International Business Midterm 2

2/25/2013Chapter 6: Investing Abroad Directly

1. Key Terms:a. Foreign Portfolio Investment (FPI): “foreign indirect management;” holding securities of

companies in other countries, but does not entail active management of foreign assets; based on financial securities – the price of this investment depends on the stock market

b. Foreign Direct Investment (FDI): the direct, hands-on management of foreign assets. For statistical purposes, the UN defines FDI as an equity stake of 10% or more in a foreign-based enterprise; based on tangible investments – manage this investment through people managers

c. Management Control Rights: without FDI, it is difficult to establish this - the authority to appoint key managers and establish control mechanisms.

d. FDI Flow: the amount of FDI moving in a given period. e. FDI Inflow: FDI moving into a country. f. FDI Outflow: FDI moving out of a country. g. FDI Stock: total accumulation of inbound FDI in a country of outbound FDI from a country.

2. Horizontal FDI: when a firm takes the same activity at the same value-chain stage from its home country and duplicates it in a host country through FDI; refers to producing the same products or offering the same services in a host country as firms do at home; e.g. BMW

3. Vertical FDI: when a firm moves upstream or downstream in different value-chain stages in a host country through FDI

* Remember the Value ChainInputR&DComponents Final AssemblyMarketing Output

4. FDI Flow v. Stock:a. FDI Flow:  is the amount of FDI moving in a given period (usually a year) in a certain

directioni. FDI Inflow: moving into a country in a year

ii. FDI Outflow: moving out of a country in a year b. FDI Stock: is the total accumulation of inbound FDI in a country or outbound FDI from a

country5. Why Does FDI Take Place? FDI provides gains to a firm through OLI

a. Ownership Advantages: Possession and leveraging of certain valuable, rare, hard to imitate, organizationally embedded resources.

i. Direct ownership provides combination of equity ownership rights and management control rights.

ii. FDI vs. Licensing:1. FDI reduces dissemination risk2. FDI provides tight control over foreign operations3. FDI facilitates the transfer of tacit knowledge through “learning or doing”

b. Location Advantages: Features unique to a place that provide advantage to a firm.i. Some locations possess geographical features that are difficult to match.

ii. Location advantage can arise from agglomeration – the clustering of economic activities in certain locations.

iii. Results from:1. Knowledge spillover2. Industry demand for skilled workers3. Industry demand that facilitates a pool of specialized suppliers and buyers in

a region.iv. Acquiring and Neutralizing Location Advantages:

1. Location advantage does not entirely overlap with country-level advantages. 2. Refers to advantage that firm obtains when operating in a specific location

due to firm-specific resources. 3. When one firm enters a foreign country through FDI, competitors are likely to

increase FDI in order to acquire or neutralize location advantages.

c. Internalization Advantages: Replacement of cross-border markets with one firm locating and operating in two or more countries.

i. Benefits:1. Reduces cross-border transaction costs.2. Replaces external market relationship with single organization spanning both

countries.

6. International Market Transaction:a. A market transaction between two firms may suffer from high transaction costs, especially

due to opportunism on both sides. For example, NNPC may demand a higher price than previously negotiated, while BP might refuse a shipment citing poor quality.

b. Once one side behaves opportunistically, the other wide will threaten or initiate law suits. But, because the legal and regulatory frameworks governing such international transactions are generally not as effective as those governing domestic transactions, the injured party will generally be frustrated, while the opportunistic party will often get away with it.

7. One Company in Two Countries:

a. FDI resolves the difficulties of an international market transaction through internalization, which involves replacing the external market with in-house links. In this example, BP could undertake upstream vertical FDI by owning oil production assets in Nigeria. Or, NNPC could undertake downstream vertical FDI by owning oil refinery assets. In either case, the MNE reduces cross-border transaction costs and increases efficiencies by replacing an external market relationship with a single organization spanning both countries.

8. Different Political Views on FDI:a. Radical view – hostile; treats FDI As an instrument of imperialism. e.g. Nike several years

ago, because they decided to go to foreign countries in order to exploit lower labor costs and child labor

b. Pragmatic nationalism – considers both the pros and cons of FDI and approves it only when benefits outweigh the costs, countries who see the benefits of FDI are more open to it e.g. South America and South Africa – have lots of natural resources, but not the labor of technology to take advantage of them, and both countries will benefit; HOL, Telefonica Spanish companies who operate in South America, these Spanish countries are more developed

c. Free market view – suggests that FDI will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods or services; the general equilibrium between demand and supply

9. Benefits and Costs of FDI to Host Countries: a. Benefits:

i. Capital inflow (FDI): can help improve a host country’s balance of payments. ii. Technology spillovers: the domestic diffusion of foreign technical knowledge and

processes that benefit domestic firms and industries. iii. Advanced management know-how: In many developing countries, it is often

difficult for the development of management know-how to reach a world-class level if it is only domestic and not influenced by FDI.

iv. Creates jobsb. Costs:

i. Loss of economic sovereignty: The loss of some (but not all) economic sovereignty associated with FDI: Because of FDI, decisions to invest, produce, and market products and foreigners are making services in a host country.

ii. Loss of domestic firms: Many MNEs invest abroad while simultaneously curtailing domestic production—that is, they increase employment overseas but lay off domestic employees.

iii. Capital outflow: Since host countries enjoy capital inflow because of FDI, home countries naturally suffer from some capital outflow.

10.Benefits and Costs to Home Countries:a. Benefits:

i. Repatriated earnings from FDI profitsii. Increased exports - of components and services to host countries

iii. Learning via FDI from operations abroadb. Costs:

i. Capital outflow: Since host countries enjoy capital inflow because of FDI, home countries naturally suffer from some

ii. Job loss: Many MNEs invest abroad while simultaneously curtailing domestic production—that is, they increase employment overseas but lay off domestic employees.

