Exam in International Management 2014
Exam in International Management,
Summer 2014
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Exam number: 336970
Question 1 (33 %)
Raff, Ryan and Stähler (2012) find in their paper that the more productive a firm is, the more likely it is to choose foreign direct investment (FDI) rather than to export and greenfield investment won over merger and acquisition (M&A). They also state that recent studies indicate that firms whose productivity surpass a certain threshold have a tendency to become exporters and the most productive firms within an industry engage in FDI. The authors argue that one of the reasons of high productive firms choosing FDI is due to the fact that only the most productive firms are capable of affording the fixed costs associated with FDI and in addition, FDI is the more beneficial alternative when the foreign market is an attractive enough location relative to production at home because of a large market, low wages and high transport costs. A firm can also choose between M&A and greenfield investment and if it chooses the first one, it has the opportunity to combine its own productive assets (such as technological know-how) with those of the acquired firm, but this is obviously less tempting to a firm that already is very productive on its own. Therefore, Raff et. al (2012) suggest that less productive firms will favor the choice of a M&A. They continue to explain that due to the merger paradox (the increased price associated with an horizontal merger allows competitors to enhance their output and as a result of this, the merged firm 's response is to cut its own output and thus the rivals reap its market share) the highly productive firms are less probable to select M&A.
A firms ' productivity and sunk cost for the global activities highly influences the selection mechanics of a firms ' global activities (Greenaway & Kneller, 2007). A cost like this one including the ones involved in the process of potential investors ' need to
Summer 2014
_______________________________________
Exam number: 336970
Question 1 (33 %)
Raff, Ryan and Stähler (2012) find in their paper that the more productive a firm is, the more likely it is to choose foreign direct investment (FDI) rather than to export and greenfield investment won over merger and acquisition (M&A). They also state that recent studies indicate that firms whose productivity surpass a certain threshold have a tendency to become exporters and the most productive firms within an industry engage in FDI. The authors argue that one of the reasons of high productive firms choosing FDI is due to the fact that only the most productive firms are capable of affording the fixed costs associated with FDI and in addition, FDI is the more beneficial alternative when the foreign market is an attractive enough location relative to production at home because of a large market, low wages and high transport costs. A firm can also choose between M&A and greenfield investment and if it chooses the first one, it has the opportunity to combine its own productive assets (such as technological know-how) with those of the acquired firm, but this is obviously less tempting to a firm that already is very productive on its own. Therefore, Raff et. al (2012) suggest that less productive firms will favor the choice of a M&A. They continue to explain that due to the merger paradox (the increased price associated with an horizontal merger allows competitors to enhance their output and as a result of this, the merged firm 's response is to cut its own output and thus the rivals reap its market share) the highly productive firms are less probable to select M&A.
A firms ' productivity and sunk cost for the global activities highly influences the selection mechanics of a firms ' global activities (Greenaway & Kneller, 2007). A cost like this one including the ones involved in the process of potential investors ' need to
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