A firm might apply a 6 percent discount rate to potential investments in Great Britain, the United States, and Germany, reflecting those countries’ economic and political stability, and it might use a 12 percent discount rate for potential investments in Russia, reflecting the greater per- ceived political and economic risks in that country.

While these restrictions don’t affect the net present value of the project itself, they do affect the net present value of the project to the parent company because they limit the cash flows that can be remitted to it from the project.

it incorporates expected currency movements while still avoiding distortion

It reflects what managers were EXPECTED to face. This is considered the most realistic and balanced method.

a financial plan or target for a future period

the most important criterion for evaluating the performance of a foreign subsidiary is the subsidiary’s actual profits compared to budgeted profits. This is closely followed by a subsidiary’s actual sales compared to budgeted sales and its return on investment.

Because EU directives have the power of law, the EU might have a better chance of achieving harmonization than the IASB does.

There may soon be only two major accounting standard-setting bodies with dominant global influence:

• Financial Accounting Standards Board (FASB) in the United States

• International Accounting Standards Board (IASB) in most other countries

These two organizations have entered into an agreement to: Align their accounting standards. This suggests that: Differences in accounting standards between countries may eventually disappear.

An independent group of experts (13 members as of 2021) . Made up of people with practical experience in:

Setting accounting standards

Preparing financial reports

Auditing financial reports

Using financial reports

Accounting education

So far, IASB standards have had less visible impact in the U.S. because many IASB standards already matched positions previously developed by the FASB. The FASB is responsible for: Writing GAAP standards used by U.S. companies. However: Differences between IASB and FASB standards still exist.

Achieving this agreement can be difficult because: Members come from different cultures. Members come from different legal systems.

To solve disagreements: Many IASB standards allow two acceptable alternatives.

Problems caused by different accounting standards: Investors struggled to compare companies internationally. Companies had to explain why financial results differed under different accounting systems.

International businesses found it harder to evaluate Foreign customers, Suppliers, Competitors

Transnational investment occurs when an investor based in one country enters the capital market of another nation to invest in the stocks or bonds of a firm based in that country.

tend to centralize product development functions such as R&D at home.

also tend to establish manufacturing and marketing functions in each major country or geographic region in which they do business.

Although they may undertake some local customization of product offering and marketing strategy, this tends to be rather limited in scope.

is a complex and challenging task

The strategy may make sense, however, if the added value associated with local customization supports higher pricing, which enables the firm to recoup its higher costs, or if it leads to substantially greater local demand, enabling the firm to reduce costs through the attainment of some scale economies in the local market.

It is important to note that while a global standardization strategy helps to lower costs, the firm may not present itself as a low-cost competitor to its customers. Indeed, it may also do certain things that raise its costs in pursuit of superior brand equity.

The ability to standardize a product offering within a region allows for the attainment of greater scale economies, and hence lower costs, than if each nation had to have its own offering.

The creation of a single EU market—with a single currency, common business regulations, standard infrastructure, and so on—cannot help but result in the reduction of certain national differences among countries within the EU and the creation of one regional rather than several national markets.

For example, pharmaceutical companies are subject to local clinical test- ing, registration procedures, and pricing restrictions, all of which make it necessary that the manufacturing and marketing of a drug should meet local requirements. Because gov- ernments and government agencies control a significant proportion of the health care budget in most countries, they are in a powerful position to demand a high level of local responsiveness.

In the pharmaceutical industry, for example, the British and Japanese distribution systems are radically different from the U.S. system. British and Japanese doctors will not accept or respond favorably to a U.S.-style high-pressure sales force.

Similarly, Poland, Brazil, and Russia all have simi- lar per capita income on a purchasing power parity basis, but there are big differences in dis- tribution systems across the three countries. In Brazil, supermarkets account for 36 percent of food retailing, in Poland for 18 percent, and in Russia for less than 1 percent.

an industry consistently has more production capability than actual demand over a long period of time

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally increased cost pressures.

serving a global market from a single location is consistent with moving down the experience curve and establishing a low-cost position

Second, a firm may not be able to attain an efficient scale of production unless it serves global markets.

