WGJ1-D) BWL-Klausur #2 / VBR-Klausur #3 J1 HJ-1: Lernbereich A, 6 / Learning area B, 1-5
Chapter 1: Motives for going abroad
Why do companies go abroad?
→ A multinational company (MNC) is an enterprise that operates in more than one country.
There are several reasons for a company to start operating abroad.
1.1: Resource-orientated factors
Resources in broad include
- raw materials,
- production capital,
- human resources and know-how
→ Raw materials: only available in certain regions of the world like oil, cobalt and lithium. → lower costs
1.2: Efficiency seeking factors
International division of labor → specialization, because every country has a comparative cost advantage
Economies of scale → internationalization → increase production volume → cost reduction
Risk spreading → relying on one market is dangerous, internationalization reduces the risk
Tax benefits → different, lower tax rates in some countries → more profit
1.3: Market seeking factors
Market position: expanding market share and market presence
Attractive to enter markets with less competition
- proximity to customers
- escaping a shrinking market
- avoiding tariffs and non-tariff trade barriers → Zollgebühren
Chapter 2: Choice of location
2.1: Hard and soft location factors
Hard location factors:
- employee pay, taxes, subsidies
- measurable in monetary terms
→ can be included in the company’s accounting systems
→ calculate sales prices
Soft location factors:
- cultural norms
- level of education of the population
- political stability / political climate
→ cannot be included in company’s accounting system
→ can be critical to company’s success
→ need to be analyzed, not possible to measure in monetary terms
2.2: Decision matrix: factors and barriers – how to analyze choice of location
Economic factors and barriers
- economic growth, inflation rate, interest rates and exchange rates
→ large impact on company’s success → cost of capital, labor costs
Political factors and barriers
- form of government, political stability, how the government deals with the economy
- influences the country’s health, education and infrastructure
- might be risky to invest in a poorly developed country because of instability
, Geographical / environmental factors and barriers
- weather, climate, natural resources, availability of water, shape of region
- environmental regulations like having to buy licenses for emitting carbon dioxide into the air
Cultural factors and barriers
- values and norms that might affect the business
- value of punctuality, reliability, flexibility, politeness or honesty
- barriers might occur when different norms and values confront each other
Social factors and barriers
- poor health conditions, motivation, work and safety
- barrier: investing in poor conditions
Technological factors and barriers
- digitalization, level of technology, innovativeness
- barrier: poor technology, lack of digitalization
Legal factories and barriers
- consumer protection laws, employment laws, legal systems
- barriers: strong laws affecting the allowance of selling the products to the customers
Chapter 3: Internationalization strategies
3.1: Classification of internationalization strategies
International strategy: Exporter
- low capital required, no risk in foreign investment, economies of scale and scope
- high transportation costs and export tariffs, can’t adapt to local markets, slow reaction to changes in market
Multidomestic strategy:
- adaptions to local markets, quick reactions to changes in a specific market
- low know-how transfer within company, high production & marketing costs, requires high capital
Chapter 1: Motives for going abroad
Why do companies go abroad?
→ A multinational company (MNC) is an enterprise that operates in more than one country.
There are several reasons for a company to start operating abroad.
1.1: Resource-orientated factors
Resources in broad include
- raw materials,
- production capital,
- human resources and know-how
→ Raw materials: only available in certain regions of the world like oil, cobalt and lithium. → lower costs
1.2: Efficiency seeking factors
International division of labor → specialization, because every country has a comparative cost advantage
Economies of scale → internationalization → increase production volume → cost reduction
Risk spreading → relying on one market is dangerous, internationalization reduces the risk
Tax benefits → different, lower tax rates in some countries → more profit
1.3: Market seeking factors
Market position: expanding market share and market presence
Attractive to enter markets with less competition
- proximity to customers
- escaping a shrinking market
- avoiding tariffs and non-tariff trade barriers → Zollgebühren
Chapter 2: Choice of location
2.1: Hard and soft location factors
Hard location factors:
- employee pay, taxes, subsidies
- measurable in monetary terms
→ can be included in the company’s accounting systems
→ calculate sales prices
Soft location factors:
- cultural norms
- level of education of the population
- political stability / political climate
→ cannot be included in company’s accounting system
→ can be critical to company’s success
→ need to be analyzed, not possible to measure in monetary terms
2.2: Decision matrix: factors and barriers – how to analyze choice of location
Economic factors and barriers
- economic growth, inflation rate, interest rates and exchange rates
→ large impact on company’s success → cost of capital, labor costs
Political factors and barriers
- form of government, political stability, how the government deals with the economy
- influences the country’s health, education and infrastructure
- might be risky to invest in a poorly developed country because of instability
, Geographical / environmental factors and barriers
- weather, climate, natural resources, availability of water, shape of region
- environmental regulations like having to buy licenses for emitting carbon dioxide into the air
Cultural factors and barriers
- values and norms that might affect the business
- value of punctuality, reliability, flexibility, politeness or honesty
- barriers might occur when different norms and values confront each other
Social factors and barriers
- poor health conditions, motivation, work and safety
- barrier: investing in poor conditions
Technological factors and barriers
- digitalization, level of technology, innovativeness
- barrier: poor technology, lack of digitalization
Legal factories and barriers
- consumer protection laws, employment laws, legal systems
- barriers: strong laws affecting the allowance of selling the products to the customers
Chapter 3: Internationalization strategies
3.1: Classification of internationalization strategies
International strategy: Exporter
- low capital required, no risk in foreign investment, economies of scale and scope
- high transportation costs and export tariffs, can’t adapt to local markets, slow reaction to changes in market
Multidomestic strategy:
- adaptions to local markets, quick reactions to changes in a specific market
- low know-how transfer within company, high production & marketing costs, requires high capital
