Dr. Victor Z. Chen UNC Charlotte Lecture 7 – Synthesis Dr. Victor Z. Chen UNC Charlotte

Synthesis of Semester H1 1. Boundary of a business 2. Identifying competitive advantages in the home market 3. Separating country- and firm-specific advantages (CSAs vs. FSAs) 4. Context boundaries of FSAs 5. Identifying the ideal foreign market based on the FSA context boundaries 6. Internalizing benefits in the foreign market (as opposed to trade/license via open market)

Synthesis of Semester H1 1. Boundary of a business 2. Identifying competitive advantages in the home market 3. Separating country- and firm-specific advantages (CSAs vs. FSAs) 4. Context boundaries of FSAs 5. Identifying the ideal foreign market based on the FSA context boundaries 6. Internalizing benefits in the foreign market (as opposed to trade/license via open market)

Example 1: Internalization benefits without market failure problems, that is, it is as easy to do business in a foreign market as in the US

Example 1: Internalization benefits without market failure problems, that is, it is not as easy to do business in a foreign market as in the US   Geographic boundedness Demographic boundedness Cultural boundedness Economic boundedness Regulatory and political boundedness CSA IT infrastructures IT talents A large user base Capital FSA Speed Thoroughness Relevance Democracy Reputation for “Do no evil!” Online Ad pay Bandwidth Secure server Working pros Online payment (e.g., Credit card) Sophistication Info democracy Unbiased, CN Individualism No censorship √ √

Example 1: Internalization benefits without market failure problems, that is, it is not as easy to do business in a foreign market as in the US IPR ICT Use Govt Regulations Internet bandwidth US 15th 20th 26th 41th China 63th 76th 51th 119th HK 9th 7th 3rd 2nd

Additional Integration Benefits: Market failure / Tax Select Measures of Market-Supporting Institutions Category Specific examples US Hong Kong SAR China Mainland Strong property rights Registration of private property (days, % of property value) Legal protection of private property (1-10, 10 best) Investor protection (1-10, 10 best) Intellectual property rights (IPR) protection (1-7, 7 best) 15.1, 2.1% 7.2 8.3 5.4 27.5, 7.7% 8.4 9.0 5.8 19.5, 3.4% 5.0 4.0 Free and fair competition Easy entry Low government consumption (1-10, 10 best) Low government enterprises/investments (1-10, 10 best) Low corporate tax Low other taxes and fees No informal competition 5.6 days 6.4 8.0 40% 4% Very low 1.5 days 8.1 10.0 16.5% 6.5% 31 days 3.7 2.0 25% 43% 57.6% Low transaction cost Credit (% of adults covered by credit bureau; depth of information) Strong auditing/reporting standards (1-7, 7 best) Low trading barriers (hours) Free trade agreements Bilateral investment treaties Freedom of migration 100%, 8.0 5.5 7 None with HK or China No visa to HK, needs visa to China 96%, 7.0 6.2 20 With China No visa to China or US 0%, 7.0 4.4 103 With HK No visa to HK, needs visa to US Strong contract enforcement High corporate ethics Legal resolution of contract claims (days, cost as % of claim) 4.8 420 days, 31% 360 days, 21% 4.2 453 days, 16%

Example 1: Internalization benefits without market failure problems, that is, it is not as easy to do business in a foreign market as in the US Hong Kong Hong Kong Special Administrative Region (SAR) of People’s Republic of China British Colony (1898-1997), 99-year lease Returned to China as a SAR, under “one country, two systems” Allowed by China to continue to govern itself and maintain many independent systems for a period of 50 years While China is an authoritarianism, HK has a limited democracy, sharing the President of China as their common chief of state but having its own head of government – Chief Executive of HK SAR. While China’s legal/judicial system was built on its socialism legacy, HK’s is broadly based on the British common law. While China uses Chinese yuan, which is not freely convertible until recently, HK uses HK dollars, pegged to US dollar. While HK has its own police, it defers to China in military defense and international diplomacy.

Example 1: Internalization benefits without market failure problems, that is, it is not as easy to do business in a foreign market as in the US IPR ICT Use Govt Regulations Internet bandwidth US 15th 20th 26th 41th China 63th 76th 51th 119th HK 9th 7th 3rd 2nd

Additional Integration Benefits: Market failure / Tax Select Measures of Market-Supporting Institutions Category Specific examples US Hong Kong SAR China Mainland Strong property rights Registration of private property (days, % of property value) Legal protection of private property (1-10, 10 best) Investor protection (1-10, 10 best) Intellectual property rights (IPR) protection (1-7, 7 best) 15.1, 2.1% 7.2 8.3 5.4 27.5, 7.7% 8.4 9.0 5.8 19.5, 3.4% 5.0 4.0 Free and fair competition Easy entry Low government consumption (1-10, 10 best) Low government enterprises/investments (1-10, 10 best) Low corporate tax Low other taxes and fees No informal competition 5.6 days 6.4 8.0 40% 4% Very low 1.5 days 8.1 10.0 16.5% 6.5% 31 days 3.7 2.0 25% 43% 57.6% Low transaction cost Credit (% of adults covered by credit bureau; depth of information) Strong auditing/reporting standards (1-7, 7 best) Low trading barriers (hours) Free trade agreements Bilateral investment treaties Freedom of migration 100%, 8.0 5.5 7 None with HK or China No visa to HK, needs visa to China 96%, 7.0 6.2 20 With China No visa to China or US 0%, 7.0 4.4 103 With HK No visa to HK, needs visa to US Strong contract enforcement High corporate ethics Legal resolution of contract claims (days, cost as % of claim) 4.8 420 days, 31% 360 days, 21% 4.2 453 days, 16%

Example 1: Internalization benefits without market failure problems, that is, it is not as easy to do business in a foreign market as in the US   Geographic boundedness Demographic boundedness Cultural boundedness Economic boundedness Regulatory and political boundedness CSA IT infrastructures IT talents A large user base Capital FSA Speed Thoroughness Relevance Democracy Reputation for “Do no evil!” Online Ad pay Bandwidth Secure server Working pros Online payment (e.g., Credit card) Sophistication Info democracy Unbiased, CN Individualism No censorship √ √ √ √ √ √ √ √ √

Contact Victor Z. Chen Belk College of Business UNC Charlotte +1 (704) 687-7645 zchen23@uncc.edu www.ChenZitian.com