. Every single strategy has its own structure, and every structure has its own strategy
Relationship between strategy and structure is reciprocal
iv. Neither strategy nor structure is static, it is often necessary to change one, the other,
or both
b. 4 Different Strategy / Structures:
i. Home replication strategy / international division structure: low – pressure for
cost reduction, low – pressure for local responsiveness (same clients everywhere)
1. Home replication strategy: duplicates the home based competencies in
foreign countries
a. Advantages:
i. Leverages home country based advantages
ii. Relatively easy to implement
b. Disadvantages:
i. Lack of local responsiveness
ii. May alienate foreign costumers
2. International division structure: organizational structure when firms
initially expand abroad
a. In this case, we offer exactly the same product as in the home country
b. Why? Because the product is not focused on the host country demand,
but on the home country demand
*Example - this campus, not adaptive to Spanish educational system
ii. Global standardization strategy / Global product structure: high – cost
reduction, low – local responsiveness (different clients globally)
1. Global standardization strategy: development of standardized products in
order to take advantage of economies of scale
a. Advantages:
i. Leverages low cost advantages
b. Disadvantages:
i. Lack of local responsiveness
ii. Too much centralized control
2. Global production division structure: the organizational structure that
organizes the multinational enterprise according to different countries and
regions, where they are considered one homogenous unit with no differences
in between countries
a. Highly responsive to pressure for cost efficiency
b. Reduces inefficient duplication in multiple countries
c. Lags in local responsiveness
d. Disadvantage: you are considering different locations as the same; but
in real life, the world is different
*Example – Coca Cola, Apple, McDonald’s
 iii. Localization strategy / Geographical area structure: low – pressure for cost
reduction, high – local responsiveness
1. Localization strategy: also called multi-domestic strategy, focused on foreign
areas and regions which are considered stand-alone markets; considers every
location as an individual region – so the product or service offer must be
adapted
a. Advantages:
i. Maximizes local responsiveness
b. Disadvantages:
i. High costs due to duplication of effort in multiple countries
ii. Too much local autonomy
2. Geographical area structure: the organization of the company based in
different geographical area
a. Regional managers carry a great deal of the weight
b. Strong local responsiveness, but that also encourages fragmentation of
MNE
c. Disadvantage: high cost, you have to place different subsidiaries
wherever you are
*15th Avenue Tea and Coffee
iv. Transnational strategy / global matrix structure: high – pressure for cost
reduction, high – pressure for local responsiveness
1. Transnational strategy: cost effective and locally responsible
a. Advantages:
i. Cost efficient while being locally responsible
ii. Engages in global learning and diffusion of innovations
b. Disadvantages:
i. Organizationally complex
ii. Difficult to implement
c. Examples – usually automobiles
2. Global matrix structure: the structure used to alleviate the pressure from
both global production division and geographical area structure
a. Difficult to deliver in practice
b. May add layers of management, slowing down decision speed.
*Example – General Motors, has ownership stakes in foreign carmakers; so a
big MNE offers local products through its relationships with subsidiaries
3. Knowledge Management: the structures, processes, and systems that actively develop, leverage,
and transfer knowledge
a. 2 kinds:
i. Explicit knowledge: codifiable, easy to be transferred
ii. Tacit knowledge: non-codifiable, transfer requires hands-on practice (based on
expertise, training process)
b. Knowledge Management in 4 types of MNEs:
i. Globalizing R&D: a fundamental basis for competitive advantage is innovation based
firm heterogeneity; decentralized R&D in different locations virtually guarantees
persistent heterogeneity
4. Questions –
a. What pressure is unique to international competition? Pressure to local responsiveness
b. Describe 4 strategy choices: 1. home replication strategy 2.
4/15/2013
Monday next week, quiz
Final is on May 3rd , 8:30 AM

