Learn AI - Foreign Direct Investment and Economic Integration PDF

Chapter #7: Foreign Direct Investment Foreign Direct Investment: - Building a new factory in a foreign country. - Acquiring an existing company in a foreign country. - Buying shares of an existing company in a foreign country. FDI Inflow: Money that comes into a country from foreign busin...

Chapter #7: Foreign Direct Investment Foreign Direct Investment: - Building a new factory in a foreign country. - Acquiring an existing company in a foreign country. - Buying shares of an existing company in a foreign country. FDI Inflow: Money that comes into a country from foreign businesses or investors who want to invest there. FDI Outflow: Money businesses or investors from a country send to invest in other countries. FDI is essential for the economic health of developed nations. This investment helps build critical infrastructure, improve worker skills, and create jobs. (With this form of cash inflow, countries can pay their debts and invest that money into their country. Chapter #8: Regional Economic Integration Economic integration: The process by which countries agree to reduce or eliminate trade barriers and coordinate their economic policies Regional Trade Agreements: An agreement between two or more countries in a geographic region that aims to reduce or eliminate trade barriers and establish common rules and regulations for trade between the participating countries. It is usually established to promote cooperation among neighboring countries. - Promote trade (by reducing trade barriers and resolving disputes) - Market acces (provedes easier acces to each other’s market.) - Harmonizing regulations (create a more uniform business environment) - Intellectual property rights (protect and enforce intellectual property withing the member countries) - Promote sustainable development, environmental protection and labour rights. Levels of economic integration: Free Trade Area: All barriers to trade for goods and services have been removed, but they are free to trade with non-members of the agreement. (Countries in a free trade area can trade with other countries outside the agreement in whichever way they want). (NAFTA, also known as USMCA, creates a free trade area between the US, Canada, and Mexico; if any of them want to trade with another country, they are free of adding tariffs if they want to. Customs Union: Like a free trade area, a customs union allows free trade between member countries. In a customs union, all member countries adopt a standard external tariff. This means they agree on the same tariffs or trade policies for goods outside the customs union. The European Union (for its member countries) is a customs union. If Germany sets a tariff on goods outside the EU, all other EU countries have the same tariff. (A free trade area but with an external trade tariff). Common Market: A common market is like a Customs Union with common policies on product regulation and the free movement of goods, capital, and labor. (The European Union is an example of a common market) So, a common market is about removing barriers not only for goods and services (like in a free trade area or customs union) but also for people and money, creating an environment where member countries operate as if they’re part of the same single "market." Economic & Monetary Union: A common market with a common currency and common central-bank. Eurozone is an example of economic and monetary union which includes the members countries of the EU that have adopted the euro as their currency and have the European Central Bank (ECB). Advantage is that there is no exchange rate (since they have the same currency countries can trade without worrying since they use the Euro), which reduces the exchange rate risk within the Eurozone making it easier for businesses to plan long term. Disadvantyages is that it is realy hard to control your unemployment rate or influence inflation or influence your rate of economic growth and your depending on the other mebmebr of the Eurozone to help you out but they might not want to. Economic and Monetary union is implemented in the EU which creates Eurozone. (Not all members of the EU participate in Eurozone). Political Union: A political union includes all the characteristics of an economic union (which has free trade, a common external tariff, free movement of labor and capital, and coordinated economic policies). It is the highest level of integration, with shared political and economic systems under a central governing body. The United States can be considered a type of political union. Individual states have their own laws, but they are all bound by the federal government and the U.S. Constitution. The federal government handles foreign policy, defense, interstate commerce, and a shared legal system, while states retain some local authority. Example Questions: How does the European Union benefit from Common Market/Economic Union? - Elimination of trade barriers - Better utilization of resources - Standarized policies and regulations - One large financial system, labour pool and one large customer market. - Less conflict and retaliation - Emplyment generation free movement of goods and services = greater variety product more knowledge sharing and synergies = higher quality goods increase competition = improved product/service quality, lower prices, and a greater consumer choice Both businesses and customers are saving money on avoiding currency exchange. Drawbacks from participating in a Common Market/Economic Union trade agreement: - Loss of national sovereignty: Many policy-decisions are made at the EU level limiting countries ability to independently implement policies tailerd to their economic needs and circumstances.  - Loss of control over trade negotiations: As a collective entity the EU negotiate trade agreements on behalf of its members. Indisivual countries may loose control over their own trade negotiations potentially leading to compromises that may not fully align with their national interest. - Trade Diversion: Shift trade patterns, diverrign trade from more efficient or lowe-cost sources outside the agreement to less efficient or higher cost sources within the argeemant. - Unequal distribution of benefits: Some countries, particularly those with stronger economies, may experience greater advantages, such as increased trade opportunities and foreign investment, while other less developed countries might struggle to compete and catch up. - Immigration and Freedom of Movement: The increased movement of people may result in a strain on public services and job opportunities for local citizens. Chapter 11: Strategy of International Business What is a strategy? - A comprehensive plan of set actions that are designed to achieve a corporate objective. What is the #1 corporate objective - Maximize profits Two pressures companies face when expanding to foreign markets? 