Finally, as global sales increase the size of the enterprise, so its bargaining power with suppliers increases, which may allow it to attain economies of scale in purchasing, bargaining down the cost of key inputs and boosting profitability that way.

Learning effects tend to be more significant when a technologically complex task is repeated because there is more that can be learned about the task

Example:

First total: 1,000 units

Doubling → 2,000 units

Doubling again → 4,000 units

Research shows that every time this doubling happens, costs often drop by a certain percentage.

transportation costs and trade barriers complicates

They enable a firm to reduce the costs of value creation and/or to create per- ceived value in such a way that premium pricing is possible (e.g., many believe that Apple uses premium pricing for its line of iPhones).

different activities in the countries where they can be done most efficiently or cheaply.

If these create a favorable impression of the firm’s product in the minds of consumers, they increase the price that can be charged for the firm’s product.

In a competitive market, firms must lower prices to attract customers. If the firm were a monopoly, it could charge a much higher price.

A monopoly supplier is a firm that is the only seller in the market. There are no competitors offering similar products.

Consumer surplus is the extra value customers receive when they pay less than what they were actually willing to pay.

some firms are now using the threat to move production to another country in their negotiations with unions to change work rules and limit wage increases (as Ford did in Europe). Because such a move would involve major new investments and plant closures,

Although national unions may want to cooperate, they also compete with each other to attract investment from international businesses and hence jobs for their members.

Japanese multinationals that have been trying to export their style of labor relations to other countries. For example, much to the annoyance of the United Auto Workers, many Japanese auto plants in the United States are not unionized. As a result, union influence in the auto industry is declining.

In one experiment, French students discriminated against potential employees who were Arabian people but stopped doing so if asked to describe the differences between photos. The act of articulating differences made the students aware of their own subconscious biases.

such as just before performance reviews

where employees who may not be from a minority ethnic group get to experience bias personally

Many firms also ensure that their expatriates receive the same level of medical and pension benefits abroad that they received at home.

This can be costly for the firm, because many benefits that are tax-deductible for the firm in the home country may not be deductible out of the country.

When a reciprocal tax treaty is not in force -> the expatriate may have to pay income tax to both the home- and host-country governments -> the firm typically pays the expatriate’s income tax in the host country.

Firms make up the difference when a higher income tax rate in a host country reduces an expatriate’s take-home pay.

• Hardship allowance is paid when the expatriate is being sent to a difficult location (health care, schools, and retail stores are grossly deficient).

• A housing allowance is normally given to ensure that the expatriate can afford the same quality of housing in the foreign country as at home (substantial in places with expensive housing)

• A cost-of- living allowance ensures that the expatriate will enjoy the same standard of living in the foreign posting as at home.

• An education allowance ensures that an expatriate’s children receive adequate schooling (by home-country standards).

Inducement to accept foreign postings: compensates the expatriate for having to live in an unfamiliar country isolated from family and friends (new culture and language, new work habits and practices).

Many firms pay foreign service premiums as a percentage of base salary, ranging from 10 to 30 percent after tax, with 16 percent being the average premium

An expatriate’s base salary should normally be in the same range as the base salary for a similar position in the home country.

Foreign nationals in these expatriate locations do not necessarily get the same salary levels.

Paid in either the home-country currency or in the local currency.

In ethnocentric firms, the issue can be reduced to that of how much home-country expatriates should be paid.

As for polycentric firms, the lack of managers’ mobility among national operations implies that pay can and should be kept country specific.

The expatriate community can be a useful source of support and information

firms often devote considerable effort to ensuring the new expatriate family is quickly integrated into that group

it is important that the partner, and perhaps the whole family, be included in cultural training programs.

Although language fluency helps, an expatriate need not be fluent to show willingness to communicate.

