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GEB test 3
University of Central Florida, Summer 2016, GEB3375, Peter Martin Resch Test 3
| Question | Answer |
|---|---|
| In typical licensing agreements, the licensee compensates the licensor with a down-payment plus ongoing royalties based on sales. | True |
| Contractual entry strategies in international business are cross-border exchanges in which the relationship between the focal firm and its foreign partner is governed by an explicit contract. | True |
| When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ________. | franchising |
| In a licensing agreement, the licensee provides ________. | a combination of down-payment plus royalty |
| In a licensing agreement, ________ is responsible for local sales | the licensee |
| Where are the majority of the world's top licensing firms based? | United States |
| Which of the following is a disadvantage of licensing for technological firms? | It increases the risk of creating a future competitor. |
| Firms usually internalize those value-chain activities they consider part of their core competencies. | True |
| Captive sourcing is an arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications. | False |
| Offshoring is common in the service sector, including banking, software code writing, legal services, and customer-service activities. | True |
| The procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers is known as ________. | outsourcing |
| ________ refers to sourcing from the firm's own production facilities. | Captive sourcing |
| The relocation of a business process or entire manufacturing facility to a foreign country is known as ________. | Offshoring |
| ________ is the primary rationale for sourcing abroad. | Cost efficiency |
| Which of the following is most likely to occur if a U.S. firm outsources some of its business operations to a Japanese company, and the Japanese yen strengthens against the dollar? | The U.S. company will experience higher costs in using the services of the Japanese company. |
| Intellectual Property Rights Defintion | The legal claim through which the proprietary assets of firms or individual are protected from unauthorized use by other parties. |
| What is the purpose of intellectual property rights? | 1. provide inventors with a monopoly advantage for a specified period of time, so they can exploit their inventions not only to recoup their investment costs and create commercial advantage 2. acquire power and market dominance free of direct competition. |
| Licensing: Defintion | An arrangement in which the owner of intellectual property grants another firm the right to use that property for a specified period of time in exchange for royalties or other compensation. |
| licensor | owner of intellectual property Provides: 1. intellectual property 2. supporting products |
| licensee | the user Provides: 1. lump-sum payment 2. down-payment plus royalty 3. products 4. know-how 5. cross licensing |
| Royalty | is a fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset. |
| A know-how | agreement is a contract in which the focal firm provides technological or management knowledge about how to design, manufacture, or deliver a product or a service to a licensee in exchange for a royalty. |
| What are advantages of licensing agreements to the licensor? | Low investment Low involvement Low effort, once established Low-cost initial entry strategy |
| What are the disadvantages of licensing agreements to the licensor? | Performance depends on the foreign licensee Licensor has limited control over its asset(s) abroad Runs the risk of creating a future competitor |
| Franchising: | arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties, or other compensation |
| What does the franchisor provide in a franchising agreement? | 1. trademark-protected business concept 2. everything needed for its implementation(patents, know-how, training, service, product) |
| What does the franchisee provide? | 1. lump-sum payment 2. down-payment plus royalty 3. other markups and contributions(e.g finance changes, sale of related products) |
| Master franchiser: | an independent company authorized to establish, develop, and manage the entire franchising network in its market. |
| Turnkey Contracts: | arrangement where a firm plans, finances, organizes, manages, and implements all phases of a project abroad and hands it over to a foreign country after training local personnel. |
| Management contract: | a contractor supplies managerial know-how to operate a hotel, resort, airport, hospital, or other facility in exchange for compensation |
| What does global sourcing refer to? | Procurement of selected products or services from independent suppliers or company-owned subsidiaries located abroad. |
| Why has global sourcing become so easy (drivers)? | 1. Technological advances in communications, especially the Internet and international telephony 2. Falling costs of international business (tariffs etc.) 3. Entrepreneurship and rapid economic transformation in emerging market countries |
