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83 Cards in this Set

  • Front
  • Back
THE NATURE OF CROSS BORDER CONTRACTUAL RELATIONSHIPS
-entering a formal agreement with a foreign distributor, joint venture firm or other partner abroad. Often involves granting permission to use intellectual property to a foreign partner.<br />-Intillectual property- ideas or works created by the firms individuals, such as patents, trademarks, or copyrights. Includes knowledge based assets of the firm such as industrial designs, trade secrets, inventions, etc.
THE NATURE OF CROSS BORDER CONTRACTUAL RELATIONSHIPS
-Fairly common: some examples include 7-eleven, pharmaceutical firms, fast food chains
THE NATURE OF CROSS BORDER CONTRACTUAL RELATIONSHIPS: Unique aspects
1) Governed by a contract that provides the focal firm a moderate level of control over the foreign partner
2)Typically involve an exchange of intangibles (IP) and services
3)Can be pursued independently or in conjunction with other foreign market entry strategies (FDI, exporting)
PATENT
Provides an inventor with the ability to stop others from using, selling, or importing an invention for a fixed period of time. Can cover any new product, process, machine, or improvement.
TRADEMARK
A distinctive, sign, logo, word, or series of words placed on a product label which identifies the product as coming from a common source.
COPYRIGHT
-Protects original works
-Creator has the right to reproduce the work, display and perform t publicly, and authorize others to do those activities.
-music, art, literature, films, software
INDUSTRIAL DESIGN
-Appearance of features of a product (ex. the slim design of the ipod)
TRADE SECRET
-Confidential know how or information that has a commercial value. Could include production methods, business plans, or customer lists
-(Ex) the formula for Coca-Cola
COLLECTIVE MARK
-A logo belonging to an association or group whose members grant firms the right to use the mark in order to identify the origin of a product or service
IP RIGHTS
- Legal claim through witch the assets of firms and individuals are protected from unauthorized use by other parties
-Provides inventors with a monopoly advantage, for a period of time, so that they can exploit their inventions and create commercial advantage
-Offer an incentive to invent
LICENSING
-An arrangement in which the owner of intellectual property grants another firm the right to use that property for a certain period of time in exchange for royalties or other compensation
LICENSOR
Provides: Intellectual property and supporting products (parts, raw materials, etc.)
LICENSEE
Compensates licensor through a combination of lump sum, down payment + royalty, products, knowhow, cross licensing
ADVANTAGES OF LICENSING (FOR LICENSOR)
-low investment
-low involvement
-low effort, once license is established
-low cost, initial entry strategy
DISADVANTAGES OF LICENSING (FOR LICENSOR)
-Performance depends on the license
-Licensor has limited control over its assets abroad
-Risks creating a future competitor
FRANCHISING
-An arrangement in which a firm allows another the right to use an entire business system in exchange for fees, royalties, or other compensation
-More comprehensive and generally longer term than licensing
BUSINESS FORMAT FRANCHISING
-Most typical form
-Franchiser transfers to franchisee a total business method including production and marketing methods, sales systems, procedures, training, etc.
MASTER FRANCHISER
-An independent company authorized to establish, develop, and manage the entire franchising network in its market
FRANCHISOR
Provides:
1)Trademark protected business concept
2)EVERYTHING needed for its implementation (patents, know-how, training, services, products)
- has economies of scale, a wealth of intellectual property, and know how about its industry
FRANCHISEE
-Compensates franchiser through a combination of lump sum payment, down payment plus royalty, other mark ups and contributions
-performs local functions in foreign markets such as marketing and distribution, that the franchisor can usually not perform
-Entrepreneurial drive, deep knowledge about the local market and how to run a business
ADVANTAGES TO FRANCHISEE
-Gain a recognizable brand name
-Acquire new training and know-how along with ongoing support from the franchisor
-operate an independent business with an increased likelihood of success
-Become part of an established international network
DISADVANTAGES TO FRANCHISEE
-Initial investment or royalty payments may be substantial
-Can only purchase supplies from franchisor
-Franchisor holds superior bargaining power
-Franchisor's other outlets may create competition for the franchisee
-Franchisor may impose inappropriate technical or managerial systems on the franchisee
OTHER CONTRACTUAL ARRANGEMENTS: TURNKEY CONTRACTING
-Turnkey contracting: arrangement where a firm finances, organizes, manages, and implements all phases of a foreign project abroad and hands it over to a foreign country after training local personnel. Typical to construction, engineering, and architectural service industries
MANAGEMENT CONTRACT
-When a contractor supplies managerial know how to operate a hotel, resort, hospital, airport, or other facility in exchange for compensation
INTERNATIONAL LEASING
-Leasing out machinery or equipment to clients abroad, often for several years at a time. (Ex) airlines lease aircraft
GLOBAL SOURCING
-The procurement of products or services from suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country.
