B - Theories of Internationalization Flashcards
Definition: Degree of internationalization
Degree of economic relatedness of a company, of an industry, or of an economy with other countries
Descriptive figures of degree of internationalization
Example
“foreign ratio” - Internationalization of coworkers
number of coworkers abroad / number of coworkers
Degree of internationalization
Multidimensional Approaches
Macharzina/Oesterle
- Dominant strategy (e.g. export, FDI)
- Organizational structure (e.g. export department)
- Success criteria (e.g. share of revenue made abroad)
- Corporate culture (e.g. ethno-, poly-, geocentric)
Degree of Internationalization
Multidimensional approaches
Kutschker
- number and geographical/cultural distance of country markets
- international structure of the value chain
- integration of foreign operation in the corporate association
- Pace of internationalization
Descriptive Approach
Description of the types of international companies
4 Phases / Stufen der Internationalisierung
Phase 1:
National Company
- everything within home country
Phase 2:
Export Company
- everything within home country but they export to and import from other countries
Phase 3:
International Company
- Foreign subsidiaries with all activities or at least some activities (e.g. subsidiary that only does procurement)
Phase 4:
Global Company
- Marketing and sales in every country but the other activities only in certain countries for all subsidiaries
- e.g. procurement in South Africa, production in Hungary, Finance in Switzerland
IMTG concept (Barlett/Ghoshal)
Definition: Export company
10% of the revenue made abroad
IMTG concept (Barlett/Ghoshal)
What does IMTG mean?
International Company
Multinational Company
Transnational Company
Global Company
IMTG concept (Barlett/Ghoshal)
International Company
Key characteristic
Strategic role of foreign business
IMTG concept (Barlett/Ghoshal)
International Company
Forces for local responsiveness and global integration
local responsiveness: low
- there’s no need to adjust to the local market
global integration: low
- everything is done in a centralized/standardised way everywhere over the world
Beispiel: McDonald’s
IMTG concept (Barlett/Ghoshal)
International Company
Characteristics
- Managers tend to think of their foreign activities as remote outposts whose main role is to support the parent company by contributing incremental sales
- focus on exploiting knowledge, new products or processes of the parent company by transferring them to foreign markets
- foreign activities not systematically integrated in the MNC
IMTG concept (Barlett/Ghoshal)
Multinational Company
Key characteristic
Home country less important
IMTG concept (Barlett/Ghoshal)
Multinational Company
Forces for local responsiveness and global integration
local responsiveness: high
- Adjusted to local markets
global integration: low
IMTG concept (Barlett/Ghoshal)
Multinational company
Definition
A set of legally independent companies, sited in different countries, but affiliated with each other by capital investments, building an economic entity and ruled by a homogeneous business intention.
IMTG concept (Barlett/Ghoshal)
Multinational company
Characteristics
- internationalization mainly by direct investments
- holding company coordinates, integrates, and controls subsidiaries based on its participation rights
- leadership and control are not dominated by one nationality
- decentralized decision-making
- shareholders from many nationalities
IMTG concept (Barlett/Ghoshal)
Transnational company
Key Characteristic
Network-like organization
IMTG concept (Barlett/Ghoshal)
Transnational company
Forces for local responsiveness and global integration
local responsiveness: high
global integration: high
IMTG concept (Barlett/Ghoshal)
Transnational company
Characteristics
- strict, complex control and coordination
- strategic decisions are not taken single-handedly by the holding (jointly developed)
- lively exchange of technology, capital, employees and material
- interdependent units
IMTG concept (Barlett/Ghoshal)
Global company
Key characteristic
Considers the world market as its market and generates a substantial share of its turnover worldwide
IMTG concept (Barlett/Ghoshal)
Global company
Forces for local responsiveness and global integration
local responsiveness: low
global integration: high
IMTG concept (Barlett/Ghoshal)
Global company
Characteristics
- effect and benefit of the global orientation
- economies of scale -> learning/experience curve effect
- systematic usage of the advantages of site
- exchange of skills and knowledge between the sub-systems of the company
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Global integration
Forces for integrations:
Goal to decrease costs and to optimize ROI
Centralized management of geographically distributed activities
Further drivers: high technology intensity, established reputation, strategic coordination
(drives economies of scale)
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Local responsiveness
Forces for responsiveness:
Preferences of consumers, market structure, legal regulations
Autonomous decisions of foreign subsidiaries, which satisfy local needs
Predominantly in sectors, where goods and services have to be adapted to local needs
(drives economies of scope)
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Reasons for global integration
- bigger markets
- lower costs
- economies of scale
- sharing technology, sharing knowledge
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Reasons for local responsiveness
- law
- taxes
- extend customer segments -> adjust to local markets
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Example: Applying the I/R Framework to the Retailing Sector
LR high / GI low:
- furniture
- home improvement
- books
LR high / GI high:
- food
- Media (music, movies)
- cosmetics
- drug stores
- telecommunication
LR low / GI high:
- consumer electronics
- appliances
- fashion
IMTG Concept
The Global Integration / Local Responsiveness Framework (I/R Framework)
Example: Applying the I/R Framework to the Retailing Sector
Forces for global integration and local responsiveness
- converging customer needs
- costs
- trade liberalization
- global competitors
- ICT technologies
- heterogeneous demand
IMTG Concept
Classification of Marketing Strategies
International Marketing Strategy
Undifferentiated use of the same marketing mix in all countries
IMTG Concept
Multinational Marketing Strategy
Each country/market has its own marketing mix
IMTG Concept
Global Marketing Strategy
Headquarter: Development of global marketing strategy
Undifferentiated use of global marketing mix in all countries
IMTG concept
Transnational Marketing Strategy
Headquarter: Pattern standardization guidelines for marketing strategy
Patterns are transferred to each country/market (adaption only if necessary)
IMTG concept
What means glocalization?