| Offshoring: | is common in the service sector, including banking, software code writing, legal services, and customer-service activities. |
| Captive Sourcing | Definition: Sourcing from the firm’s own production facilities located abroad. |
| Captive Sourcing Example | Example: A U.S. maker of tennis shoes, has a manufacturing facility in Bangladesh. The U.S. company sources its shoes from its own plant located there (prerequisite: FDI |
| Outsourcing | Procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers. |
| Why do companies outsource? (Rationales for outsourcing) | The idea behind outsourcing (in a nutshell) is that a certain activity can be performed either a lot better or a lot cheaper by a company specialized in that activity. |
| What types of activities in a firm are more/less likely to be outsourced? | In the U.S., many companies have outsourced their production to suppliers located in low cost countries (we all know that), as well as customer service functions, payroll administration, software development, IT maintenance etc. |
| Business Process Outsourcing (BPO) | Outsourcing of business functions to independent suppliers such as accounting, human resource functions, IT services, and customer service. |
| Front-office activities (BPO) | which include down-stream, customer- related services such as marketing or technical support. |
| Back-office activities (BPO) | including internal, upstream business functions such as payroll and billing |
| Contract Manufacturing' Defintion | It has products or components manufactured according to well-defined specifications |
| contract manufacturing. Example | most of the fancy Western brands that you buy (only to discover that the label reads “Made in Vietnam” “Made in China” etc. |
| Why is India a popular offshoring destination? | 1. A leading world center in the IT industry, employing more than two million people 2.Strong English language skills 3.Abundant pool of educated engineers, managers, and other specialists 4. Low labor costs |
| Primary reasons for global sourcing? | Cost Efficiency due to lower wages abroad and improved profitability Ability to Achieve Strategic Goals |
| Major challenge for companies engaged in global sourcing? | Lower-than-expected cost savings Environmental factors Weak legal environment Overreliance on suppliers Risk of creating competitors Erosion of morale and commitment among home-country employees due to outsourcing jobs |
| The 4 P’s of Marketing | Product Price Promotion Place (distribution) |
| Global Marketing strategy: | The plan of action the firm develops for foreign markets that guides its decision making: 1. How to position itself and its offering and which customer segments to target. 2. To what degree it should standardize or adapt its marketing program elements. |
| What is Market segmentation? | The process of dividing the firm’s total customer base into homogeneous clusters (subgroups) that allows management to formulate unique marketing strategies for each group. |
| Common Market Segmentation Variables | Demographic variables Psychographic variables: Geographic variables Behavioral variables; Volume usage, benefit expectations, price sensitivity etc. |
| Demographic variables | gender, age group, income, education, occupation etc. |
| Psychographic variables: | Personality attributes, lifestyles, motives |
| Geographic variables: | Region, City size, Climate etc. |
| Behavioral variables: | Volume usage, benefit expectations, price sensitivity etc.) |
| Global Market Segment | A group of customers that share common characteristics across many national markets. |
| Adaptation: | Modifying elements of the marketing program (e.g. product, advertising, pricing, distribution) to accommodate specific customer requirements in individual foreign markets. |
| Standardization | Efforts to make marketing program elements uniform so as to target entire regions of countries, or even the global marketplace, with a similar product or service. |
| Advantages of Standardized Marketing | 1.Cost reduction 2. Improved planning and control 3. Ability to portray a consistent image and build global brands:. |
| Cost reduction. | Standardization reduces costs through economies of scale in design, sourcing, manufacturing, and marketing. |
| Improved planning and control. | Fewer offerings simplify quality control and reduce the number of replacement parts. |
| Ability to portray a consistent image and build global brands: | Standardized marketing increases customer interest and reduces customer confusion. |
| What is a brand? | A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers |
| Global brand | is one whose positioning, advertising strategy, look, and personality are standardized worldwide |
| Rigid cost-plus pricing: | Set a fixed price for all export markets by adding a flat percentage to the domestic price to compensate for the added costs of doing business abroad. |
| Flexible cost-plus pricing. | Set price to accommodate local market conditions, such as customer purchasing power, demand, and competitor prices. |
| Incremental pricing. | Set price to cover only variable costs, not fixed costs. This assumes that fixed costs are already paid from sales in the home or other countries. |