-Importing
-Entry strategy that involves a contractual relationship between the buyer (the focal firm) and a foreign supplier. It involves subcontracting the performance of specific manufacturing or services tasks to the firm's own subsidiaries or independent suppliers.
-Global sourcing is classified as a low-control strategy to the extent that the firm is buying from independent suppliers through contractual agreements, as opposed to buying from its own subsidiaries.
DRIVERS OF GLOBAL SOURCING
-Technological advances
-Declining communication costs
-Widespread access to information between suppliers and customers
-Entrepreneurship and the expansion of markets
OUTSOURCING
-The procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers.
-Many firms cannot perform ALL activities themselves- Most value-adding activities -- from manufacturing to marketing to after-sales service -- are candidates for outsourcing.
BUSINESS PROCESS OUTSOURCING (BPO)
-The outsourcing of business functions to independent suppliers such as accounting, payroll, and human resource functions, IT services, customer service, and technical support.
-Back office: internal, upstream business functions such as payroll and billing, and
-Front office: downstream, customer-related services such as marketing or technical support.
CONTRACT MANUFACTURING
-An arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications.
OFF SHORING
-A natural extension of global sourcing. It refers to the relocation of a business process or entire manufacturing facility to a foreign country.
IMPLICATIONS OF GLOBAL SOURCING
-whether to perform specific value-adding activities in-house or to outsource them, and whether to concentrate each activity at home or disperse it abroad.
THE EVOLUTION OF GLOBAL SOURCING
-The first major wave emphasized the manufacturing of input products and began in the 1960s with the shift of European and U.S. manufacturing to low-cost countries as geographically diverse as Mexico and Spain.
-Early observers pointed to the emergence of the “modular corporation” and the “virtual corporation.”
-The next wave of global sourcing began in the 1990s with offshoring. In addition to IT services and customer-support activities, other service sectors became part of the offshoring trend.
-Today, business-process outsourcing in product development, human resources, and finance/accounting services has become very common.
BENEFITS OF GLOBAL SOURCING
-Cost efficiency: labor arbitrage’ ─ the large wage gap between advanced economies and emerging markets.
-Improved productivity
-Technological flexibility
-Improved agility to redesign company activities
-Access to skilled personnel
-Increased speed to market
-Access to new markets
CHALLENGES OF GLOBAL SOURCING
-Vulnerability to exchange rate fluctuations
-Partner selection, qualification, and monitoring costs
-Complexity of managing a worldwide network of partners and a global supply chain
-Limited influence over supplier’s manufacturing processes
-Vulnerability to opportunistic behavior by suppliers
-Limited ability to safeguard intellectual assets
GLOBAL SUPPLY CHAIN
-The firm’s integrated network of sourcing, production, and distribution, organized on a world scale, and located in countries where competitive advantage can be maximized.
**MAXIMIZE COMPETITIVE ADVANTAGE**
GLOBAL SUPPLY CHAIN NETWORK
Consolidates a firm’s sourcing, manufacturing, and distribution in a few strategic locations worldwide so the firm can concentrate these activities in countries where it can maximize its competitive advantages.
GLOBAL SUPPLY CHAIN MANAGEMENT
-Experienced firms use information and communications technologies (ICTs) to streamline operations, reducing costs and increasing distribution efficiency.
-Managers use Electronic Data Interchange (EDI), which passes orders directly from customers to suppliers automatically through a sophisticated ICT platform.

-Logistics involves physically moving goods through the supply chain. Incorporates information, transportation, inventory, warehousing, materials handling and similar activities associated with the delivery of raw materials, parts, components, and finished products.
-Multiple transportation modes: land, air, ocean
RISKS IN GLOBAL SOURCING
1. Less-than-expected cost savings. Conflicts and problems arise from various sources.
2. Environmental factors. Examples include exchange rate fluctuations, trade barriers, macroeconomic events, high energy costs, labor strikes
3. Weak legal environment. Can affect protection of intellectual property, eroding key strategic assets.
4. Risk of creating competitors
5. Inadequate or low-skilled workers
6. Erosion of morale and commitment among home-country employees due to outsourcing jobs
STRATEGIES FOR MINIMIZING RISK
1. Go offshore for the right reasons. The best rationale is
strategic, such as enhancing the quality of offerings, improving
productivity, and freeing up core resources.