Think globally, act locally
EPRG Model (Perlmutter)
What does EPRG stand for?
Ethnocentric Company
Polycentric Company
Regiocentric Company
Geocentric Company
EPRG Model (Perlmutter)
Ethnocentric Company
Alignment to the home country
EPRG Model (Perlmutter)
Polycentric Company
Orientation at the respective market
EPRG Model (Perlmutter)
Polycentric company
Orientation:
Belief:
Working style:
Orientation:
Sensibility to the differences of the markets
Belief:
Worldwide diverse management methods, which are equally valide
Working style:
Subsidiaries develop their own procedures
EPRG Model (Perlmutter)
Regiocentric Company
Orientation at homogeneous country groups
EPRG Model (Perlmutter)
Regiocentric Company
Orientation:
Belief:
Working style:
Orientation:
Cluster of similar country markets
Belief:
As much standardization as possible, as much differentiation as necessary
Working style:
Regional-typical procedures
EPRG Model (Perlmutter)
Geocentric Company
Orientation at the global market
EPRG Model (Perlmutter)
Geocentric Company
Orientation:
Belief:
Working style:
Orientation:
World market
Belief:
Cultural differences are insignificant, optimization of the procedures of the entire company as priority
Working style:
Holding and subsidiary develop a common, company-typical style of working
Comparison of concepts
Critical Evaluation
- even within a company are different attitudes (e.g. marketing vs. production)
- Stage model too rigid (international orientation can change)
- geocentrism as “highest stage” always desirable or achievable?
- EPRG-Model was developed on the basis of exploratory studies
- no patent solution
Uppsala-Model of Internationalization
Internationalization as learning process
Gradual Internationalization (by the interplay of knowledge, experience, and market attachment)
Dynamic factors:
- current business activities
- commitment decisions (commit to their markets)
Static factors:
- Market commitment, intensify activities in this market (e.g. adaption)
- Market Knowledge (perceived and objective)
Uppsala-Model of Internationalization
Internationalization as learning process
Psychic distance chain
Psychologically close, e.g. Germany and Denmark
Eclectic Theory of Dunning (1980)
Competitive advantages
Ownership Advantage
Advantage of internalization
Advantage of site of foreign location
(OLI - Paradigm: ownership, location, and internalization advantage)
Eclectic Theory of Dunning (1980)
Competitive advantages
Ownership Advantage
- product innovation
- patents/brands
- technological / Know-How lead
- all advantages of established companies over newcomers (including economies of scale, advantages gained through specialization, economies of scope)
-> company should have something that other companies don’t have, otherwise no reason for going international
Eclectic Theory of Dunning (1980)
Competitive advantages
Advantage of Internalization
Can the company take usage of the ownership advantages in the foreign market in a better way than through granting of licenses?
Avoidance of …
… transaction costs and negotiation costs
… costs of enforcement of property rights
… costs of control
Transaction costs - is it better to do everything in the company or go to the market?
Eclectic Theory of Dunning (1980)
Competitive advantages
Advantage of site of foreign location
Does the foreign site offer better conditions for realizing the existing ownership and internalization advantages than the homeland market?
- market size and market growth
- political stability
- infrastructure
- tax system
Is there a specific reason for going to a different market?
Eclectic Theory of Dunning (1980)
Decision process
Advantage -> market entry strategy
The advantage determines the market entry strategy
Eclectic Theory of Dunning (1980)
Decision Process
Phases
Intention of realizing profits
- > Internationalization
- > Necessity of competitive advantage (because domestic competitors have an advantage on site)
Ownership advantage? --> if no: no internationalization --> if yes: Advantage of internationalization? --> if no: Licensing (not much capital needed) --> if yes: Advantage of site of foreign location? --> if no: Export --> if yes: foreign direct investment