| International Financial Management: | The acquisition and use of funds for cross-border trade, investment, and other commercial activities. |
| Companies doing business internationally carry out transactions in a multitude of foreign currencies and diverse environments characterized by.......... | restrictions on capital flows, country risk, and varying accounting and tax systems. |
| Capital structure: Defintion | the mix of long-term equity and debt financing firms use to support their activities. |
| Equity Financing: Defintion | Selling stock or reinvesting earnings |
| Debt Financing: Defintion | The firm borrows money from a creditor in exchange for repayment of principal and interest |
| Equity Financing: Advantage | The firm obtains capital without incurring debt and having to repay funds to providers |
| Equity Financing: disadvantage | Firm’s ownership is diluted. |
| Debt Financing: The main advantage over equity | financing is the firm does not sacrifice any ownership interests |
| bond: Defintion | is a debt instrument that enables the issuer (borrower) to raise capital by promising to repay the principal along with the interest on a specified date (maturity). |
| global bond market | is the international marketplace in which bonds are bought and sold, primarily through banks and stockbrokers. |
| Intra-corporate financing: Defintion | Obtaining funds from within firm’s network of subsidiaries and affiliates |
| Intra-corporate financing: Advantage | 1. reduce the borrowing subsidiary’s income tax burden because interest payments are often tax deductible 2. little effect on the parent’s balance sheet |
| Cash flow: defintion | needs arise from everyday business activities, such as paying for labor and materials or resources, servicing interest payments on debt, paying taxes, or paying dividends to shareholders |
| Cash flow management: Definitions | t ensures cash is available where and when it is needed. |
| cash flow management and reason it is important | Cash is generated from various sources and needs to be transferred from one part of the MNE to another. |
| trade credit | a subsidiary defers payment for goods received from the parent firm (30-day, 90-day etc.) |
| Transfer pricing | (also known as intra-corporate pricing) refers to prices that subsidiaries and affiliates charge one another as they transfer goods and services within the same MNE |
| Managers use capital budgeting to: | decide which international projects are economically desirable. |
| Why are capital budgeting decisions for international firms a complicated matter? | These variables include: Differences in currencies, tax rules, government intervention, country risk, inflation etc. |
| Currency risk | concerns exchange rate fluctuations that harm business profits |
| Transaction exposure | is currency risk that firms face when outstanding accounts receivable or payable are denominated in foreign currencies. |
| Translation exposure | is currency risk that results when a firm translates financial statements denominated in a foreign currency into the functional currency of the parent firm. |
| Economic exposure | is currency risk that results from exchange rate fluctuations affecting the pricing of products, the cost of inputs, and the value of foreign investments. |
| Hedging | efforts to compensate for a possible loss from a bet or investment by making offsetting bets or investments. |
| Tax havens are: Defintion | countries hospitable to business and inward investment because of their low corporate income taxes. |
| What are some examples of tax havens? | Bahamas, Luxembourg, Monaco, Singapore, and Switzerland are examples. |
| global equity market is: | the worldwide market of funds for equity financing -- the stock exchanges worldwide where investors and firms meet to buy and sell shares of stock. |
| What does the term “corporate governance” refer to? | the system of procedures and processes by which corporations are managed, directed, and controlled. It provides the means through which firms undertake ethical behaviors, CSR, and sustainability. |
| What is a code of conduct? | a set of rules outlining the social norms and rules and responsibilities of, or proper practices for, an individual, party or organization |
| Ethics | are moral principles and values that govern the behavior of people, firms, and governments, regarding right and wrong. |
| Sustainability: | Meeting humanity’s needs without harming future generations (in terms of economic, social and environmental issues) |
| Achieving sustainability often requires the firm to be ______ and _______ | flexible; creative |
| Relativism | is the belief that ethical truths are not absolute but differ from group to group. According to this perspective, a good rule is “when in Rome, do as the Romans do.” |
| Normativism | is a belief that ethical behavioral standards are universal, and firms and individuals should seek to uphold them consistently around the world. |
| What are the benefits of sustainable practices for companies? | Water conservation Air quality protection Reduced energy and fuel consumption More recyclable parts or materials |