Chapter 13:
1. Terms:
a. Human resources management: the set of different activities for hiring managers;
attracting, selecting, and managing employees
b. Staffing: the human resource management activities related to hiring managers and filling
the positions
c. Host country nationals: managers from the host country, from the same country
d. Parent country nationals: managers from the parent country
e. Third country nationals: managers from neither the host or parent country
f. Expatriates: managers from foreign countries
2. 2 Types of expatriates:
a. Parent country nationals (PCNs):
i. Advantages:
1. Control by headquarters is facilitated
2. May be the most qualified
3. Managers are given international experience
ii. Disadvantages:
1. Opportunities are limited
2. Adaptation may take a long time
3. Usually very expensive
b. Third country nationals (TCNs):
i. Advantages:
1. May bridge the gap between headquarters and the subsidiary
2. May be less expensive than PCNs
3. Don’t have conflicts, culturally, because they do not belong to the home
country or the host country cultures – more flexible than PCNs or HCNs
4. Typically have a lot of international experience
ii. Disadvantages:
1. Host government and employees may resent TCNs
2. Similar to disadvantages for PCNs
3. Three Approaches to Staffing:
a. Ethnocentric approach:
i. Emphasizes norms and practices of parent company
ii. Relies on PCNs
iii. Perceived lack of talent among HCNs often necessitates this approach
iv. E.g. occurs in Asian multinational companies
v. Focus on PCNs
b. Polycentric approach:
i. Focuses on the norms and practices of host country
ii. Relies on HCNs
iii. “When in Rome…”
 iv. HCNs have no language or cultural barriers
v. Placing HCNs in top roles may boost morale of other HCNs
vi. E.g. Price Waterhouse Coopers, SLU Madrid
vii. Focus on HCNs
c. Geocentric approach:
i. Focuses on finding the most suitable managers, disregarding nationality
ii. This approach can create a corporate wide culture and identity
iii. Focus on TCNs / skills
4. Strategy and Staffing:
a. Systematic link between strategic posture of an MNE and its staffing approach
MNE strategies Typical staffing Typical top managers at
approaches local subsidiaries
Home replication Ethnocentric Parent country nationals
Localization Polycentric Host country nationals
Global standardization Geocentric A mix of all 3
Transnational Geocentric A mix of all 3

i. Represents home company

ii. Represents foreign country
iii. Mix
iv. Mix
5. The Role of Expatriates (just TCNs and PCNs)
a. 4 Roles:
i. Strategist: representing interests of the MNE’s headquarters, in order to maximize
the wealth of current shareholders
ii. Daily managers: run operations and build local capabilities
iii. Ambassador: representing headquarter’s interests, build relationship with host-
country stakeholders, represent subsidiary to headquarters
iv. Trainer: for their replacements
6. Factors in Expatriate Selections:
a. Expatriate failures are high…
i. Premature (earlier than expected) return
ii. Unmet business objectives
iii. Unfulfilled career development objectives
b. Causes for failure:
i. Family’s inability to adjust to culture
ii. Usually a combination of work-related and family-related problems
c. Situation:
i. Corporation headquarters preferences
ii. Host country subsidiary preferences
iii. Language
d. Individual:
i. Technical ability and experience
ii. Cross cultural ability
iii. Family and spousal attachments
7. Development for Expatriates and Repatriates:
a. Psychological contract: is an informal understanding of expected delivery of future benefits
b. Career anxiety
 c. Loss of status
d. Cultural re-adjustment
8. Training and Development for HCNs:
a. In China, for example, the key factor in retaining or losing talent is which employer can offer
training and development opportunities
9. Compensation for Expatriates:
a. Going rate: you get exactly the same salary as a HCN, In line with the polycentric approach
i. Advantages:
1. Equally among parent, third, and host country nationals in the same location
2. Simplicity
3. Identification with host country
ii. Disadvantages:
1. Variation between assignments in different locations for the same employee
2. Re-entry problem if the going rate in the parent country is less than that in the
host country
b. Balance Sheet: balances the cost of living differences, with financial incentives; in line with
the ethnocentric approach
i. Advantages:
1. Equity between assignments for the same employee
2. Facilitates expatriate re-entry
ii. Disadvantages:
1. Costly and complex to administer
2. Great disparities between expatriates and host country nationals
10. Compensation for HCNs:
a. Low level HCNs have relatively little bargaining power
b. HCNs in management and professional positions are gaining more bargaining power
11. Quiz information:
a. April 22 at 9:30
b. For the quiz, chapters 7– 12
c. 12 questions
i. 2 T/F questions
ii. 7 MC questions
iii. 3 short answer questions
d. Wednesday, review of most important concepts for the quiz
e. For the final, Chapters 6-13
f. Chapter 11 due this Wednesday, do that today

