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Elements of Multinational Strategy

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This textbook on international business integrates the academic study of international trade and foreign direct investment with the actual strategic and operational decisions of exporters and multinational enterprises. The book merges managerial decision making in the internationally oriented firm with the conceptual tools provided by international economics. It covers issues of central importance to firms that invest overseas: political risk, taxation, and expatriate assignment.

1 Business Across Borders
1.1 Overview of International Business
1.1.1 What Makes a Business Transaction
“International”?
1.1.2 Types of Transaction
1.1.3 Types of Entities
1.2 Six Forms of Separation
1.2.1 Political Separation
1.2.2 Physical Separation
1.2.3 Relational Separation
1.2.4 Environmental Separation
1.2.5 Developmental Separation
1.2.6 Cultural Separation
1.3 Looking Forward
2 Gains from Trade
2.1 Comparative Advantage in the Short Run
2.2 Comparative Advantage in the Long Run
2.3 The Shoe Story and Economic Reality
2.4 From Comparative to Competitive Advantage
2.5 Shoe Story II: Returns to Scale
3 Factor Advantages
3.1 Factor Abundance
3.2 The Case of Cashmere
3.3 Factor Quality
6.5.3 Communication Standards
6.5.4 Technical Standards
6.6 The Costs of Adaptation
6.7 Weighing the Benefits and Costs
6.8 Pricing to Market
7 Multinational Formation
7.1 Examples of Real World Multinational Forms
7.1.1 Mercedes-Benz
7.1.2 Nestle’s Food Products
7.1.3 Mattel’s Barbie
7.2 Multinational “Business” Strategy
7.3 Combining the Four Elements
7.4 Multinational Corporate Strategy
7.4.1 Forms for Two Vertically Related Products
7.4.2 Three Product Forms
7.5 Revisiting the Exemplars
8 Internalization
8.1 Asset Heavy or Asset Light?
8.2 Organizing Business Relationships
8.3 Problems with Spot Transactions
8.3.1 Relationship-Specific Investment
8.3.2 Downstream Incentive Problems
8.3.3 Information Transfer
8.3.4 Reputation Transfer
8.4 Contracts Versus Internalization
8.5 Internal Allocation of Resources
9 Competitive Interactions
9.1 Motivating Examples
9.1.1 SUVs in the USA
9.1.2 Retail in China
9.2 Key Concepts
9.2.1 Sources of Strategic Complementarity
9.2.2 Sources of First-Mover Advantages
9.3 Multinational Location Games
10 Foreign Exchange Risk
10.1 Exchange Rate Systems
10.2 Fundamental Valuation
10.2.1 Parity (Price) Standards
10.2.2 Equilibrium (Quantity) Standards
10.3 Responses to Exchange Rate Risk
11 Political Risk
11.1 Political Analysis
11.2 Political Strategy
11.2.1 Understand Host-Country Objectives
11.2.2 Catalogue Host-Country Policy Instruments
11.2.3 Calculate Host-Country Bargaining Power
11.2.4 Enhance the Firm’s Own Strategic Position
12 International Taxation
12.1 Jurisdiction: Who Taxes Whom
12.2 Simple Algebra of International Taxation
12.3 Taxation of MNCs’ Earnings from Abroad
12.4 Withholding Taxes
12.5 Tax Reduction Strategies
12.5.1 Transfer Pricing
12.5.2 Thin Capitalization
12.5.3 Tax Havens
13 Expatriate Assignment
13.1 Typical Features of Expatriate Assignments
13.1.1 Compensation
13.1.2 Expatriate Life
13.2 Selection of Managers in Foreign Locations
13.2.1 Advantages of Expats
13.2.2 Advantages of Locals
13.2.3 Strategy and Staffing
Trade is the term commonly used to refer to international transactions involving products, that is, exports and imports of goods and services. There are three types of trade transactions.
• Merchandise transactions involve the transfer of ownership of a tangible and moveable object from a seller to a buyer.
• Services transactions are those in which a consumer benefits from actions taken by the service provider. Service transactions are extremely diverse and include transportation, communication, construction, accounting, advertising, research, entertainment, and some insurance and financial services. Royalties and licence fees—the payments for authorized use of patents, trademarks, and copyrights are also considered service transactions. Usual features of services are intangibility and the involvement of the consumer in the “production” of the service (think of haircuts, hotel room stays, and consulting).
• Goods for processing transactions send raw materials (e.g. crude oil, cotton thread) from country A to country B, where they undergo
processing, and are then imported back into country A (e.g. as refined gas or t-shirts) without a transfer of ownership. Although this transaction appears to be an export of processing services from country B to A, the traditional book-keeping approach has been to consider the two distinct movements of goods (A to B, B to A) as trade in goods.

Elements of Multinational Strategy


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