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RSM490H1 Study Guide - Final Guide: Foreign Direct Investment, Tacit Collusion, Blue Ocean Strategy

Rotman Commerce
Course Code
Prof.Jan Klakurka
Study Guide

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9. Growing and Internationalizing the Entrepreneurial
Firm 10/30/2012 3:55:00 PM
Small and Medium Sized Enterprises (SME): firms with fewer than 500
employees in the US and with fewer than 250 employees in the EU
Entrepreneurship: the identification and exploitation of previously
unexplored opportunities
Entrepreneurs: founders and owners of new businesses or managers of
existing firms
International Entrepreneurship: a combination of innovative, proactive
and risk-seeking behaviour that crosses national borders and is intended
to create wealth in organizations
An entrepreneurial firm must take the VRIO framework (value, rarity,
imitability and organizational)
Growing the entrepreneurial firm
o Microfinancing: a practice to provide micro loans ($50-300)
used to start small businesses with the intention of ultimately
lifting the entrepreneurs out of poverty
Born global: start-up companies that attempt to do business abroad
from inception
Compared to domestic, transaction costs are higher for
International Strategies for entering foreign markets
o Direct exports
The sale of products made by firms in their home
country to customers in other countries
Letter of credit (L/C): a financial contract that states
that the importer’s bank will pay a specific sum of
money to the exporter upon delivery of the
Transactions are facilitated by banks on both
sides and reduce transaction costs
o Franchising/licensing

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Licensing: Firm A’s agreement to give Firm B the rights
to use A’s proprietary technology or trademark for a
royalty fee paid to A by B. This is typically done in
manufacturing industries
Franchising: firm A’s firm A’s agreement to give firm B
the rights to use A’s proprietary assets for a royalty fee
paid to A by B. This is typically done in service
o Foreign direct investment (FDI)
Stage model: model of internationalization that portrays
the slow step by step process an SME must go through
to internationalize its business
International strategies for staying in domestic markets
o Export indirectly: a way to reach overseas customers by
exporting through domestic-based export intermediaries
Export intermediaries: a firm that performs an
important middleman function by linking domestic
sellers and foreign buyers that otherwise would not
have been connected
o Become suppliers for foreign firms
o Become licensees or franchisees of foreign brands
o Become alliance partners of foreign direct investors
o Harvest and exit through sell offs

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10. Entering Foreign Markets 10/30/2012 3:55:00 PM
Liability of foreignness
Numerous differences in formal and informal institutions govern the
rules of the game in different countries
Discrimination against foreign firms
Where to Enter?
Two set of considerations drive the location of foreign entries
o Strategic goals
o Cultural and institutional distances
Location-Specific Advantages and Strategic Goals
o Location specific advantages: benefits a firm reaps from the
features specific to a place
o Natural resources seeking: possession of natural resources
and related transport and communication infrastructure
o Market seeking: abundance of strong market demand and
customers willing to pay
o Efficiency seeking: economies of scale and abundance of low
cost factors
o Innovation seeking: abundance of innovative individuals,
firms and universities
Cultural/Institutional Distances and Foreign Entry Locations
o Cultural distance: the difference between two cultures along
identifiable dimensions such as individualism
o Institutional distance: the extent of similarity or dissimilarity
between the regulatory, normative and cognitive institutions
of two countries
When to Enter?
First mover advantages: benefits that accrue to firms that enter the
market first and that late entrants do not enjoy
o Proprietary technology
o Preemptive investments
o Erect significant entry barriers for late entrants
o Avoidance of clash with dominant firms at home
o Relationships with key stakeholders such as customers and
Late mover advantages: benefits that accrue to firms that enter the
market later and that early entrants do not enjoy
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