4/17/2013
Chapter 13, continued:
1. Performance Appraisal: evaluation of employee performance for the purpose of promotion,
retention, or ending employment
2. Labor Relations at Home:
a. Firm’s key concern – cut costs, enhance competitiveness
b. Union’s concern – higher wages and more benefits
c. Threat of job loss v. threat of strike
3. Formal Institutions and Human Resource Management:
a. Formal institutions: every country has rules and regulations governing HRM
b. Informal institution: MNEs from different countries have different norms in staffing.
4. Questions:
a. What are the four most important roles that expatriate play?
b. What is the relationship between the MNE strategies and the staffing approaches?
c. Two different systems:
i. Going rate
ii. Balance sheet
5. Quiz Review:
a. Format:
i. 2 T/F
ii. 7 MC
iii. 3 Short Answer
iv. Chapters 7, 9, 10, 11, 12, 13
v. Chapter 8 – on final only, not on the quiz
b. Chapter 7 – Foreign Exchange Rates
i. What happens, for instance, in the balance of payments if we do have a strong or
weak domestic currency?
ii. Is the trade deficit or trade surplus affected by a strong or weak domestic currency?
iii. Different determinants of the exchange rates:
1. Long term
a. Relative price difference between countries
b. Differential between interest rates
c. Productivity
d. Exchange rate policies
2. Short term
a. Investor’s psychology – expectations of the market
iv. Relationship between the exchange rates and the labor market –
1. What happens if a certain economy has a very strong domestic currency, how
does that affect the labor market?
2. For example – what happens, or what would you prefer, to reduce
unemployment in an open economy? A strong or weak domestic currency?
a. You would want a weak currency, then you can export more, you need
to hire more people, and the unemployment is lower
c. Chapter 9 – Entrepreneurship
i. Described the different foreign entry strategies – direct exports, franchising,
licensing, FDI
ii. Letter of credit – when you export, you have your exporting and importing banks,
and there’s an agreement between the two of collateral credit
d. Chapter 10 – Entering Foreign Markets
i. Two different modes to enter a foreign market –
1. Equity based
2. Non-equity based
ii. Advantages and disadvantages of these different strategies
iii. Different non-equity modes – contractual methods
iv. Licensing, franchising, turnkey projects, and FDI, co-marketing
e. Chapter 11 – Alliances and Acquisitions
i. Several of the same concepts between 10 and 11
ii. Joint ventures
iii. Dissolution of alliances – marriage
 f. Chapter 12
i. Structures and strategies – the four strategies with their own associated structures
ii. Think about examples of each of these strategies and structures
g. Chapter 13
i. The staffing approaches
ii. Different kinds of expatriates
iii. Relationship between staffing approaches and types of expatriates

4/22/2013
strong currency – import more – current account deficit
weak currency – export more – current account surplus

real option – with a non equity agreement, the buying company has the option to later purchase assets to
buy the other percent of the company, making the buying company the major shareholder
80

*Final – Friday, May 3

Chapters 7,8,9,10,11,12,13

1. 34 questions, in total
a. MC – 17
b. TF - 6
c. Short Answer – 11
i. Pay attention to the specific topics on informal institutions, such as cultural
differences, the liability of foreignness
ii. Advantages and disadvantages of first and late movers
iii. Chapter 8 – which talks about the different international agreements and the
different levels of integration
1. FTA – importing and exporting without tariffs
2. Custom unions
3. Common markets
4. Political unions
iv. Couple of questions over alliances
1. Advantages and Disadvantages
2. Non-equity and equity modes
v. Focused on differentiating or relating concepts
vi. Review the integration responsiveness framework – which relates the strategies with
the structures
1. Advantages and Disadvantages
vii. At least one or two questions based on the last chapter about HRM –
1. Different components
2. Types of staffing approaches
3. Relationship between staffing approaches and strategy/structures
4. Different compensation methods – when to apply one of them instead of the
other – advantages and disadvantages
a. Going rate
b. Balance sheet
Review on Monday
4/29/2013
Final Friday May 3 at 9 AM