11. Three Things to Do:a. Carefully asses whether FDI is justified in light of other foreign entry modes such as

outsourcing and licensingb. Pay careful attention to the location advantages in combination with the firm’s strategic

goalsc. Be aware of the institutional constraints and enablers governing FDI, and enhance

legitimacy in host countries

12.Most important things, questions form this chapter:a. Difference between FDI and FPI:

i. Foreign Portfolio Investment (FPI): holding securities of companies in other countries, but does not entail active management of foreign assets. Essentially, FPI is foreign indirect investment; based on financial securities – the price of this investment depends on the stock market

ii. Foreign Direct Investment (FDI): the direct, hands-on management of foreign assets. For statistical purposes, the UN defines FDI as an equity stake of 10% or more in a foreign-based enterprise; based on tangible investments – manage this investment through people managers

b. Horizontal FDI: When a firm takes the same activity at the same value-chain stage from its home country and duplicates it in a host-country.

c. Upstream and Downstream Foreign investment: changing places on the value chaini. Upstream –

ii. Downstream – d. What is the OLI advantage?

i. Ownership Advantages:ii. Location Advantages:

iii. Internalization Advantages:e. Agglomeration Advantage: the clustering of economic activities in certain locations; e.g.

Detroit’s clustering of everything in the automotive industryf. 3 Political Views of FDI:

i. Radical ii. Free Market

iii. Pragmatic Nationalism

2/27/2013Chapter 7: Dealing With Foreign Exchange

1. What Determines Foreign Exchange Rates? (5 determinants of the exchange rate)a. Long term:

i. Price differential / Relative price differences and PPT: the relative inflation level; some countries have expensive prices, while others have cheap ones.

1. Purchasing power parity - a conversion that determines the equivalent amount of goods and services that different currencies can purchase, after converting your dollars to euros, you should be able to buy the exact amount

a. The PPP does not hold, because

i. Transaction costs – fees paid to change the moneyii. Differing taxation systems

iii. Information – the markets are not perfect, they don’t have real time information

2. Higher inflation – less demand for US goods and more demand for foreign goods, leading to lower exchange rate for US dollar and higher demand for euros and higher exchange rate for the euro

a. If domestic inflation is higher than foreign inflation - If the US inflation level was higher, then the inflation would go up, there will be more demand for the British pound because it is worth more and can buy more, so the exchange rate will go up

b. If foreign inflation is higher - the value of the foreign currency goes down, because there is less of a demand for the foreign currency, so the exchange rate goes down

ii. Interest rate differential / Interest rates and money supply: If a country’s interest rates are high, it will attract foreign funds, and vice versa.

1. Higher interest rate – more demand for US, and then the exchange rate goes up

a. Domestic interest rate higher than foreign interest rate – people will invest in the US with the higher interest rate, and the demand for the British pound will decrease, and the British pound exchange rate will decrease

b. Foreign interest rate is higher than Domestic interest rate – there is more of a demand for the foreign currency British pounds, and then the exchange rate increases

2. Three quotations:a. Direct Quotation: the number of American dollars per foreign

currency (US $ / euro)b. Indirect Quotation: the number of (euro / US $)

iii. Productivity and balance of payments: 1. A rise in a country’s productivity relative to others will improve its

competitive position in international trade and attract more FDI, fueling more demand for its currency.

a. Higher productivity – the exchange rate increases, because people have more money to spend, and demand more foreign goods

2. A country in account surplus will see its currency appreciate, while a country in account deficit will see its currency depreciate.

iv. Exchange rate policies: 1. 2 Policies:

a. The floating (flexible) exchange rate policy the policy which is adopted by most economies; is the willingness of a government to let demand and supply conditions determine exchange rates.

i. The policy can involve either a clean (free) float, which is a pure market solution

ii. Or a dirty (managed) float, with selective governmental interventions.

b. A fixed rate policy adopted fixed the exchange rate of a domestic currency relative to other currencies. A specific version of the policy involves pegging the domestic currency, which means to set the exchange rate of the domestic currency in terms of another currency (the peg).

b. Short term:i. Investor psychology: The factors noted above predict long-run movements, but

most short-term movements are affected by investor psychology / or expectations; depend on market perception

1. Bandwagon effect2. Capital flight

3/4/ 2013Chapter 7, continued

1. Balance of Payments: A country’s international transaction statement. a. 2 different accounts:

i. Current Account: considers Goods and servicesii. Financial Account: considers the movement of capital

2. The Evolution of the International Monetary System:a. The Gold Standard (1870-1914): the price of different currencies was based on how much

gold a certain economy had, the price of the currency was stronger or weaker; the price of currencies was determined based on the amount of gold the entire economy had

b. Bretton Woods System (1944-1973): during this period, the other currencies different than the dollar were based on an exchange rate based on the dollar

c. The Post Bretton Woods System (1973-present): the system where the exchange rate of the most important currencies is allowed to fluctuate freely, and there is a diversity of exchange rates; determined by the market equilibrium of demand and supply

3. International Monetary Fund: IMFa. Legacy of the Bretton Woods systemb. Lender of last resort for countries experiencing balances of payment problemsc. Each member country is assigned a quota that determines the required contribution

i. Quota: depends on the economic size of a country1. The amount of its financial contribution2. Its capacity to borrow from the IMF3. Its voting power

d. Loans typically require long term policy reforms, recommends policies to country members4. Strategic Responses to Foreign Exchange Movements:

a. Strategies for Financial Companies:i. The Exchange Rate: how companies can make or lose money based on the exchange

rate, how to manage exchange rate risk1. Main goal – to profit from the foreign exchange market

ii. Three strategies to reduce the exchange rate risk or to make profit from exchange rate:

1. Passive:a. Spot transactions – single shot exchange of one currency for another,

this is called a passive exchange rate policy – because the company does not do much to lower exchange rate risk

2. Active:

a. Forward / Future transactions – one transaction of a currencies for future delivery you are obligated to buy a foreign currency at a price decided today; today, you lock in the exchange rate in order to execute a future operation, and in 6 months, you lock in that exchange rate for the purchase of another item in a business contract, no matter what the actual market exchange rate is

b. Currency – swap – two transactions, because you only need a foreign currency for a certain amount of time; conversion of one currency into another at time 1, with agreement to revert it back to the original currency at time 2 in the future; the biggest difference – there are 2 transactions

b. Strategies for Non financial companies:i. Currency hedging: a transaction that protects trades and investors from exposure

to the fluctuations of the spot (daily) exchange rate1. Three types of currency hedging:

a. Obligated:i. Swap: obligated to swap something in the future at the

exchange rate todayii. Forward: obligated to buy something in the future at the

exchange rate todayb. Not obligated:

i. Option: not obligated to buy something, it depends on the exchange rate in the future

ii. Strategy hedging: spreading out activities in a number of countries in different currency zones to offset losses in any one region, you are diversifying your risk by holding different currencies in the places you are operating