2. Get employees on board. Poorly planned sourcing projects
creates unnecessary tension with existing employees.
3. Choose carefully between a captive operation and a
contract with outside specialists. Strike the right balance
between what to make, and what to buy.
4. Choose countries and suppliers carefully. There are many
options to choose from; A sourcing broker can help.
5. Invest in supplier development and collaboration: strong relationships create a "morale contract" between the focal firm and the supplier
6. Proactively safeguard interests, such as key assets and the
firm’s reputation
PUBLIC POLICY ISSUES
-It is impractical to adopt a unilateral policy against global sourcing.
-Rather, it is usually better to mitigate the harm that global sourcing can cause.
-Offshoring is a process of creative destruction. It creates new advantages and opportunities, while eliminating certain types of jobs and adversely impacting particular economic sectors and segments of the economy.
HELPFUL PUBLIC POLICY INITIATIVES
-Guiding employment towards higher value-added jobs
(e.g., by stimulating innovation)
-Keep the cost of doing business low (e.g., via appropriate economic and fiscal policies, encouraging innovation, keeping cost of capital low)
-Ensure a strong educational system, including technical schools and well-funded universities that supply engineers, scientists, and knowledge workers.
-Maximize worker flexibility to help those who lose jobs find other positions.
GLOBAL MARKETING STRATEGY
-- a plan of action that guides the firm in: (1) how to position itself and its offerings in foreign markets and which customer segments to target; and (2) the degree to which its marketing program elements should be standardized and adapted.
MARKET SEGMENTATION
- the process of dividing the firm’s total customer base into homogeneous clusters in a way that allows managers to formulate unique marketing strategies for each group. Within each market segment, customers exhibit similar characteristics regarding income level, lifestyle, demographic profile, or desired product benefits.
POSITIONING
-the firm develops both the product and its marketing to evoke a distinct impression in the customer's mind, emphasizing differences from competitive offerings.
STANDARDIZATION
-Exemplifies global integration and is more appropriate in global industries.
Pursue when:
-similar market segments exist across countries
-Customers seek similar features
-products have universal specifications
-business customers have converging expectations
ADVANTAGES OF STANDARDIZATION
-Cost reduction
-Improved planning and control
-Ability to portray a consistent image and build global brands
ADAPTATION
Exemplifies local responsiveness and is more acceptable in multi domestic industries.
Use when the following are distinct:
-National preferences
-Laws and regulations
-Living standards and economic conditions
-National infrastructure
ADVANTAGES OF ADAPTATION
-Meets needs of customers more precisely
-Enjoy unique appeal
-Comply with government regulations
-Achieve greater success in combating customer resistance
GLOBAL BRAND
-one whose positioning, advertising strategy, look, and personality are standardized worldwide. Standardization allows the firm to establish and project a globally recognized brand.
-Consumers prefer globally branded products because branding provides a sense of trust and confidence in the product.
-A strong global brand enhances the efficiency and effectiveness of marketing programs, stimulates brand loyalty, facilitates the ability to charge premium prices, increases the firm’s leverage with resellers.
-The firm can reduce its marketing and advertising costs by concentrating on a single global brand instead of a number of local or national brands.
PRODUCT DEVELOPMENT
-Today, many more firms develop global products intended for world markets from the outset.
-Product designers work in virtual global teams held together by information and communications technologies.
-Global team members are drawn from functional areas in subsidiaries across the globe.
INTERNATIONAL PRICING
-Nature of the product or industry. -A specialized product, or one with a technological edge, gives a company greater price flexibility.
-Location of the production facility. -Locating manufacturing in countries with low-cost labor enables a firm to charge cheaper prices.
-Type of distribution system. Some export distributors mark up prices substantially which will harm the manufacturer’s image and pricing.
-Foreign market considerations. -Climate and other market conditions may require the firm to modify a product or its distribution.
PRICING STRATEGIES
-Rigid cost-plus pricing: setting a fixed price for all export markets. Management simply adds a flat percentage to the domestic price to compensate for the added costs of doing business abroad.