Japanese society traditionally relegates the wife and the fact that most of the Japanese expatriate managers in the study were men.

Geocentric staffing policy seems the most attractive. However, a number of problems:

• Many countries want foreign subsidiaries to employ their citizens. -> immigration laws to require the employment of host-country nationals

• A geocentric staffing policy also can be expensive to implement: Training and relocation costs. Need a compensation structure with a standardized international base pay level higher than national levels in many countries.

• Higher pay enjoyed by managers placed on an international fast track may be a source of resentment within a firm.

build a cadre of international executives who feel at home working in a number of cultures

->building a strong unifying corporate culture and an informal management network, both of which are required for global standardization and transnational strategies.

knowledge underlying a core competency cannot easily be articulated and written down.

Such knowledge often has a significant tacit dimension; it is acquired through experience.

although a polycentric approach may be effective for firms pur- suing a localization strategy, it is inappropriate for other strategies.

Expatriate managers can be expen- sive to maintain.

knowledge underlying a core competency cannot easily be articulated and written down.

Such knowledge often has a significant tacit dimension; it is acquired through experience.

The belief is that if employees are predisposed toward the organization’s norms and value systems by their personality type, the firm will be able to attain higher performance.

HRM function, through its staffing, training, compensa- tion, and performance appraisal policies, has a critical impact on the people, culture, incentive, and control system elements

rich or having a lot of money and resources.

Product life cycle = how long a product stays relevant in the market

New technology comes out very quickly ->Old products become obsolete faster

Not every country/team can produce high-quality campaigns, therefore, investing one strong/high-quality global campaign is better by using top quality talent ( a well-funded campaign is better than many average campaigns in different countries)

You need to contact many intermediaries Manage many relationships Use a large sales force

intermediaries (like wholesalers) take over the complexity ( Many deliveries, relationships to manage, logistics cost)

Ex: it is often difficult for a new firm to get access to shelf space in supermarkets-> retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms.

Many of these relationships are based on the understanding that distributors will not carry the products of competing firms. In return, the distributors are guaranteed an attractive markup by the manufacturer.

Selling to 1 supermarket chain = huge order -> Bulk buying → larger transactions

vs selling to 100 small shops = many small orders

It takes a fairly high degree of knowledge—both statistically and culturally—to analyze and interpret international market research.

First, statistically the goal should be to use the technique that best addresses the research problem— often stated in the form of research questions or hypothesis (a specified relationship between study variables).

Second, the researcher interpreting the findings must be in tune culturally with the values, beliefs, norms, and artifacts that affect a respondent’s answers in a certain world region, country, and/or subculture. If possible, it is always advisable to include at least one native of the country being researched to add to the understanding of the research findings, social customs, semantics, attitudes, and business customs.

characteristics or qualities that you don’t directly observe, but instead conclude based on evidence, behavior, or patterns

Who controls the transaction and what are the rules?

how the whole system of exchanges works

These are related products offered alongside the main one, often creating a “bundle” or “one-stop shop.”

These are add-ons that support the main product, often along the value chain.

These aren't just "buying" or "doing it yourself"—they are complex, collaborative, in-between structures.

TCE is criticized for not having enough to say about these "hybrid" structures, which are essential in today’s economy.

after a contract is signed. It happens because of hidden action. You cannot perfectly monitor the other party, so they act differently (usually lazily or recklessly) once they are protected by a contract

It happens during a relationship where you have made an investment that is only useful if you stay with that specific partner. -> lock in

ccurs before a contract is signed. It happens because of hidden information. One party in the deal knows something the other party doesn't, which leads the uninformed party to make a bad decision.

(1) Traditional firms go digital Banks → online banking Retailers → e-commerce

(2) Dot-coms build real-world capabilities Logistics Warehousing Customer service

Dot-coms = digital natives

Finally, competitive pressure has a different impact depending on the group analysed.

countries with a high level of e-commerce, it is positive but not significant

Countries with low level of e-commerce, it has a negative and significant impact. -> competitive pressure has a negative impact on the decision to use e-business.