5. Strong v. Weak Dollar:a. Weak Dollar:

i. Positive – helps remedy the US balance if payments, results in more global balancingii. Negative - If the dollar is weak, then you are fostering exporting activities,

1. Then the domestic unemployment rate goes down2. The demand for cheap US goods increases and the inflation rate goes up

b. Strong dollar:i. Positive – rest of the world likes this because it keeps their currency down,

promoting exports ii. Negative - If the dollar is strong,

1. There is more of a demand for foreign goods, the unemployment rate goes up,2. Then the demand for foreign goods is higher and the prices for these foreign

goods increases, “importing inflation” c. Common sense: you want a strong dollar, but it costs us higher inflation and higher

unemployment

6. Most important things from this chapter questions:a. Current account: the amount of money a country has depending on its importing and

exporting activitiesi. Strong dollar – deficit, because you will import more than export

ii. Weak dollar – surplus, because you will export more than importb. Types of floats

c. Describe the IMF’s roles and responsibilities

*no class on the 3/20 – no class for 2 weeks *pick group members for group project *group projects due april 24*april 22, second quiz *april 29, last day of class*two more essays, Chapter 9 and Chapter 11

3/6/2013Chapter 8: Capitalizing on Global and Regional Integration

1. The Case for Global Economic Integration:a. Global economic integration: efforts to reduce trade and investment barriers around the

globe i. Political benefits:

1. Promotes peace by promoting trade and investment 2. Builds confidence in a multilateral trading system - because it involves all

participating countries (the key word being multilateral) and not just two countries (bilateral)

3. Nondiscrimination: country can not make distinctions between its trading partners; if a country lowers a trade barrier, it has to do the same for all WTO member countries

ii. Economic benefits:1. Disputes are handled constructively2. Rules make life easier and discrimination impossible for all participating

countries3. Free trade and investment raise incomes and stimulate economic growth

iii. Problems:1. Environmental impact2. Uneven distribution between the “haves” and “have-nots”

2. The Evolution of the GATT and WTOa. GATT (General Agreement on Tariffs and Trade): 1948-1994

i. Reduced level of tariffs through multilateral negotiationsii. Three areas of concern:

1. No protection for services or intellectual property2. Loopholes needed reform –

a. Multifber Arrangement (MFA) – was designed to limit free trade in textiles

3. Global recessions led governments to invoke non-tariff barriers (NTBs) – such as subsidies and local content requirements

b. WTO (World Trade Organization): 1995 – present i. Transformed GATT from provisional treaty to full-fledged international organization

ii. New features:1. Agreement governing trade of services (GATS)2. Agreement governing intellectual property rights (TRIPS)

3. Trade dispute settlement mechanisms – old GATT trade dispute settlement mechanisms experienced long delays

a. However, WTO rulings are recommendations not orders – so the WTO has no real power to enforce its rulings

b. Country can either:i. Change its laws

ii. Defy the ruling by doing nothing, and suffer trade retaliation by the winning country

4. Trade policy reviews3. The Case for Regional Economic Integration:

a. Regional economic integration: efforts to reduce trade and investment barriers within one region

i. Pros:1. Promotes Peace2. Disputes handled constructively3. Consistent rules4. Raise incomes and stimulate economic growth5. Larger market6. Simpler standards7. Reduced distribution costs8. Economies of scale for firms in the region

ii. Cons:1. Discrimination against firms outside of region2. Some loss of sovereignty

iii. E.g. Norway and Sweden chose not to join the EUb. 6 Types of Regional Economic Integration:

i. Free Trade Area (FTA): A group of countries that remove trade barriers among themselves. Each country still maintains different external policies regarding non-member. There is no freedom of movement among people. E.g. NAFTA

ii. Customs Union: One stop beyond an FTA, so in addition to FTA policies, a customs union has common external policies on non-participants in order to combat trade diversion. e.g. Benelux – Belgium, the Netherlands, and Luxembourg

iii. Common Market: In addition to Customs Union, allows the free movement of goods and people. E.g. EU used to be a common market

iv. Economic Union: Has all the features of Common Market, but members also coordinate and harmonize economic policies in order to blend their economies into a single economic entity. E.g. EU is now an economic union

v. Monetary Union: a group of countries that use a common currency E.g. 12 countries of the Euro area

vi. Political Union: The integration of all political and economic affairs of a region. E.g. United States or the Soviet Union

4. Accomplishments of the European Union:a. 1951 – Belgium, France, Germany, Italy, Luxembourg, and the Netherlands signed the

European Coal and Steel Community (ECSC) Treaty, which integrated the coal and steel industries among the 6 countries to promote trade and prevent future wars form breaking out (because the coal and steel industries have traditionally provided the raw materials necessary for war)

b. 1957 – ECSC signed the Treaty of Rome, which launched the European Economic Community (first a customs union, and then a common market)

c. EU and predecessors have delivered over 50 years of peaced. Introduction of common currency, the euro – it account for approximately 21% of the

world’s GDPe. Formation of a single marketf. Benefits:

i. Reduces currency conversion costsii. Facilitates direct price comparison

iii. Imposes monetary disciplines on governmentsg. Costs:

i. Countries unable to implement independent monetary policyii. Limits the flexibility in fiscal policy (in areas such as deficit spending)

5. Five Organizations in the Americas:a. NAFTA (North American Free Trade Agreement; 1994): Mexico, US, and Canadab. Andean Community (1969): c. Mercosur (1991):d. Union of South American Nations (USAN; 2005) e. United States-Dominican Republic-Central America Free Trade Agreement (CAFTA; 2005)

6. Three Organizations in Asia:a. Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER;

1983)b. Association of Southeast Asian Nations (ASEAN; 1967)c. ASIA-Pacific Economic Cooperation (APEC; 1989)

7. The Influence of Regional Trade on Global Business?a. Think regional, downplay global. b. Understand the rules of the game and their transitions at both global and regional levels.

8. Questions:a. Most important - know types of integration levels b. Advantages and Disadvantages of Economic Integrationc. Difference between a custom union and a common market

Chapter 9: Growing and Internationalizing the Entrepreneurial Firm1. Terms to know:

a. Entrepreneurship – identification and exploration of previously unexplored opportunities. b. Entrepreneurs – founders and owners of new businesses or managers of existing firms. In

this unit, term is limited to owners, founders and managers of small and medium-sized enterprises (SMEs).

c. International entrepreneurship - combination of innovative, proactive, and risk seeking behavior that crosses national borders and is intended to create wealth in organizations.

