BIBM

Foreign direct investment. An internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment.

1. Cross-cultural risk
2. Country risk
3. Currency risk
4. Commercial risk

A situation or event in which a cultural misunderstanding puts some human value at stake.

Example: Cultural differences, differences in language, lifestyles, etc.

Potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country.

It includes the possibility of foreign government intervention in firms' business activities.

Risks of adverse fluctuations in exchange rates.

FIrms' potential loss or failure from poorly conceived or executed business strategies, tactics, or procedures.

1. Focal firm
2. distribution channel intermediary
3. facilitator or freight forwarder
4. State-owned enterprises
5. individual consumers and households
6. Retailers
7. Organizational buyers

it chooses exporting as a main strategy for entering foreign markets, because their limited resources prevent them from undertaking FDI.

an example of a reactive motive is the need to serve a key customer that has expanded abroad.

1. Declining trade barriers
2. Rapid changes in communications
3. Rapid changes in manufacturing
4. Rapid changes in transportation technologies

it allows them to outsource value-chain activities to the most favorable locations worldwide.

1. Worldwide reduction of barriers to trade and investment
2. market liberalization and adoption of free markets
3. industrialization, economic development and modernization
4. integration of world financial markets
5. advances in technology

1. Internationalization of the firm's value chain
2. countless new business opportunities for internationalizing firms
3. New risks and intense rivalry from foreign competitors

1. Rapid spread of financial or monetary crises from one country to another
2. loss of national sovereignty
3. offshoring and reshoring

a political system is a set of formal institutions that form a government.

It includes legislative bodies, political parties, lobbying groups and trade unions.

A legal system is a system for interpreting and enforcing laws. It is the foundation for laws and regulations.

• Ensure order,
• resolve disputes in civil and commercial activities,
• tax economic output,
• provide protections for private property.

Country risk.

1. Authoritarianism
2. Socialism
3. Democracy

the political system is how the government is organised, the economic system is more of how the market is organized.

The state attempts to regulate most aspects of public and private behavior.

Authoritarianism is associated with command economies.

Individuals can own property and assets.

Democracy is associated with market economies.

Capital and wealth should be vested in the state and used as means of production rather than for profit.

Socialism is associated with mixed economies.

1. Common Law
2. Civil Law
3. Religious Law
4. Mixed Systems

1. Government
2. International Organizations (such as the WTO)
3. Regional Trade Organizations (that want to reduce trade barriers)
4. Special interest Groups (OPEC)
5. Competing Firms

1. Government Takeover of corporate assets
2. Embargoes and Sanctions
3. Boycotts against firms or nations
4. Terrorism
5. War, insurrection, and violence

1. Confiscation (seizure of corporate assets without compensation)
2. Expropriation (seizure of corporate assets with compensation)
3. Nationalization (of an entire industry, with or withour compensation)

1. Proactive Environmental Scanning
2. Strict adherence to Ethical Standards
3. alliances with qualified local partners
4. protection through legal contracts

international strategy is strategy carried out in two or more countries.

1. Efficiency
2. Flexibility
3. Learning

The firm must build efficient international value chains. efficiency refers to lowering the cost of the firm's operations and activities on a global scale.

The firm must develop worldwide flexibility to accomodate diverse country-specific risks and opportnities. the diversity and volatility of international environments are especially challenging for managers.

the firm must create the ability to learn from operating in international environments and exploit this learning, through knowledge transfer on a worldwide basis.

• New technical and managerial know-how
• New product ideas
• Improved R&D capabilities
• Partnering skills
• Ability to survive in unfamiliar environments

These are the reasons why learning is important for a firm!

by the degree to which the firm masters the three skills of being efficient, flexible and being able to learn.

it is often difficult to excel in all three