1. Cost reduction: Minimize unit cost (market research cost, entry and setup cost, production, distribution and marketing cost, etc) achieve economies of slace, learning marketing economies, etc. 2. Focus on local responsiveness: Product offering and marketing strategies must be adapted to local markets to ensure market acceptance: - Involves extensive market research - Involves duplication of functions and smaller product runs - Adapt marketing strategies (These three increase cost) How to reduce cost of global operation: - By increasing the volume of production companies achieve economies of scale (by doing more you reduce cost per unit) and learning effects (by doing more you learn to be more efficient) - Local economies: doing each part of a business like making products, research, or customer support in the place where it’s cheapest or most efficient - Learn efficiences form foreign partners (joint venture, franchises, partners) - Simplifying product (expecting that customers want simple, basic services or products without any extras) - Achieve cost efficiency by standardizing marketing communication and branding strategies. As a result of enhanced cost reduction → Standardization - Keeping things consistent across international markets (products and ither marketing strategies are largely the same everywhere around the world. - For example, a fast-food chain may standardize recipes and service across all locations so customers get the same experience, no matter where they are. Advantages of standarization - Economies of scale (reduces cost) - Strong Branding (consistent brand image) (Nike, Redbull, Apple) *Standarization is on the rise in industries that consist of consumer with universal needs or that experience global trends (fashion, electronics) Local responsiveness: a business strategy that involves adapting a whole business to meet the needs of local markets and customers. When to engage in local responsiveness? - When there are significant cultural differences between countries. (kanguage symbols, meaning of color, social costumes) - When consumer tastes and preferences differ significantly among countries (impacts value-epressice or taste dependant products; food, apparel cosmetics, price sensitivity) - When industry regulations differ among countries (product safety, labeling, intellectual properties, advertising policies, sustainability policies) - When technical standard differ among countries (product labeling, measurements) - When climate and weather conditions differ among countries. Result of enhances local responsiveness → customization or adaptation Tailoring products and other marketing strategies to the specific characteristics and demand od each international market. What are some advantages of customization (versus standardization)? - Stronger customer responde (liking, purchase, loyalty), especially if consumer differences exist and/or competition is strong. - Set higher prices Localization Strategy - Customizing specific products, services, or marketing content to fit local tastes, languages, and cultural preferences. - By customizing product to local demands, the firm adds value to product which serves as justification for higher prices (hence less pressure for cost reduction). Global Standardization Strategy - Achieve efficiency by using one standardized product everywhere. (Tech companies selling the same smartphone model in every country, keeping production simple and consistent) - Higher cost-reduction and low local-responsiveness generally prevail in industrial and consumer good industries whose product often serces universal needs. - Companies generally maintain a consistent product offering, marketing message, and operational process acros different markets (while some minor; tweaking to accommodate local needs might be required - translation, regulations) - Docus in maximizing economies of scale, learning effects, location economies and marketing economies. Transnational Strategy - Firm simultaneously faces both cost pressure and responsiveness pressure: need to lower cost via economies of scale, learning effects and location economies AND at the same time, differentiate their products offering actros the different markets to meet local demands. (Coca Cola, Strabucks, H&M) - a company tries to operate efficiently on a global scale while also adapting to the specific needs and preferences of local markets. Standardized Brand image: Coca Cola's brand is one of the most recognized and iconic in the world. The Coca Cola logo, design, polar bear mascot, and slogans remain consistent across markets. Product Quality: Coca Cola maintains strict quality control and consistency in their products of its beverages to ensure that consumer experience is the same wherever they go. Adapt Product Formulation: Dove often adjust their product formulation to cater to specific skin and hair types. Scent and Fragances: Dove products may feature different scents or fragrances that are popular and well-reaceved in different markets. Packaging Design: Dove adapts its packaging design to reflect local aesthetic sesnsibilities and cultural norms. International Strategy - Fortunate position of being confronted with low cost pressure and low local responsiveness pressures. - These brand tend to be aspirational, seel products that meet universal needs. (self-actualization, luxury, impression management). Chapter 12: Entering Developed and Emerging Markets Wholly Owned Subsidiary: Companies that another company entirely controls. While the subsidiary operates as a separate legal entity from the parent company, the parent company has ultimate ownership and control. For example, Walt Disney owns Marvel, ABC, Disney Channel, etc. Two types of wholly owned subsidiaries: Greenfield Investment: A company builds a new business or facility from scratch in a foreign country. Think of it like starting a brand-new business there. Acquisition: A company buys an existing business in a foreign country, taking full ownership. It's like buying a business that's already up and running. International Licensing Brand licensing: Allow for trademarks, logos, and characters to be used. Technology licensing: allows