2. Institutions, Resources, and Entrepreneurship:

a. Formal Institutions and Entrepreneurship: In general, governments in developed economies impose fewer procedures and a lower total cost than governments in poor economies, where entrepreneurs confront harsher regulatory burdens.

b. Informal Institutions and Entrepreneurship: Individualistic, low uncertainty avoidance societies tend to foster more entrepreneurs than collectivistic, high uncertainty-avoidance societies.

c. Entrepreneurial Resources must be: i. Valuable

ii. Rareiii. Imitable iv. Organized

3. Characteristics of a Growing Entrepreneurial Firm:a. Growth: The growth of an entrepreneurial firm can be viewed as an attempt to more fully

use underutilized resources and capabilities. An entrepreneurial firm can leverage its vision, drive and leadership in order to grow, even though it may be shorter on resources such as financial capital than a larger firm would be.

b. Innovation: Innovation is the heart of entrepreneurship, and allows for a higher sustainable basis for competing advantage. Entrepreneurial firms are uniquely ready for innovation, since their owners, managers and employees tend to be more innovative and risk-taking.

c. Financing: All start-ups need to raise capital. 4. Financing the Entrepreneurial Firm:5. Internationalizing the Entrepreneurial Firm:

a. Myth: only large MNEs do business abroad, SMEs operate domesticallyb. Born global firms: start ups that do international business from inception

6. Entering Foreign Markets:a. Direct exports: involves the sale of products made by entrepreneurial firms in their home

country to customers in other countries. i. Sporadic (or passive) exporting refers to sales that are prompted by unsolicited

inquiries. b. Franchising / Licensing:

i. Licensing: refers to Firm A’s agreement to give Firm B the rights to use Firm A’s proprietary technology or trademark for a royalty fee.

ii. Franchising: is essentially the same idea, except it is used typically in service industries, while licensing is usually used in manufacturing industries.

c. Foreign Direct Investment: FDI has several advantages over direct export or franchising/licensing. A firm becomes more committed to serving foreign markets and psychologically closer to foreign customers. A firm is better able to control how its

proprietary technology and brand name are used. However, it does have one major drawback – cost and complexity.

7. An Export – Import Transaction: a. Export transactions are complicated, especially by the problem of how to overcome the lack

of trust between exporters and importers when receiving an order. Such a transaction can be facilitated by banks on both sides thorough a letter of credit, a financial contract which states that the importer’s bank will pay a specific sum of money to the exporter.

8. The Stage Model: a. Suggests that required level of complexity and resources increase as firm moves from direct

export to licensing to FDI. b. But, there are many counter-examples (born global firms). c. The key to rapid internationalization – the international experience of the entrepreneurs.

9. Staying in Domestic Markets:a. Indirect exports: while direct exports are lucrative, many SMEs do not have the resources

to handle such work. Indirect exports, which involve exporting through domestic-based intermediaries, can allow these SMEs to reach overseas customers.

b. Supplier of foreign firms: SMEs can reach foreign markets by becoming a supplier to a foreign firm.

c. Franchisee or licensee of foreign brands: An SME can become a licensee or franchisee of a foreign brand, which allows it to access training and technology transfer from the licensor/franchiser.

d. Alliance partner of foreign direct investors: Becoming an alliance partner allows an SME to work with an MNE, rather than losing to them.

e. Harvest and exit strategy involves selling an equity stake or the entire firm to foreign entrants.

10. Debate: Slow vs. Rapid Internationalization a. Slow: According to stage model, firms need to enter culturally and institutionally close

markets first, accumulate overseas experience, then move to more sophisticated strategies, such as FDI.

b. Rapid: Every industry has become global, and entrepreneurial firms should go after opportunities rapidly. Firms that internationalize earlier do not face obstacles of domestic orientation.

Chapter 10: Entering Foreign Markets1. The Liability of Foreignness

a. The inherent disadvantage foreign firms experience in host countries because of their non-native status

b. Differences in formal and informal institutions c. Discrimination against foreign firms.

2. Overcoming Liability of Foreignnessa. Under the Institution based view, firms need to take action deemed legitimate by

formal and informal institutionsi. Institution based view:

1. Regulatory risks2. Trade and investment barriers3. Differences in cultures, norms, and values

b. Under the resource based view, firms offset liability by deploying overwhelming resources

i. Resource based view:1. Value2. Rarity 3. Imitability4. Organization

3. Location Specific Advantages:a. Location-specific advantages – benefits a firm reaps from features specific to a particular

place.b. Agglomeration – location specific advantages that come about from clustering of economic

activities. i. Given that different locations offer different benefits, it is imperative that a firm

match its strategic goals with potential locations. 4. Location Specific Advantages and Strategic Goals:

a. Natural resource seeking: Firms have to go to a specific location where particular resources are found.

b. Market seeking: Firms go to countries that have strong demand for their products and services.

c. Efficiency seeking: Firms single out the most efficient locations featuring combination of scale economies and low cost-factors.

d. Innovation seeking: Firms target countries and regions renowned for generating world-class innovations.

5. Cultural and Institutional Distances:a. Cultural Distance: difference between two cultures along identifiable dimensions. Ex:

individualismb. Institutional Distance: similarity or dissimilarity between regulatory, normative and

cognitive institutions.6. First and Late Mover Advantages:

a. Location is only one aspect of entry decisions; entry timing and entry modes are also criticali. First Mover Advantages:

1. Proprietary technology 2. Preemptive investments 3. Establish entry barriers for late entrants

4. Relationships and connections with key stakeholders (customers, governments)

ii. Late Mover Advantages:1. Free ride on pioneering investment of first movers 2. First movers face greater technological and market uncertainties. 3. First movers may be inflexible.