-Flexible cost-plus pricing. Management includes any added costs of doing business abroad in its final price. Prices are adjusted to accommodate local market and competitive conditions, such as customer purchasing power, demand, and competitor prices.
-Incremental pricing- setting prices so that they only cover variable costs (highly competitive markets)
-Transfer pricing refers to the practice of pricing intermediate or finished products exchanged among the subsidiaries and affiliates of the same corporate family located in different countries.
INTERNATIONAL PRICE ESCALATION
-the problem of end-user prices reaching exorbitant levels in the export market caused by multi-layered distribution channels, intermediary margins, tariffs, and other international customer costs.
GREY MARKET ACTIVITY
Legal importation of genuine products into a country by intermediaries other than authorized distributors.
-Main cause: large cost discrepancies of products between different countries
INTERNATIONAL HUMAN RESOURCE MANAGEMENT
-the planning, selection, training, employment, and evaluation of employees for international operations.
-How a firm recruits, trains, and places skilled personnel in its worldwide value chains sets it apart from competition.
-The combined knowledge, skills, and experiences of employees are distinctive and provide myriad advantages to the firm’s operations worldwide.
INTERNATIONAL STAFFING POLICY
-Host-country nationals (HCNs): citizens of the country where the subsidiary or affiliate is located. HCNs make up largest proportion of employees that the firm hires abroad. Examples: the labor force in manufacturing, assembly, basic service activities, clerical work, and other non-managerial functions.
-Parent-country nationals (PCNs): also known as home-country nationals, PCNs are citizens of the country where the MNE is headquartered.
-Third-country nationals (TCNs): employees who are citizens of countries other than the home or host country. Most work in management; have unique skills
DIFFERENCES BETWEEN DOMESTIC HRM AND INTERNATIONAL HRM
-New HR responsibilities. E.g., international taxation, international relocation and orientation, services for expatriates, host government relations, language translation services.
-Need for a broader perspective. E.g., establishing a fair and comparable compensation scale when there is a mix of PCNs, HCNs, and TCNs.
-Greater involvement in employees’ personal lives. E.g., housing arrangements, health care, children’s education, safety, security, proper compensation, higher living costs abroad.
-Managing the mix of expatriates versus locals. The firm may staff each location with HCNs, PCNs, and TCNs. The mix of staff mainly depends on the firm’s international experience, cost-of-living abroad, local laws, and availability of qualified local staff.
-Greater risk exposure. Exposure to political risk and terrorism may require increased compensation and security arrangements.

-External influences of the nation and culture. E.g., taxes, local work regulations, unique cultural circumstances, traditional work practices.
TASKS OF IHRM
-Staffing – activities directed at recruiting, selecting, and placement of employees.
-Training and developing employees.
-Performance appraisal; involves providing feedback necessary for the employee’s professional development.
-Compensation or remuneration of employees including formulation of benefit packages that vary greatly from country to country.
-Management of labor unions and collective bargaining processes, known as industrial relations.
-Achieving diversity in the workplace.
EXPATRIATE
-An employee who goes to work abroad for an extended period, usually years
-Repatriation: return of the expatriate to the home country. Requires advance preparation. Unless managed well, returning expatriate may encounter problems, such as career disruptions and ‘reverse culture shock’.
-Expatriate failure: the premature return of an expatriate, due to an inability to perform well abroad. Costly to the firm (lost productivity and relocation costs) and to expatriates themselves (family stress and career disruption).
PREPARATION FOR INTERNATIONAL ASSIGNMENTS
1.Area studies: factual knowledge of the historical, political and economic environment of the host country;
2.Practical information: knowledge and skills necessary to function effectively in a country, including housing, health care, education, and daily living;
3.Cross-cultural awareness: ability to interact effectively and appropriately with people from different language and cultural backgrounds.
GEOCENTRIC ORIENTATION
-staffing HQ and subsidiaries with the most competent personnel, regardless of nationality. Characterized by an openness to, and articulation of, multiple cultural and strategic realities on both global and local levels.
-Best to hire, develop, nurture, and recognize employees who possess a global mindset and offer global leadership potential.
PERFORMANCE APPRAISAL
-Formal process of assessing how effectively employees perform their jobs.
-Helps identify problem areas where an employee needs to improve and additional training is warranted.
-Determines compensation and company performance.
MNEs devise procedures to assess the performance of individual employees; ascertain if any problems are attributable to inadequate skill levels; provide additional training and resources; and terminate employees who consistently fail to achieve goals.
-Often very challenging in international business.