So, H8 is rejected in both groups.

reject

“Firm size is a key factor that influences the level of e-business use only in countries with a low level of e-commerce adoption.”

In low e-commerce countries: Firm size does matter BUT the direction is opposite of the hypothesis

Perceived benefits: Scale 1–4 (impact of ICT)

Firm size: Categories based on employees

IT expertise/ Customer pressure/ Supplier pressure/Competitive pressure: Dummy

they affect all there organizational implications

many niche (less popular) products that individually sell little, but together make up a large share of total demand

Think of hard infrastructure as “what the platform technically allows or restricts.”

It includes things like:

The platform’s code and architecture

What users can or cannot do

How content is structured, accessed, and shared

many companies reduce costs by requiring their suppliers to pay for audits—and some even allow suppliers to choose the auditor -> “penny wise and pound foolish.”

demonstrates the importance of fresh eyes.

Suppliers that failed an audit improved only after linking the future of the business relationship to the supplier’s labor standards by coordinating the activities of its own purchasing and social responsibility departments.

When those departments were siloed, as they are in many companies, failing suppliers made no improvement.

Although companies want a full picture of what’s going on at their suppliers, they also want their suppliers to improve.

Because such buyers are particularly worried about facing similar criticism in the future

More likely to be cautious when selecting new suppliers and to step up efforts to scrutinize them

Such suppliers should be attractive to companies with unblem- ished records, which can piggyback on the due diligence of their once-compromised counterparts.

Workers can ignore labor standards because following them can reduce productivity and earnings

Union

enable workers to make management aware of hazards + share proposals for mitigating

Help manager communicate with workers about health and safety standards and reinforce adherence to desired procedures.

After a factory adopted the lean system

→ Managers less likely to mistreat workers, more focus on retention

-> increase workers’ skills -> better employment terms to retain workers

Require internal audits + continuous improvement systems

Promote cross-functional problem-solving + action plans

Countries with high NGO density + strong media freedom (greater exposure of abuses) -> more improvement

Less oversight environments (e.g., Bangladesh, China) → require closer monitoring

Higher transparency environments (e.g., Honduras, Jordan) → relatively better improvement outcomes

Factories differ in working conditions + willingness/ability to improve → Need firm-level predictors (factors inside an individual company)

a global company should allocate 20 percent of its efforts to the buyer category, 30 percent to the customer category, and 50 percent to the client category in the downstream/outbound portion of the chain.

Pros:

The major cost savings comes from speeding up inventory turnover (how quickly a company sells and replaces its inventory) -> reduces inventory holding costs, such as warehousing and storage costs.

The company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise.

Other things being equal, this will boost the company’s profitability as measured by return on capital invested.

Improve product quality: parts enter the manufacturing process immediately -> defective inputs to be spotted right away. -> then be traced to the supply source and fixed before more defective parts are produced.

Ex: Germany plant buys parts from its own Vietnam subsidiary

➡ Internal (same company)

➡ Global (different countries)

from sources outside the company

from sources within the company

Full integration across:

locations

functional groups (e.g., R&D, production, logistics)

Not fully integrated across all locations

Different units may act somewhat independently

information

protection

performance

palletizing, shrink-wrapping, or containerization

Does the firm have the capacity to produce the product at a cost that is at least no higher than the cost of buying it from an external supplier?

And if the product is made in-house, what opportunity cost would be incurred as a result (e.g., what product or item was the firm unable to produce because of limited production capacity)?

This is where cutting-edge production should take place or at least be test for implementation in other parts of the firm’s production network

Implies that managers and employees at the site have a direct connection to and say in which suppliers to use, what designs to implement, and other issues that are of critical importance to the core competencies of the global firm

Selecting countries for operations based on the countries’ strategic importance (knowledge, competition, networks) rather than on the production logic (cost efficiency) of a location.