7. How to Enter?a. Scale of entry – amount of resources committed to entering a foreign market.

i. Large-scale entries:1. Demonstrate strategic commitment to certain markets, assuring local

customers and suppliers for the long haul 2. Deters potential entrants hard-to-reverse strategic commitments3. Limit strategic flexibility elsewhere and incur huge losses if these large-scale

“bets” turn out wrongii. Small-scale entries:

1. Less costly2. Focus on organization learning. 3. Limits downside risk. 4. Lack of strong commitment may lead to difficulties in building market share

and capturing first mover advantages. 8. The Comprehensive Model of Foreign Market Entries:

a. First Step – Equity v. Non Equity mode i. Equity mode – include JVs and WSOs; larger, hard to reverse commitments. Calls for

the establishment of independent organizations overseas. ii. Nonequity mode – includes exports and contracts; tend to be smaller commitments.

b. Second step – Making actual selectionc. Modes of Entry

Chapter 11: Making Alliances and Acquisitions Work1. Strategic alliances: voluntary agreements between forms involving exchange, sharing or co-

developing products, technologies, or services 2. Acquisitions: 3. Graph of alliances and acquisitions – main difference is ownership

a. Alliance – non-ownership contracts, e.g. a contract of co-marketing, research and development, turnkey project

i. Non- Equity:

1. Co-marketing – two or more companies approach their marketing together for strategic reasons

2. Turn key project – a project where formal institutions protect domestic industries preventing foreign firms from acquiring firms; the foreign firms pay someone in the country in order to build the new domestic company there, and then after that, the contractor will sell the company “gives the keys” to the foreign firm; a way to enter the foreign market

3. Strategic supplier – where you agree with someone else, a major supplier, in order to get certain inputs for your production system, specific to your industry

4. Strategic distributer – you contract with a distributer for distributing your product in the foreign countries

5. Licensing / Franchising – a. Licensing – intellectual assetsb. Franchising – real assets

ii. Equity: higher risk and higher compromise1. Strategic investment: where the foreign firms buys certain equity (10%

51%) in the target company, and through this, you can take advantage of the technology the target company provides

2. Cross share holdings: the foreign firm and the target company buy shares from each other, so then the interest between the two companies is much higher, each company controls part of the other

3. Joint venture: where two companies and then decide to create a third company, for example one provides the financial backing and one provides the technology

4. Acquisition: company A buys company B and creates a much bigger company A

b. Acquisitions – ownership contracts 4. Strategic Alliances

a. (Non- Equity) Contractual alliances: associations between firms that are based on contract, with no sharing of ownership

i. Co-marketingii. Research and development

iii. Contracts (non-ownership)iv. Turnkey projectsv. Strategic suppliers

vi. Strategic distributorsvii. Licensing / franchising

b. Equity based alliances: based on ownership or financial interest between firmsi. Strategic investment: one firm invests in another, basically for technological reasons

ii. Cross-shareholding: indirect control companies can have through ownership structures, the pyramid; e.g. A owns B and C, and C owns D and E, so A owns part od D indirectly

iii. Joint ventures5. Merger and Acquisitions:

a. Merger: combinations of operations of management of two firms to establish a new legal entity, accounts for only 3% of all M and As

i. Consolidation: equal

ii. Statutory: only one firm survivesb. Acquisitions: transfer of the control of operations and management from one firm (target)

to another (acquirer) ; 97% of all M and As 6. Influence of Institutions:

a. Institution based view: formal and informal institutionsi. Formal

1. Antitrust concerns: antitrust authorities are more likely to approve alliances than acquisitions

2. Entry requirements: many governments place limitations on foreign firm’s mode of entry

ii. Informal1. Normative pillar: firms copy other reputable organizations to establish

legitimacy 2. Cognitive pillar: internalized, taken for granted values that guide alliances and

acquisitions b. Resource based view: how a firm’s internal resources determine success with the VRIO

framework (Value, Rarity, Imitability, Organization)i. Value:

1. Advantages:a. Reduce costs, risks, and uncertainties.b. Access complementary assets and learning opportunities. c. Possibility to use alliances as real options.

i. Real option – the option to buy the real assets of the target company in the future

2. Disadvantages:a. Choosing the wrong partnersb. Potential partner opportunismc. Risk of helping nurture competitors (learning race): when you learn

quickly the tricks of your partner to use that information in your own interest

ii. Rarity: relational (collaborative) capabilities, the ability to manager inter-firm relationships, may be rare

iii. Inimitability:1. Alliances make it easier to observe and imitate firm-specific capabilities

a. Learning race – the race in which partners aim to learn the other’s tricks

2. Trust and understanding between allies is difficult to imitate 3. Firms that excel in post-acquisition integration possess hard to imitate

capabilitiesiv. Organization: some successful alliances are organized in a way that is difficult to

imitate1. How firms are organized to take advantage of benefits or acquisition while

minimizing the costsa. Strategic fit: effective matching of complementary strategic capabilitiesb. Organizational fit:

7. Alliances:a. Formation of Alliances:

i. Stage 1: To cooperate or to not cooperate?

1. Market transactions: importing and exporting activites (non-e)2. Cooperative inter-firm relationships: through alliances (non-e)3. Mergers and acquisitions (e)

a. Competitive Challenges as a stand alone firm – i. Economies of scale

ii. Stand alone market risk iii. Unable to satisfy higher foreign demand iv. Not enough funding to enter a foreign market alone

b. Drawbacks of acquisitions – i. High financial risk in acquisitions

ii. Partner can take advantage of weaker partner’s knowledge – from an uneven balance of power

iii. Less flexibility as a firm

ii. Stage 2: Contract or equity?1. Contract2. Equity – level of compromise and risk higher

a. Allows firms to learn tacit capabilitiesb. Allow firms to have some control over joint activities

iii. Stage 3: Specification of the relationship?1. Specify one of 8 options, either a contract or equity based choice

a. Contracti. Co-marketing

ii. R and D contractsiii. Turnkey projectiv. Strategic supplier / distributorv. Licensing / Franchising

b. Equity i. Strategic investment

ii. Cross-shareholdingiii. Joint venture

iv. Stage 4: Dissolution of Alliances: 70% of these fail after a few years or they don’t continue

1. Initiation – Reconciliation 2. Going Public – Mediation by 3rd Parties3. Uncoupling – Last minute salvage 4. Aftermath - Go alone or New relationship

b. Performance of Alliancesi. Four key factors:

1. Equity: greater equity stake may mean firm is more committed, likely to result in higher performance

2. Learning and experience: a. Has a firm successfully learned from its partners?b. Experience often used as a proxy

3. Nationality: dissimilarities in national culture may create strains in alliances4. Relational capabilities: alliance performance may fundamentally boil down

to soft, hard-to-measure, relational capabilities

8. Acquisitionsa. Why make acquisitions?

i. Institutional based view1. Add value –

a. Synergistic motives – i. To respond to formal institutional constrains and transitions,

and take advantage of economies of scale2. Reduce value –

a. Hubristic motives – i. Herd behavior: following norms and chasing fads of M&As

b. Managerial motives – i. Self interested actions such as empire buildings guided by

informal norms and cognitions ii. Resource based view

1. Add value – a. Synergistic motives –

i. Leverage superior managerial capabilitiesii. Enhance market power and scale economies

iii. Access to complementary resources2. Reduce value –

a. Hubristic motives – i. Managers’ over-confidence in their capabilities

b. Managerial motives – i. Agency problems – mangers might decide to do an acquisition,

so that they can work for their own interest, so that they can use the new resources for their own benefits

b. Acquisition Failures:i. Problems for all M&As:

1. Pre-acquisition: overpayment for targetsa. Mangers over-estimate their ability to create valueb. Inadequate pre-acquisition screeningc. Poor strategic fit

2. Post-acquisition: failure in integration a. Poor organizational fitb. Failure to address multiple stakeholder groups’ concerns

ii. Cross-Border Acquisition Failures:1. Pre-acquisition: overpayment for targets

a. Lack of familiarity with foreign cultures, institutions, and business systems

b. Nationalistic concerns against foreign takeovers (political and media levels)

2. Post-acquisition: failure in integrationa. Clashes of organizational cultures compounded by clashes of national

culturesb. Nationalistic concerns against foreign takeovers (firm and employee

levels)9. Questions:

a. In what two primary areas do formal institutions affect alliances?

i. Anti-trust concernsii. Entry requirements

b. Under what conditions would you choose an acquisition over an alliance?i. Acquisition - strategic information, like a software company – and what adds value to

the company is the knowledge, so if you share that information, you could lose your competitive advantage - if you wanted total control over a company

c. When does majority JV seem more appropriate? When does minority JV appeal?d. Is it necessary that managers pay attention to politics of M&As? e. Key factors you must take into consideration before formation of alliance or acquisition?

i. Informal institutions f. Organizational fit and Strategic fit:

i. Organizational fit: similarity in cultures between firmsii. Strategic fit: the matching of complementary assets

Group project: Market Entry Strategy Project Due April 24, 2013Very general – probably won’t fit exactly the country of your choice

Four sections:1. Market Intelligence Report – include the most important facts regarding the company of your

choice, focus the analysis on the formal and informal institutions a. Depending on your product – maybe an analysis of per capita income is appropriate,

depending on how expensive your product isb. Demographic Analysis – will be interesting, if our product is focused on most of the

populationc. Infrastructure – if you need certain logistics in order to distribute your product across the

country, then this is relevant d. Formal and informal - Domestic laws and Domestic regulations that could affect your

product2. BEAR – resource based view, analysis of internal factors3. ROME – assess the different potential market entry strategies

a. Why do you want to go to your country by exporting directly, or licensing, or franchising?b. Joint venturesc. Or even direct acquisition through FRE? d. So – analyze each of them, and then pick the strategy of your choice

4. MESA – the most important a. Description of the final choice made regarding the market entry strategy

5. 3-4 members per group6. No more than 12 pages, but it doesn’t matter – could be 6-7-87. Content – sound analysis

Most important – market strategy entry analysis

Chapter 12: Strategizing, Structuring, and Learning 1. Two pressures for MNE:

a. Cost reduction: to cut costs, calls of global integration, which means that we should cut costs by creating uniform products for everyone

b. Local responsiveness: calls for local adaptation, which means that we should provide products / services depending on what location we are

2. Multinational Strategies and Structures:a. Strategy v. Structure:

i. Strategy: the way you will adopt in order to achieve your goalsii. Structure: the way your organization is set up; the way the firm is organized

iii. Every single strategy has its own structure, and every structure has its own strategy Relationship between strategy and structure is reciprocal

iv. Neither strategy nor structure is static, it is often necessary to change one, the other, or both

b. 4 Different Strategy / Structures:i. Home replication strategy / international division structure: low – pressure for

cost reduction, low – pressure for local responsiveness (same clients everywhere)1. Home replication strategy: duplicates the home based competencies in

foreign countriesa. Advantages:

i. Leverages home country based advantagesii. Relatively easy to implement

b. Disadvantages:i. Lack of local responsiveness

ii. May alienate foreign costumers2. International division structure: organizational structure when firms

initially expand abroada. In this case, we offer exactly the same product as in the home countryb. Why? Because the product is not focused on the host country demand,

but on the home country demand *Example - this campus, not adaptive to Spanish educational system

ii. Global standardization strategy / Global product structure: high – cost reduction, low – local responsiveness (different clients globally)

1. Global standardization strategy: development of standardized products in order to take advantage of economies of scale

a. Advantages:i. Leverages low cost advantages

b. Disadvantages:i. Lack of local responsiveness

ii. Too much centralized control2. Global production division structure: the organizational structure that

organizes the multinational enterprise according to different countries and regions, where they are considered one homogenous unit with no differences in between countries

a. Highly responsive to pressure for cost efficiencyb. Reduces inefficient duplication in multiple countriesc. Lags in local responsivenessd. Disadvantage: you are considering different locations as the same; but

in real life, the world is different *Example – Coca Cola, Apple, McDonald’s

iii. Localization strategy / Geographical area structure: low – pressure for cost reduction, high – local responsiveness

1. Localization strategy: also called multi-domestic strategy, focused on foreign areas and regions which are considered stand-alone markets; considers every location as an individual region – so the product or service offer must be adapted

a. Advantages:i. Maximizes local responsiveness

b. Disadvantages:i. High costs due to duplication of effort in multiple countries

ii. Too much local autonomy2. Geographical area structure: the organization of the company based in

different geographical areaa. Regional managers carry a great deal of the weightb. Strong local responsiveness, but that also encourages fragmentation of

MNEc. Disadvantage: high cost, you have to place different subsidiaries

wherever you are*15th Avenue Tea and Coffee

iv. Transnational strategy / global matrix structure: high – pressure for cost reduction, high – pressure for local responsiveness

1. Transnational strategy: cost effective and locally responsible a. Advantages:

i. Cost efficient while being locally responsibleii. Engages in global learning and diffusion of innovations

b. Disadvantages:i. Organizationally complex

ii. Difficult to implementc. Examples – usually automobiles

2. Global matrix structure: the structure used to alleviate the pressure from both global production division and geographical area structure

a. Difficult to deliver in practiceb. May add layers of management, slowing down decision speed.