for the use of patented technology, equipment design, software, operation processes, and other This allows extra exposure for both brands. The licensor will have additional exposure without any cost with it. Franchising: Licensing, but on a broader scale. Instead of just the image they make the stores with the same supply chain, the leading company doesn't supply them with workers, only with the products. Main company sudits the franchises to see if they are working correctly. Joint Venture: Two business agreements between 2+ companies from different countries to work together and form a new entity for a specific business obj. Sharing resources, technology, expertise, and intellectual property between the participating companies. The new entity operates as a separate legal entity, usually in the form of a new company, in which each partner has a stake and shares in the profits and losses. Chapter #13: Exporting and Importing Exporting: Refers to the act of shipping and selling goods and services produces in one country for buyers located in another country. To assess a country’s trade activities: Net Exports = Annual Exports - Annual Imports Trade surplus: When Exports > Imports Trade Defecit: When Imports > Exports Chapter #14: Global Marketing Marketing: refers to the process of planning, creating and executing marketing strategies and activities that target customers in multiple countries or worldwide. - Effective global marketers find the right between global consistency ald local customization to make sure that the marketing strategy resonates with the targeted audience. - Their key objective is to crete brand awareness, promote products or services, generate demand, and build strong consumer relationships and a global brand presence. Marketing key succes factors Targeting: Involves breaking the population into segments and then designing marketing strategies that will reach the segments most likely to be responsive to your liking. (Tailored marketing strategies for each segments). Segmentation Bases - Demographic (age, gender, income, ocupation) - Psychographic (personality traits, interests, lifestyle) - Benefits sought (comfort, safety, convenience) - Occasion (travel, holiday/celebration, gift giving) PRODUCT Once you have identified the foreign market you want to expand to it is a little or alot different than tour own thereby calling for some level of product adaptation. - Translate language - Change labels (warning labels) - Change packaging color - Change pachaking size and shape A product can be adapted to Culture (language, symbols, meaning of color, social customs, etc.) Consumer taste and preferences (Impacts value-expressie or taste dependant products; food, apparel, cosmetics). For example; fast food cains often customize their menus by incorporating region specific iteams such as the spice chicken options in india or seaweed flavoured burgers in Japan. Economic development (income, infrastructure). Some companies simply reduce the packaging size to make the product more affordable. Industry regulations (product safety, sustainability policies). For example; toy manufcturers may have to adapt their products to meet safety standards; small parts that pose a choking hazards to childer might need ot be modified or eliminated. Technical standards (electrical (voltage) standards, product labeling.) Climate and weather PRICING Value based pricing: Is a pricing strategy where the price ofa product or service is determined based on the value it offers to the customer. - To determine products or services “value”, businesses have to do market research to gain an in depth understanding of consumer need, interest, priorities. - Different consumer segments will perceive different levels of value for the same product - hence the importance of segmentation and targeting. Price discrimination: Pricing strategy employed by businesses to charge different prices for the same product of service to different customers or group of costumers. - This allows businesses to capture additional revenue by taking advantage of differences in customers willingness to pay. - For example; Student Discounts (Movie theaters may charge students less than regular customers), and Peak Pricing (Airlines might charge more for flights during busy holiday periods compared to off-peak times). Geography-based differentiated pricing: Different prices set for different countries and regions. Predatory Pricing: It's a strategy to undercut competitors with super low prices, then dominate the market once they’re gone. PROMOTION Push Strategy: the focus is on “pushing” the product from product through the distribution channel to the end consumer. To get products in front of customers, often through direct promotion or incentives. Pull Strategy: the focus is on creating demand directly from the endconsumer, “pulling” the product through the distribution channel. This strategy often relies on mass advertising. To get products in front of customers, often through direct promotion or incentives. In simple terms, push means getting products to customers through distribution, and pull means attracting customers so they come looking for the product. When to use a pull strategy? - Consumer-oriented products - Simple products - Reasonabily prices products - Strong brand image - Acces to advertising media that will reach target market. When to use a push strategy? - Consumer-oriented products - Coplex products, especially new innovations - High priced products Benefits of standardization - Economic advantage via marketing economies - Keep consistent brand image (crucial when building strong global brand) When is adaptation of advertising necessary? - Cultural differences impact the meaning or symbolism of the product. PLACE OR DISTRIBUTION - Refers to the process of getting products from the manufacturer or supplier to the end consumer or user in different countries or regions around the world. Key elements of international distribution: Channel Partners: The people or businesses that help get the product to customers, and how many steps (or layers) are in this process. Logistics and Transportation: Moving products efficiently across borders to reach different countries. Inventory Management: Keeping track of stock to make sure products are available without overstocking. Legal and Regulatory Compliance: Following each country’s rules and regulations for selling products there. E-commerce and Digital Distribution: Selling products online to reach international customers directly through digital platforms.