Intro to IB week 9b

foreign direct investment (FDI)

Investment in, controlling and managing value-added activities in other countries.

emerging economy MNEs

MNEs that originate from an emerging economy and are headquartered there.

foreign portfolio investment (FPI)

Investment in a portfolio of foreign securities such as stocks and bonds.

joint ventures

Operations with shared ownership by several domestic or foreign companies.

horizontal FDI

FDI that creates operations abroad at the same position in the value chain as the operation in the home country

vertical FDI

FDI in operations in different stages of the value chain, upstream or downstream.

upstream vertical FDI

FDI in an upstream stage of the value.

downstream vertical FDI

FDI in a downstream stage of the value chain in two different countries.

FDI flow

The amount of FDI moving in a given period (usually a year) in a certain direction

FDI stock

The total value of inbound FDI in a country or outbound FDI from a country operating at a given point in time.

OLI paradigm

A theoretical framework positing that ownership (O), location (L) and internalization (I) advantages combine to induce firms to engage in FDI.

liability of foreignness

The inherent disadvantage a firm faces when competing with local firms in a foreign country.

location-bound resources

Resources that cannot be transferred abroad.

ownership advantages (O-advantages)

Resources of the firm that are transferable across borders and enable the firm to attain competitive advantages abroad.

locational advantage (L-advantage)

An advantage enjoyed by firms operating in certain locations.

agglomeration

The location advantages that arise from the clustering of economic activities in certain locations.

knowledge spillovers

Knowledge diffused from one firm to others among closely located firms.

internalization advantages (I-advantages)

Advantages of organizing activities within a multinational firm rather than using a market transaction

transaction costs

The costs of organizing

market failure

Imperfections of the market mechanism that make some transactions prohibitively costly

asset specificity

An investment that is specific to a business relationship.

intra-firm trade

International trade between two subsidiaries in two countries controlled by the same MNE

licensing

A contract by which a firm allows another firm to use its intellectual property rights in return for a fee.

franchising

A contract by which a firm allows another firm to use its branded service or products in return for a fee.

dissemination risk

The risk associated with unauthorized diffusion of firm-specific know-how.

tacit knowledge

Knowledge that is noncodifiable and whose acquisition and transfer require hands-on practice.

local content requirements

Requirement that a certain proportion of the value of the goods made in a country originates from that country.

bargaining power

The ability to extract a favourable outcome from negotiations due to one party’s strengths.

obsolescing bargain

Refers to the deal struck by MNEs and host governments which change their requirements after the initial FDI entry.

sunk costs

Up-front investments that are non-recoverable if the project is abandoned.

expropriation

Government confiscation of private (foreign-owned) assets

state-owned enterprises (SOEs)

Companies with direct ownership by the state.

soft budget constraint

Phenomenon that SOEs tend to receive extra resources from the state when facing financial difficulties.

sovereign wealth fund (SWF)

A state-owned investment fund composed of financial assets such as stocks, bonds, real estate or other financial instruments

experiential knowledge

Knowledge learned by engaging in the activity and context.

Uppsala model

A model of internationalization processes focusing on learning processes.

network internationalization model

A model of internationalization that focuses on the international growth of business networks.

stages models

Models depicting internationalization as a slow stage-by stage process an SME must go through

international new venture (born global)

Start-up company that, from inception, seeks to derive significant competitive advantages from the use of resources and the sale of outputs in multiple countries.

international experience

Personal experience of living in another country.

immigrant entrepreneurs

People who set up a business after migrating to another country.

mimetic behaviour

Imitating the behaviour of others as a means to reduce uncertainty.

foreign subsidiary

An operation abroad set up by foreign direct investment.

entry strategy

A plan that specifies the objectives of an entry and how to achieve them.

natural resource-seeking FDI

Investors’ quest to pursue natural resources in certain locations.

market-seeking FDI

Investors’ quest to go after countries that offer strong demand for their products and services

efficiency-enhancing FDI

Investors’ quest to single out the most efficient locations for each value chain activity.

capability-enhancing FDI

Investors’ quest for new ideas and technologies to upgrade their own technological and managerial capabilities.

location-specific advantages

Advantages that can be exploited by those present at a location

global cities

Cities with interconnectedness, cosmopolitanism, and abundance of advanced producer services

first-mover advantages

Advantages that first movers obtain and that later movers do not enjoy.

late-mover advantages

Advantages that late movers obtain and that first movers do not enjoy

modes of entry

The format of foreign market entry.

non-equity modes

A mode of entry that does not involve owning equity in a local firm.

equity modes

A mode of entry (JV that involves taking full or partial) equity ownership in a local firm

greenfield investments

Building factories and offices from scratch.

acquisition

The transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter.

partial acquisitions

Acquisitions of an equity stake in another firm.

strategic alliance

Collaboration between independent firms using equity modes, non-equity contractual agreements, or both.

scale of entry

The amount of resources committed to foreign market entry.

platform investment

An investment that provides a small foothold in a market or location.

The arm’s length

The companies are independent of one another and trade based on contractual arrangements. There is no ownership from one company of the other.

Psychologically proximate

They consider those countries which they perceive as being similar to the home country in terms of institutional environment and/or culture.