1 - Expanding Abroad

Question 1

What are the 3 characteristics of a true multinational enterprise?

Answer 1

1. Substantial direct investment in foreign countries beyond an import-export business
2. Active coordinated management of offshore assets not simply holding them as a portfolio
3. Strategic and organizational integration of operations located in different countries

Question 2

What are the traditional motivations to internationalize a business?

Answer 2

Market seeking and resource seeking

Question 3

What is the traditional market seeking motivation for internationalizing a business?

Answer 3

To fill capacity, exploit competitive advantage, realize economies of scale and scope

Question 4

What is the traditional resource seeking motivation for internationalizing a business?

Answer 4

Expanding in order to secure key supplies and exploit factor cost differences like low-cost labour or capital

Question 5

What are the emerging motivations for internationalizing a business?

Answer 5

1. Industry internationalization forces such as shortening product life cycles and high R&D investment
2. Global scanning and learning capability to access emerging trends, new technologies, and the best worldwide skill
3. Competitive positioning - using global operations to pre-empt others and subsidize markets

Question 6

What is the difference between the classic internationalization process (Uppsala model) and the “Born Global” model?

Answer 6

The classic process is incremental and demonstrates increasing commitment and understanding of the foreign market. You first enter foreign markets that are similar to your own and continuously increase commitment.

In born global, you enter many international markets at once (think of Google)

Question 7

What are the 5 main approaches to foreign market entry?

Answer 7

1. Exports
2. Licensing
3. Franchising
4. Joint Ventures
5. Subsidiaries

Question 8

What are the advantages and disadvantages of the approaches to foreign market entry?

Answer 8

Exports, licensing, and franchising all require fewer resources to be committed to the foreign market but the company also exercises less control over foreign activities.

Joint ventures and foreign subsidiaries give companies substantial control over their foreign operations but they require many more resources to be committed to the market

Question 9

What is the CAGE framework?

Answer 9

A framework for detailing the different types of distance that exist within countries. It provides a rational way to evaluate global opportunities and ensure the attractiveness of the foreign market is not exaggerated.

Question 10

What are the 4 measures of distance within the CAGE framework?

Answer 10

1. Cultural distance
2. Administrative distance
3. Geographic distance
4. Economic distance

Question 11

What is cultural distance?

Answer 11

The different languages, religions, social norms, and beliefs between regions

Question 12

What is administrative (political) distance?

Answer 12

Distance relating to currency, trade agreements, government subsidies, intellectual property rights, trade unions, restrictions on FDI, etc

Question 13

What is geographic distance?

Answer 13

Literal distance between countries, access to waterways and distribution channels, transportation and communication infrastructure

Question 14

What is economic distance?

Answer 14

Distance that describes differences between wealth and income of customers in different regions as well as resource and factor costs

Question 15

What are the 4 mentalities to internationalization?

Answer 15

1. International
2. Multinational
3. Global
4. Transnational

Question 16

What is the international mentality for internationalization?

Answer 16

Developing products for the domestic market and then exporting to other countries.
Resources are transferred from the parent firm to foreign operations
International operations are seen as distant outposts that support the domestic parent company

Question 16

What is the multinational mentality for internationalization?

Answer 16

Company oversees markets as a portfolio of local opportunities.
Local adaptations are made to products and strategies
Considerable independence of subsidiaries from headquarters

Question 17

What is the global mentality for internationalization?

Answer 17

Products are developed for the global market and there is emphasis on global efficiency
Operations are managed centrally and the company views the world as a single unit of analysis

Question 18

What is the transnational mentality for internationalization?

Answer 18

Company simultaneously responds to local needs and global demands.
Balances local responsiveness and global efficiency
Has dispersed, specialized, and integrated global activities