| Corruption | is the abuse of power to achieve illegitimate personal gain. |
| Bribery | may take the form of grease payments, small inducements intended to expedite decisions and transactions, or gain favors. |
| Where is the world do you have high levels of corruption? | somali, iraq |
| Where is the world do you have low levels of corruption? | demark singapor |
| U.S. Foreign Corrupt Practices Act:(FCPA): Defintion | Permits the U.S. government to persecute any company or individuals for paying bribes or engaging in corruption anywhere in the world, as long as the company or person has a certain degree of connection to the U.S. |
| U.S. Foreign Corrupt Practices Act:(FCPA): example | (e.g. a Spanish company, with a subsidiary in the U.S.) |
| counterfeiting | making replicas of branded products |
| copyright piracy | making illegal copies of software products |
| Which of the following is the first task in international financial management? | decide on capital structure |
| The sale of corporate bonds to individuals or institutions, to raise capital is called ________. | debt financing |
| Debt financing comes from ________. | loans from financial intermediaries |
| When using equity financing, firms run the risk of ________. | diluting the firm's ownership |
| ________ is a debt instrument that enables the issuer (borrower) to raise capital by promising to repay the principal along with interest on a specified date (maturity) | Bond |
| Transfer pricing is defined as ________. | the means by which subsidiaries and affiliates charge each other as they exchange goods and services |
| In international business, marketing is concerned with ________. | identifying, measuring, and pursuing customer needs and market opportunities abroad |
| Which of the following best characterizes the purpose of a global marketing strategy? | guides firms in targeting the right customer segments |
| ________ is the process of dividing the firm's total customer base into homogeneous clusters in a way that allows management to formulate unique marketing strategies for each group. | Market segmentation |
| Adaptation is defined as ________. | the firm's efforts to modify one or more elements of its international marketing program to accommodate specific customer requirements in a particular market |
| When managers attempt to standardize their international marketing program, they can expect ________. | cost reduction |
| Frequent business travelers, who are also affluent and eager spenders, represent a global market segment. | True |
| A standardized marketing approach is inappropriate when products have universal specifications. | False |
| A standardized marketing approach is appropriate when customers seek similar features in the product or service. | True |
| A patent | It is granted to anyone who invents a new process, product, or useful improvement. It provides the right to prevent others from using an invention for a fixed period. |
| A trademark | k (collective mark)is a distinctive design or symbol that identifies a product or service. E.g., Nike’s swoosh symbol. |
| copyright | protects original works of authorship. Typically covers works of music, art, literature, movies, or software. |
| Advantages for franchiser: | Low investment; Can internationalize quickly to many markets; Low effort, once established; Can leverage franchisees’ local knowledge |
| Disadvantages for franchiser: | Maintaining control over franchisees may be difficult Franchiser has limited control over its assets abroad Risk of creating a future competitor |
| Two Key Decisions Regarding Global Sourcing | Decision 1: Outsource or Not? Decide whether each value-adding activity should be conducted in-house or by an independent supplier. |
| Potential Risks in Global Sourcing | Lower-than-expected cost savings Environmental factors, such as exchange rate fluctuations, trade barriers, and labor strikes Risk of creating competitors |
| Positioning | Refers to a marketer’s strategy to evoke a distinct impression in the customer’s mind, emphasizing differences from competitors offering |
| Global Market Segments | Some companies offer products or services to customer segments who are very similar (in terms of demographics etc.) independently on where they are located geographically. |
| A strong (global) brand: | Increases the effectiveness of marketing programs Facilitates the ability to charge premium prices Increases the firm’s leverage with resellers; Stimulates brand loyalty Inspires trust and confidence in the product |
| International Price Escalation | Refers to the problem of end-user prices reaching high levels in the export market. |
| International Financial Management Tasks | 1.Decide on the Capital Structure 2. Raise Funds for the Firm 3.Working Capital and Cash Flow Management 4Capital Budgeting 5 Currency Risk Management 6 Manage the Diversity of International Accounting and Tax Practices |
| Country with highest piracy levels for records and music | China |
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