U.Washington, Geog. 349, Test 2, Autumn 2006

University of Washington
Geography 349
Autumn 2006

SECOND IN-CLASS TEST

Please answer each question below (but only two of the four essay choices), in the spaces provided. Points total 55; your raw score will be multiplied by 0.33 to yield your points (out of 18) toward the quarter’s total of 100 points. You have 110 minutes.

DEFINITIONS [5 points]
Provide very brief definitions. You need not use complete sentences. However, make sure that you define the terms well enough so that each is distinguished from all the others.

freight forwarder
pro forma invoice

These are the conditions under which an export sale may be made. Please distinguish among them, by telling what the initials stand for AND what the designation means.

C&F
C.I.F.
F.O.B.

BRIEF EXPLANATIONS [30 points]
Complete sentences are not required.
1. [3 points] The name “bill of lading” comes from an archaic form of “bill of loading.” It’s a crucial document; name three of its functions.
2. [4 points] A “letter of credit” is really a stylized letter. In its most basic form (not confirmed) in international trade, it is from whom to whom, saying what?

FROM:
TO:
SAYING:
What 4 parties are named on a confirmed letter of credit?

3. [5 points] What are the five components of an international marketing plan?
4. [6 points] What are the three key variables (things that have to be negotiated) in export payment, in addition to the sales price? Name two key options within each variable, and underline the option that is more favorable to the exporter.

Variable One

Option A
Option B

Variable Two

Option A
Option B

Variable Three

Option A
Option B

6. [12 points] Fill in the cells of the table below, making use of our study of forms of international business and Dunning’s eclectic framework (the OLI framework) for understanding FDI. In each case, the question is “Why would a company based in the US engage in each of the following forms of IB.”

E = Exporting from the US
L = Licensing to a separate, foreign company for production in that foreign market
C = Contracting for production in a dedicated (but not owned) facility abroad, for importing product back into the home market
W = Establishing a wholly-owned subsidiary in a host country, for importing product back into the home market
JV = Establishing a joint venture (51% ownership, with a 49% host-country partner) for production in and for a foreign market

Form	What actually goes overseas?	What does the parent company get in return?	What is the most likely “O” advantage?	What “L” advantage likely determines where production occurs?	Does the company see a sufficient “I” advantage to internalize production? Why or why not, do you think?
E
L
C
W
JV

ESSAY 1 [10 points]
Write an essay on question set #1 or question set #2 below. Specify which you’re answering.

1. Questions from the Gereffi article

What is a supply chain? Value chain? Commodity chain?
Compare the definition, likely industries, organization, and geography of US-based producer-driven versus buyer-driven commodity chains. What sorts of strategic ssset(s) are likely to be the basis for the lead firm in a producer-driven chain? In a buyer-driven chain?
From the perspective of a US lead firm, what forms of international business are used in producer-driven commodity chains? Buyer-driven commodity chains? Can you relate the forms to the strategic asset being exploited?
What determines the relative level of profitability of a firm within a global commodity chain?

2. Questions from the Sturgeon article

What is a “value chain”? (Feel free to quote Sturgeon, but if you do, follow that with your own interpretation of the quote). What are the key steps in analyzing a value chain?
What sorts of strategic asset(s) are likely to be the basis for each of the types of actor in Sturgeon’s Table 3?

1) Integrated firm
2) Lead firm
3) Turn-key supplier
4) Retailer
5) Component supplier

In your own words, what are the key differences in “authority,” “relational,” and “virtual” production networks? Which rely on FDI? Suggest one advantage and one disadvantage of each type.

ESSAY 2 [10 points]
Write an essay on one of the topics below. Specify which question you’re answering.

1) Using the OLI framework:

a) Imagine that with your team’s current scenario of company, product, and country (Canada, China, or Mexico), you were to engage in FDI in that country instead of exporting to that country, importing from that country, or contracting with, licensing, or franchising a producer in that country. What situation might make FDI the preferred option?
b) In your team’s scenario (assuming that you plan to engage in FDI), what are the most relevant elements of

i)   company-specific (unique) assets?
ii)   host-country economic environment?
iii)   host-country cultural environment?
iv)   host-country political/legal environment?

c) What goal(s) might the host country have for your inward FDI?
d) Identify two potential sources of tension between the parent company’s management of the foreign subsidiary (as you’ve outlined it above) versus the host country’s likely goals or hopes for this inward FDI.

2) Regulation and representation in international business:
What arrangements regulate the conduct of international economic transactions? Include formal regulations (laws or agreements of governments or among governments), formal contracts, and informal expectations or recognitions. What parties directly and indirectly determine these arrangements? Whose interests are represented in these regulatory arrangements? What other interests are at stake? (Think across different actors in the economy, across classes, across generations, beyond the economic.) What parties do or could speak for those interests?