Advantages downloaded by jin y emilyngjygmailcom

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advantagesDownloaded by Jin .Y ([email protected])lOMoARcPSD|4182995
Internatonalisaton Theory: when market imperfectons are making transactons less efcient, a company may undertake FDI oMarket imperfectons include trade barriers and protecton of specialised knowledge – exportng and licencing are limited in how they can overcome these imperfectonsoLimitatons of ExportngTransportaton costsUnproftable to ship some items a large distance (partcularly true for products with a low value-to-weight rato and can be produced anywhere)Trade barriersCan increase the cost of exportng compared to FDI or licensing through tarifsCan increase atractveness of FDI/licensing through quotasoLimitatons of Licensing3 major drawbacksLicensing may result in a frm giving away valuable technological know-how to a potental foreign compettorLicensing does not give a frm tght control over manufacturing, marketng and strategy that may be required to maximise proftabilityLicensing is an issue if the frm’s compettve advantage is based on the management, marketng and manufacturing capabilites oThese skills are difcult to artculate or codifyoE.g. Toyota culture FDI is more proftable than licensing when one of the following three exists:(1) when the frm has valuable know-how that cannot be adequately protected by a licensing contract(2) when the frm needs right control over a foreign identty to maximise its market share and earnings(3) when a frm’s skills and know-how are not amenable to licensingTHE PATTERN OF FDIOligopoly: an industry composed of a limited number of large frmsoAn industry in which four frms control 80% of the marketoIn an Oligopoly, frms imitate FDIMultpoint competton: arises when two or more enterprises encounter each other in diferent regional markets, natonal markets or industriesoFirms will match each other’s moves in diferent markets so a rival does not gain a commandingpositon in one marketTHE ECLECTIC PARADIGMAn OLO Synthesis (Dunning) - Choose FDI when three conditons exist:(O) – possesses ownership advantages: advantages that arise from the accumulaton of intangible assets, technological capacites or innovatonsoowns a valuable asset to provide an internatonal compettve advantage (e.g. technology, trademark, politcal connectons)(L) – locaton specifc advantages: advantages that arise from using resource endowments or assets that are ted to a partcular foreign locaton and that a frm fnds valuable to combine with its own unique assetsospecifc to the locaton where the O advantages can be complemented, created, acquired or exploitedoClusters: geographic concentratons of interconnected frms and insttutons in a partcular industry e.g. Silicon Valley (computer and semiconductor) Downloaded by Jin .Y ([email protected])lOMoARcPSD|4182995
oExternalites: knowledge spill overs (can be gained by being close to source of knowledge – i.e. being in Silicon Valley)

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