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Econ 4311 (Strategies of Global Enterprises) Week 1 notes

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by: Michael Notetaker

Econ 4311 (Strategies of Global Enterprises) Week 1 notes ECON 4311 UN

Marketplace > Georgia Institute of Technology > Economcs > ECON 4311 UN > Econ 4311 Strategies of Global Enterprises Week 1 notes
Michael Notetaker
Georgia Tech
GPA 3.17
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Notes for first sections of the class
Global Enterprise
Prof. Usha Nair-Reichert
Class Notes
Econ 4311




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"Yes please! Looking forward to the next set!"
Finn Lubowitz I

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This 3 page Class Notes was uploaded by Michael Notetaker on Wednesday January 13, 2016. The Class Notes belongs to ECON 4311 UN at Georgia Institute of Technology taught by Prof. Usha Nair-Reichert in Winter 2016. Since its upload, it has received 10 views. For similar materials see Global Enterprise in Economcs at Georgia Institute of Technology.

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Yes please! Looking forward to the next set!

-Finn Lubowitz I


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Date Created: 01/13/16
*Sections in red are the topics I found to be most important. ECON 4311 Strategic Economics of Multinational Enterprises Introduction  Foreign Direct Investment (FDI): o Occurs when a firm invests in business activities outside its home country o Not all companies record data the same (different cutoffs for min % of foreign company owned before reported)  Arms-Length Price o Price of goods between unrelated parties  Transfer price o Price of goods within MNC family o Tax authorities want transfer price to equal arms-length price (because home country makes less from tax when products are sold at transfer price to subsidiary in other country)  Types of International Transactions o Trade: exports (+) and imports (-)  Merchandise  Services  Goods for processing o Income Receipts (+) and payments (-)  Investment income  Employee compensation o Investment sales (+) and purchases (-)  Portfolio investment  Direct investment  Acquisitions of intangibles  Intellectual Property (IP) o Patents (purchased or licensed)  Six forms of Separation (i.e. barriers to Globalization) o Political Separation  Political borders impede movement of:  Goods (Customs)  People (Immigration)  Money (Currency Exchange)  Capital (Regulation, Taxation)  Ideas (Censorship, Firewalls) o Physical Separation  Natural barriers to movement of goods, people, and information  Oceans  Mountains  Distance  Costs of  Transport (goods)  Travel (people)  Communication (information) o Relational Separation (Relationships, Trust, and IB Transactions)  Transactions rely on trust  Between buyers and sellers  Of public officials  Of intermediaries  International transactions undermine trust  Lack of info about reputations  Results in more unforeseen contingencies (making contracts incomplete)  Unfamiliar legal systems  Distant and possibly biased courts o Especially corrupt officials  Banks act as intermediaries, using a “Letter of Credit” for transactions between people and businesses in other countries o Environmental Separation  Differences in environment create opportunities for profit from trade  Differences change consumer demands and require market adaptations in product attributes  Differences raise difficulties for expatriate managers (especially “hardship” areas)  Example:  Wine production is only possible/profitable in a very (relatively) small portion of the globe o Developmental Separation  How to measure it?  Life expectancy  Extreme poverty  Income per capita o How do you adjust for cost of living?  Purchasing Power Parity (PPP)  The Penn Effect: prices are cheaper in poorer countries  GDP  Comparing countries  Prices differ a great deal across countries  To compare standards of living, use PPP rates (special exchange rates) to convert local currency GDP per capita into price-adjusted incomes  Impact  Income differences affect how much consumers can purchase and the attributes of goods they demand  Poor countries are often no cheap countries, due to corruption, lack of infrastructure, etc… o Cultural Separation  Two mechanisms:  traditions (“vertical” method of cultural transmission) o “common heritage” effect results in different cultural values  Shared behaviors among peers (“horizontal” method) o Individuals tend towards conformity, sharing common beliefs with those they interact with o Social learning: copying a method that is believed to solve a problem  Role of social interactions  Predominant culture  Religion, language, politics, customs/traditions, acceptable modes of dressing, what food you can/can’t eat, what is polite  Examples:  some countries have 9-5 days as standard, others expect a break in the middle of the day  product interfaces (different plug types in different countries, different paper sizes, etc…)


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