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

2. 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)

3. 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)

4. 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

5. 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 √ √

6. 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

7. 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%

8. 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 ( ), 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.

9. 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

10. 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%

11. 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 √ √ √ √ √ √ √ √ √

12. Contact
Victor Z. Chen
Belk College of Business
UNC Charlotte
+1 (704)