EXPATRIATE COMPENSATION
-Compensation varies internationally due to differences in legally mandated benefits, tax laws, cost of living, local tradition, and culture.
-Employees posted abroad expect to be compensated at a level that allows them to maintain their usual standard of living, which can make compensating expatriates very costly.
-Includes base remuneration, benefits (e.g., health care plans), allowance (e.g., for housing, children’s education, travel), incentives
LABOR RELATIONS
-Management and workers determine the job relationships that will be in effect at the workplace.
-Collective bargaining involves negotiations between management and workers regarding wages and working conditions.
-Labor regulations vary substantially, with minimum regulations in Africa and India to very detailed regulations in Northern Europe.
-Union membership has declined in most countries, but remains high in several European countries.
Strikes can disrupt international operations.
WOMEN IN INTERNATIONAL BUSINESS
-Women currently occupy relatively few top management positions (in Europe, women occupy only 15% of senior executive posts)
-Reasons for scarcity of women in international jobs:
Senior managers often assume women do not make suitable leaders abroad (e.g., due to cultural challenges)
Some female managers prefer to remain in the home country, to fulfill family obligations or avoid disrupting partner’s career.
Most companies do not accommodate child-rearing or other family responsibilities.
There are fewer women with sufficient experience to be sent abroad for senior jobs.
TRENDS IN INTERNATIONAL LABOR
Mobility of labor across national borders has increased substantially. Reasons:
Growing interconnectedness of national economies;
Rapid expansion of multinational firms;
Rise of international collaborative ventures; and
Greater emphasis on global teams.
Many countries are coping with an influx of immigrants, both legal and illegal, who compete with established workers by providing low-cost labor. Trend is significant in Europe, Persian Gulf countries, and the United States (but not in Japan).
INTERNATIONAL FINANCIAL MANAGEMENT
-The acquisition, management, and use of funds for
cross-national trade, investment, and other
commercial activities.
-It involves:
Conducting transactions in various currencies;
-Operating in environments characterized by significant risk, capital flow restrictions, and varying accounting and tax systems;
-Seeking and accessing funds from banks, bond markets, stock exchanges, venture capital firms, and intra-corporate sources, located worldwide.
INTERNATIONAL FINANCIAL MANAGEMENT TASKS
-Decide on the Capital Structure. Determine the ideal long-term mix of debt versus equity financing.
Raise funds for the firm. Acquire equity, debt, or intra-corporate financing for funding activities and investments.
-Working Capital and Cash Flow Management. Manage funds passing in and out of the firm’s value-adding activities.
-Capital Budgeting. Assess financial attractiveness of major investment projects (e.g., foreign market expansion).
-Currency Risk Management. Manage multiple-currency transactions and exposure to exchange-rate fluctuations.
-Manage the Diversity of international Accounting and Tax Practices. Operate in a global environment with diverse accounting practices and international tax regimes.
DEBT VS EQUITY FINANCING
-Capital structure: the mix of long-term equity financing and debt financing firms use to support their international activities.
-Firm obtains equity financing by selling shares of stock to investors or by retaining earnings.
-Global equity market: the worldwide market for equity financing -- stock exchanges worldwide where investors and firms meet to buy and sell shares of stock.
Shares of stock provide an investor with an ownership interest, that is, equity, in the firm.
-Debt financing comes from either loans from banks and other financial intermediaries or money raised from the sale of corporate bonds.
-International Loans. The firm may borrow money from banks in its home market or abroad.
-Eurocurrency Market is money deposited in banks outside its country of origin, mainly U.S. dollars, “eurodollars”. Other eurocurrencies include euros, yen, and pounds, banked outside the home country
RAISING FUNDS
-Global money market: financial markets where firms
and governments raise short-term financing.
-Global capital market: financial markets where firms
and governments raise intermediate-term and long-term
financing.
-Most funding is longer term. The global capital market is the meeting point of those who want to invest money and those who want to raise funds.
-Main advantage of the global capital market: ability to access funds from a wider range of sources at lower cost.
BONDS
-A bond enables the issuer (borrower) to raise capital by promising to repay the principal along with interest at a specified date.
-Global bond market is the international marketplace where bonds are bought and sold, primarily via banks and stockbrokers.
-Foreign bonds are sold outside the bond issuer’s country and denominated in the currency of the country in which they are issued.