*Example – General Motors, has ownership stakes in foreign carmakers; so a big MNE offers local products through its relationships with subsidiaries

3. Knowledge Management: the structures, processes, and systems that actively develop, leverage, and transfer knowledge

a. 2 kinds:i. Explicit knowledge: codifiable, easy to be transferred

ii. Tacit knowledge: non-codifiable, transfer requires hands-on practice (based on expertise, training process)

b. Knowledge Management in 4 types of MNEs:i. Globalizing R&D: a fundamental basis for competitive advantage is innovation based

firm heterogeneity; decentralized R&D in different locations virtually guarantees persistent heterogeneity

4. Questions – a. What pressure is unique to international competition? Pressure to local responsivenessb. Describe 4 strategy choices: 1. home replication strategy 2.

4/15/2013Monday next week, quiz Final is on May 3rd , 8:30 AM

Chapter 13:1. Terms:

a. Human resources management: the set of different activities for hiring managers; attracting, selecting, and managing employees

b. Staffing: the human resource management activities related to hiring managers and filling the positions

c. Host country nationals: managers from the host country, from the same countryd. Parent country nationals: managers from the parent countrye. Third country nationals: managers from neither the host or parent countryf. Expatriates: managers from foreign countries

2. 2 Types of expatriates:a. Parent country nationals (PCNs):

i. Advantages:1. Control by headquarters is facilitated2. May be the most qualified3. Managers are given international experience

ii. Disadvantages:1. Opportunities are limited2. Adaptation may take a long time3. Usually very expensive

b. Third country nationals (TCNs):i. Advantages:

1. May bridge the gap between headquarters and the subsidiary 2. May be less expensive than PCNs3. Don’t have conflicts, culturally, because they do not belong to the home

country or the host country cultures – more flexible than PCNs or HCNs4. Typically have a lot of international experience

ii. Disadvantages:1. Host government and employees may resent TCNs2. Similar to disadvantages for PCNs

3. Three Approaches to Staffing:a. Ethnocentric approach:

i. Emphasizes norms and practices of parent companyii. Relies on PCNs

iii. Perceived lack of talent among HCNs often necessitates this approachiv. E.g. occurs in Asian multinational companiesv. Focus on PCNs

b. Polycentric approach:i. Focuses on the norms and practices of host country

ii. Relies on HCNsiii. “When in Rome…”

iv. HCNs have no language or cultural barriersv. Placing HCNs in top roles may boost morale of other HCNs

vi. E.g. Price Waterhouse Coopers, SLU Madridvii. Focus on HCNs

c. Geocentric approach:i. Focuses on finding the most suitable managers, disregarding nationality

ii. This approach can create a corporate wide culture and identityiii. Focus on TCNs / skills

4. Strategy and Staffing:a. Systematic link between strategic posture of an MNE and its staffing approach

MNE strategies Typical staffing approaches

Typical top managers at local subsidiaries

Home replication Ethnocentric Parent country nationalsLocalization Polycentric Host country nationalsGlobal standardization Geocentric A mix of all 3Transnational Geocentric A mix of all 3

i. Represents home companyii. Represents foreign country

iii. Mixiv. Mix

5. The Role of Expatriates (just TCNs and PCNs)a. 4 Roles:

i. Strategist: representing interests of the MNE’s headquarters, in order to maximize the wealth of current shareholders

ii. Daily managers: run operations and build local capabilitiesiii. Ambassador: representing headquarter’s interests, build relationship with host-

country stakeholders, represent subsidiary to headquartersiv. Trainer: for their replacements

6. Factors in Expatriate Selections:a. Expatriate failures are high…

i. Premature (earlier than expected) returnii. Unmet business objectives

iii. Unfulfilled career development objectivesb. Causes for failure:

i. Family’s inability to adjust to cultureii. Usually a combination of work-related and family-related problems

c. Situation:i. Corporation headquarters preferences

ii. Host country subsidiary preferencesiii. Language

d. Individual:i. Technical ability and experience

ii. Cross cultural abilityiii. Family and spousal attachments

7. Development for Expatriates and Repatriates:a. Psychological contract: is an informal understanding of expected delivery of future benefitsb. Career anxiety

c. Loss of statusd. Cultural re-adjustment

8. Training and Development for HCNs:a. In China, for example, the key factor in retaining or losing talent is which employer can offer

training and development opportunities 9. Compensation for Expatriates:

a. Going rate: you get exactly the same salary as a HCN, In line with the polycentric approachi. Advantages:

1. Equally among parent, third, and host country nationals in the same location2. Simplicity3. Identification with host country

ii. Disadvantages:1. Variation between assignments in different locations for the same employee2. Re-entry problem if the going rate in the parent country is less than that in the

host countryb. Balance Sheet: balances the cost of living differences, with financial incentives; in line with

the ethnocentric approachi. Advantages:

1. Equity between assignments for the same employee2. Facilitates expatriate re-entry

ii. Disadvantages: 1. Costly and complex to administer 2. Great disparities between expatriates and host country nationals

10. Compensation for HCNs:a. Low level HCNs have relatively little bargaining powerb. HCNs in management and professional positions are gaining more bargaining power

11. Quiz information:a. April 22 at 9:30 b. For the quiz, chapters 7– 12 c. 12 questions

i. 2 T/F questions ii. 7 MC questions

iii. 3 short answer questionsd. Wednesday, review of most important concepts for the quize. For the final, Chapters 6-13 f. Chapter 11 due this Wednesday, do that today

4/17/2013Chapter 13, continued:

1. Performance Appraisal: evaluation of employee performance for the purpose of promotion, retention, or ending employment

2. Labor Relations at Home:a. Firm’s key concern – cut costs, enhance competitivenessb. Union’s concern – higher wages and more benefitsc. Threat of job loss v. threat of strike

3. Formal Institutions and Human Resource Management:a. Formal institutions: every country has rules and regulations governing HRMb. Informal institution: MNEs from different countries have different norms in staffing.