Potentially enhancing the position of the global firm in strategic countries is sometimes viewed as a practical factor.

Has much more of a choice in terms of which suppliers to use for raw materials and component parts

Often competes with the global firm’s home factories for testing new ideas and products

Stand-alone in terms of what it can do and how it contributes to the global firm’s supply chain efforts.

a source factory is at the top of the standards in the global supply chain

these factories are used and treated just like any factory in the global firm’s home country

Foreign factories that upgrade their capabilities over time are creating valuable knowledge that might benefit the whole corporation

Machine cell:

• A grouping of various types of machinery, a common materials handler, and a centralized cell controller.

• Each cell normally contains four to six machines capable of performing a variety of operations.

• The typical cell is dedicated to the production of a family of parts or products.

• The settings on machines are computer controlled, which allows each cell to switch quickly between the production of different parts or products.

• Improved capacity utilization arises from the reduction in setup times and from the computer-controlled coordination of production flow between machines, which eliminates bottlenecks.

• The tight coordination between machines also reduces work-in-progress inventory.

• The ability of computer-controlled machinery to identify ways to transform inputs into outputs while producing a minimum of unusable waste material.

Example 1: Aircraft manufacturing Fixed costs: extremely high (factories, R&D, engineering) -> MES: very large

You must produce a lot to be efficient But global demand is relatively limited

=> Build only a few factories globally, centralize production

Example 2: Soft drinks (SMALLER MES) MES: relatively small

=> You don’t need huge output to be efficient Demand exists in many countries

=> Build many local factories worldwide, Produce close to customers

Occidental Petroleum builds ammonia plants in Russia

Russia doesn’t fully pay in cash. Instead, Occidental receives ammonia (the product) for 20 years

👉 So the payment = real products, not just money

counterpurchase credits: used to purchase goods from that country

For example:

a U.S. firm concludes a counterpurchase agreement with Poland for which it receives some number of counterpurchase credits for purchasing Polish goods.

The U.S. firm cannot use and does not want any Polish goods, however, so it sells the credits to a third-party trading house at a discount. The trading house finds a firm that can use the credits and sells them at a profit.

gives the exporter greater flexibility to choose the goods that it wishes to purchase

Counterpurchase - Same buyer / specific firm

Offset- Any firm in that country

China pays the U.S. firm in dollars, but in exchange, the U.S. firm agrees to spend some of its proceeds from the sale on textiles pro- duced by China. Thus, although China must draw on its foreign exchange reserves to pay the U.S. firm, it knows it will receive some of those dollars back because of the counterpur- chase agreement.

Barter is mainly used in special situations, such as one-time deals for trading partners are:

Not trustworthy

Not creditworthy (can’t be relied on to pay money)

👉 In these cases, companies prefer goods over risky cash promises.

The bill of lading can also function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer.

(The exporter can use the bill of lading (B/L) to borrow money from their bank before getting paid)

The exporter give B/L to the bank, bank will NOT release the B/L to the importer unless:

Payment is made, OR

A promise to pay (draft acceptance) is given

Exporter gets a banker’s acceptance worth $10,000 (due in 60 days)

Instead of waiting 60 days, they sell it to a bank for: $9,800 today

The bank waits 60 days and receives: $10,000 👉 Bank profit = $200

🧠 Why does this happen? Exporter wants cash now Bank is willing to wait and earn interest

banker’s acceptance can be bought and sold between banks, and the buying bank earns profit by purchasing it at a discount and receiving full payment later.

Compare to Export trading company Export agents, merchants, and remarketers act as independent resellers, they own the product and control everything after purchase

They identify and work with companies in foreign countries that will market and sell the prod- ucts. They provide comprehensive exporting services, including export documentation, logistics, and transportation.

Compare with EMC represent your company to sell your product, export trading company act as an intermediary and buys/sells for profit on their own (You usually have less control over how products are marketed)

can offer a firm a complete package of services that are essential when a firm is exporting to a large number of countries