1. Chapter 6
a. FDI
b. Different Ways to Go Abroad
c. Different Advantages in terms of ownership, location
2. Chapter 7 – very important
a. Exchange Rates
b. 4 Determinants of the Exchange Rates – specific questions about this – and how exchange
rates affect the performance of companies
i. Differential in interest rates –
1. 2 Countries – US and UK
a. US has higher interest rates than the UK
i. People want to put their money in the US
ii. British investors want to put their money in the US
iii. Increase in demand for US dollars
iv. The dollar will appreciate and get stronger
v. The exchange rate will go down, because you need less dollars
to purchase each pound
ii. Differential in inflation – how does it affect the exchange rates?
1. 2 Countries – US and UK
a. Higher domestic inflation - higher inflation in US than in UK
i. People in US demand cheaper British goods
ii. In order to buy these, you will demand British pounds
iii. More demand for British pounds
iv. The US dollar will depreciate and get weaker relative to the
British pound
v. And the exchange rate goes up, you have to pay more dollars for
each pound
iii. Differential in income levels
1. 2 Countries – US and UK
a. Higher income levels in US than in UK
i. People in US have more money, have more demand for all goods
ii. Including more demand for foreign goods – like British goods
iii. More Demand for British pound
iv. The US dollar will depreciate and get weaker relative to the
pound
v. And the exchange rate goes up, you have to pay more dollars for
each pound
iv. Expectations / Investor psychology – up or down
1. Good expectations about performance in domestic economy – more demand
for US dollars – dollar becomes stronger
c. Evolution of the international monetary system
d. Different exchange rate systems – take a look at these ***
i. Types:
1. Free floating
2. Managed
 3. Fixed
ii. Definitions
iii. Examples
e. Real Options
f. Related the exchange rate with the trade deficit
g. Relationship between exchange rates and labor market and unemployment
i. Strong currency – purchasing power increases, buying more foreign goods than
domestic goods – then domestic industry drops – and domestic unemployment
increases
ii. Most countries want weak currencies so that they can better export and decrease
domestic unemployment
3. Chapter 8
a. International Trade Agreements
b. 5 Different Levels of Integration Between the Different Economies
4. Chapter 9
a. Entrepreneurial Firms
b. Advantages and Disadvantages or Early Movers and Late Movers
5. Chapter 10
6. Chapter 11
a. Alliances and Acquisitions
b. Non-equity and Equity contracts
c. Different steps in order to form an alliance
d. Steps to dissolve alliances
7. Chapter 12
8. Chapter 13
a. HRM
b. Different kinds of expatriates
c. Different staffing approaches, how to hire foreign managers depending on your strategy

9. Take a look at:

a. Market Entry Strategies
i. Different Strategies
ii. Examples
b. Organizational Fit
c. Structural Fit
d. Cultural Distance
e. Differences Between the Non-Equity and Equity Modes
i. Examples!!! Lots of examples of these concepts!
f. Advantages and Disadvantages of First Mover
g. Definitions and examples
i. Comarketing
ii. R&D
iii. Joint Ventures
iv. Licensing and Franchising
h. Alliances, Acquisitions
i. Different Strategies and Structures
j. Different Pressures of MNEs
i. Cost reduction
 ii. Local responsiveness
k. VRIO Framework – resource based view
l. Different kinds of foreign managers – when to use which
i. HCNS
ii. PCNS
iii. TCNS
m. Two additional questions – EC – upgrades midterm by 4 pts if correct, if you’re wrong you
are downgraded on your midterm by 1 pt – you have to answer them both correctly in order
to get the points