-Eurobonds are sold outside the bond issuer’s home country and denominated in its own currency (e.g., when Toyota sells yen-denominated bonds in Europe)
INTRACORPORATE FINANCING
-Funds provided from sources inside the firm in the form of equity, loans, and trade credits.
-Trade credit arises when a supplier of goods and services grants the customer the option to pay later.
-Advantages: Often the lowest-cost capital; minimizes the transactions costs typical of obtaining funds from other sources; has little effect on the parent firm’s balance sheet; avoids risk of debt financing; avoids ownership-diluting effects of equity financing.
WORKING CAPITAL AND CASH FLOW MANAGEMENT
-Working capital: the current assets of the firm.
-Working capital management aims to ensure cash is available where and when it is needed.
-Cash flow needs arise from everyday business activities, such as paying for labor or materials.
-Cash is generated from various sources and must be transferred from one part of the MNE to another.
-International financial managers devise various strategies for transferring funds within the firm’s worldwide operations, to optimize global operations.
TRANSFERRING FUNDS WITHIN THE MNE
-Through trade credit, a subsidiary defers payment for goods and services received from the parent.
-Royalty payments: remuneration paid to the owners of intellectual property, as parents often ‘license’ the use of assets to subsidiaries.
-Fronting loan: a loan between the parent and its subsidiary, channeled through a bank. The parent deposits a sum in a foreign bank, which then transfers the funds to the subsidiary as a loan.
-Transfer pricing: the prices that subsidiaries and affiliates charge one another for transferred goods and services within the same MNE.
CAPITAL BUDGETING
-Helps managers decide which international expansion projects are economically desirable.
-The decision to accept or reject an investment project depends on the project’s initial investment requirement, its cost of capital, and the benefits the project is expected to provide.
-Involves net present value analysis.
Can be very complex, because there are many variables to consider.
-Facilitated by spreadsheet analysis
CURRENCY RISK
-Transaction exposure. Arises when outstanding accounts receivable or payable are denominated in foreign currencies.
-Translation exposure. Results financial statements denominated in a foreign currency are translated into the functional currency of the parent, as part of consolidating international financial results.
-Economic exposure. Results from exchange rate fluctuations affecting the pricing of products, the cost of inputs, and the value of foreign investments.
CURRENCY TRADING
-Spot rate: the exchange rate applicable to the trading of foreign currencies in which the current rate of exchange is used and delivery is considered ‘immediate.’
-Forward rate: the exchange rate applicable to the collection or delivery of foreign currencies at some future date, but a rate specified at the time of the transaction.
-Currency hedging- done through contracts, protects companies from future unfavorable currency exchange rates
INTERNATIONAL ACCOUNTING AND TAX PRACTICES
-The firm’s accounting systems must identify, measure, and communicate financial information, often in complex multi-country operations, with much variation in national accounting systems.
-For example, there are dozens of approaches for determining R&D expenditures, cost of goods sold, asset valuation, net profits, etc.
-Financial statements prepared according to the rules of one country may be difficult to compare with those prepared in another country.
TRANSPARENCY
-the degree to which firms regularly and comprehensively reveal substantial information about their financial condition and accounting practices.
-accounting practices are becoming more standardized world wide
CONSOLIDATING FINANCIAL STATEMENTS
-Involves “translating” data denominated in foreign currencies into the firm’s functional currency on headquarters financial statements.
-Current rate method -- all foreign currency balance-sheet and income statement items are translated at the current exchange rate -- the spot exchange rate in effect on the day the statements are prepared.
-Temporal method -- the choice of exchange rate depends on the underlying method of valuation. If assets and liabilities are normally valued at historical cost, then they are translated at the historical rates. If assets and liabilities are normally valued at market cost, they are translated at the current rate of exchange.
INTERNATIONAL TAXATION
-A direct tax is imposed on income derived from the firm’s business activities.
-An indirect tax applies to firms that license or franchise products and services, or who charge interest. In effect, the local government withholds some percentage of payments as tax.
-A sales tax is a flat percentage tax on the value of goods or services sold, and paid by the ultimate user.
-A value-added tax (VAT) is payable at each stage of processing in the value chain of a product or service. It is common in Canada, Europe, and Latin America.
TAX HAVENS
-A country hospitable to business and inward investment because of its low corporate income tax.
-Examples: Bahamas, Luxembourg, Monaco, Singapore, Switzerland
-They exist partly because MNEs want to structure their global activities in ways that minimize taxes.
-MNEs take advantage of tax havens either by establishing operations in them or by funneling business transactions through them.