4. Questions:a. What are the four most important roles that expatriate play?b. What is the relationship between the MNE strategies and the staffing approaches?c. Two different systems:

i. Going rateii. Balance sheet

5. Quiz Review:a. Format:

i. 2 T/Fii. 7 MC

iii. 3 Short Answeriv. Chapters 7, 9, 10, 11, 12, 13v. Chapter 8 – on final only, not on the quiz

b. Chapter 7 – Foreign Exchange Ratesi. What happens, for instance, in the balance of payments if we do have a strong or

weak domestic currency?ii. Is the trade deficit or trade surplus affected by a strong or weak domestic currency?

iii. Different determinants of the exchange rates:1. Long term

a. Relative price difference between countriesb. Differential between interest ratesc. Productivityd. Exchange rate policies

2. Short terma. Investor’s psychology – expectations of the market

iv. Relationship between the exchange rates and the labor market –1. What happens if a certain economy has a very strong domestic currency, how

does that affect the labor market?2. For example – what happens, or what would you prefer, to reduce

unemployment in an open economy? A strong or weak domestic currency?a. You would want a weak currency, then you can export more, you need

to hire more people, and the unemployment is lowerc. Chapter 9 – Entrepreneurship

i. Described the different foreign entry strategies – direct exports, franchising, licensing, FDI

ii. Letter of credit – when you export, you have your exporting and importing banks, and there’s an agreement between the two of collateral credit

d. Chapter 10 – Entering Foreign Marketsi. Two different modes to enter a foreign market –

1. Equity based2. Non-equity based

ii. Advantages and disadvantages of these different strategiesiii. Different non-equity modes – contractual methodsiv. Licensing, franchising, turnkey projects, and FDI, co-marketing

e. Chapter 11 – Alliances and Acquisitions i. Several of the same concepts between 10 and 11

ii. Joint venturesiii. Dissolution of alliances – marriage

f. Chapter 12i. Structures and strategies – the four strategies with their own associated structures

ii. Think about examples of each of these strategies and structuresg. Chapter 13

i. The staffing approachesii. Different kinds of expatriates

iii. Relationship between staffing approaches and types of expatriates

4/22/2013strong currency – import more – current account deficit weak currency – export more – current account surplus

real option – with a non equity agreement, the buying company has the option to later purchase assets to buy the other percent of the company, making the buying company the major shareholder80

*Final – Friday, May 3Chapters 7,8,9,10,11,12,13

1. 34 questions, in totala. MC – 17 b. TF - 6c. Short Answer – 11

i. Pay attention to the specific topics on informal institutions, such as cultural differences, the liability of foreignness

ii. Advantages and disadvantages of first and late moversiii. Chapter 8 – which talks about the different international agreements and the

different levels of integration 1. FTA – importing and exporting without tariffs2. Custom unions3. Common markets4. Political unions

iv. Couple of questions over alliances 1. Advantages and Disadvantages2. Non-equity and equity modes

v. Focused on differentiating or relating concepts vi. Review the integration responsiveness framework – which relates the strategies with

the structures1. Advantages and Disadvantages

vii. At least one or two questions based on the last chapter about HRM – 1. Different components2. Types of staffing approaches3. Relationship between staffing approaches and strategy/structures 4. Different compensation methods – when to apply one of them instead of the

other – advantages and disadvantagesa. Going rateb. Balance sheet

Review on Monday

4/29/2013Final Friday May 3 at 9 AM

1. Chapter 6a. FDIb. Different Ways to Go Abroadc. Different Advantages in terms of ownership, location

2. Chapter 7 – very important a. Exchange Ratesb. 4 Determinants of the Exchange Rates – specific questions about this – and how exchange

rates affect the performance of companies i. Differential in interest rates –

1. 2 Countries – US and UKa. US has higher interest rates than the UK

i. People want to put their money in the USii. British investors want to put their money in the US

iii. Increase in demand for US dollars iv. The dollar will appreciate and get strongerv. The exchange rate will go down, because you need less dollars

to purchase each pound ii. Differential in inflation – how does it affect the exchange rates?

1. 2 Countries – US and UKa. Higher domestic inflation - higher inflation in US than in UK

i. People in US demand cheaper British goodsii. In order to buy these, you will demand British pounds

iii. More demand for British poundsiv. The US dollar will depreciate and get weaker relative to the

British poundv. And the exchange rate goes up, you have to pay more dollars for

each pound iii. Differential in income levels

1. 2 Countries – US and UKa. Higher income levels in US than in UK

i. People in US have more money, have more demand for all goodsii. Including more demand for foreign goods – like British goods

iii. More Demand for British pound iv. The US dollar will depreciate and get weaker relative to the

pound v. And the exchange rate goes up, you have to pay more dollars for

each poundiv. Expectations / Investor psychology – up or down

1. Good expectations about performance in domestic economy – more demand for US dollars – dollar becomes stronger

c. Evolution of the international monetary systemd. Different exchange rate systems – take a look at these ***

i. Types:1. Free floating 2. Managed

3. Fixed ii. Definitions

iii. Examplese. Real Options f. Related the exchange rate with the trade deficit g. Relationship between exchange rates and labor market and unemployment

i. Strong currency – purchasing power increases, buying more foreign goods than domestic goods – then domestic industry drops – and domestic unemployment increases

ii. Most countries want weak currencies so that they can better export and decrease domestic unemployment

3. Chapter 8a. International Trade Agreements b. 5 Different Levels of Integration Between the Different Economies

4. Chapter 9a. Entrepreneurial Firmsb. Advantages and Disadvantages or Early Movers and Late Movers

5. Chapter 106. Chapter 11

a. Alliances and Acquisitionsb. Non-equity and Equity contractsc. Different steps in order to form an allianced. Steps to dissolve alliances

7. Chapter 128. Chapter 13

a. HRMb. Different kinds of expatriatesc. Different staffing approaches, how to hire foreign managers depending on your strategy

9. Take a look at:a. Market Entry Strategies

i. Different Strategies ii. Examples

b. Organizational Fitc. Structural Fit d. Cultural Distance e. Differences Between the Non-Equity and Equity Modes

i. Examples!!! Lots of examples of these concepts!f. Advantages and Disadvantages of First Moverg. Definitions and examples

i. Comarketing ii. R&D

iii. Joint Venturesiv. Licensing and Franchising

h. Alliances, Acquisitions i. Different Strategies and Structures j. Different Pressures of MNEs

i. Cost reduction

ii. Local responsiveness k. VRIO Framework – resource based viewl. Different kinds of foreign managers – when to use which

i. HCNSii. PCNS

iii. TCNSm. Two additional questions – EC – upgrades midterm by 4 pts if correct, if you’re wrong you

are downgraded on your midterm by 1 pt – you have to answer them both correctly in order to get the points