C.2 Understanding the International Context Flashcards
External demands for internationalization
- The need for cross market integration
- National responsiveness
- Worldwide innovation and learning
Forces for Global Integration and Coordination
- Economies of scale
- Economies of scope
- Factor costs (cheaper labor, raw materials)
- Increasingly liberalized trade environment (e.g. EU, NAFTA)
- Increased globalization
How can MNE’s act as change agents to foster global integration?
- Adapting their products to the host country’s preferences
- Standardizing products
- Transferring practices and knowledge
Effect CETA will have on Canadians
- Eliminates 98% of tariffs between Canada & EU
- Increases comp between Canadian and EU companies
- Increases trade
- Consumer wins because of lower prices
- Canadian meat companies will have an edge
Forces for local differentiation and responsiveness
- Cultural differences (behaviour and preferences)
- National infrastructure (technical and distribution standards)
- Govt demands (laws, host country pressures and demands)
- Local competitors (appeals to nationalism)
Economic vs political risk
Economic: financial markets, interest rates, inflation, currency fluctuations
Political: Protests, changes to a new government - will things change? How will it affect businesses? Elections? Relationships with other governments, history of the country
Consequences of high political risk for MNEs
Protests can feel unsafe, a nationalist movement can affect expats, ultimate risk: nationalization of assets
Risk mitigation strategies
- Recruiting local partners
- Risk analysis, scenario planning
- Limiting R&D in nations with leaky property protection
- Gradual investments
- Insurance against political risks
- Diversifying FDI across diff countries
- Engagement with host government, NGOs, and local communities
Forces for worldwide innovation and learning
- Shortening product life-cycles
- Increased cost of R&D
- Global tech standards
- Competitor’s ability to develop and diffuse innovation globally
Dimensions of distance
CAGE
- Cultural distance
- Administrative or political distance
- Geographic distance
- Economic distance
Cultural distance
- Religious beliefs
- Race
- Social norms
- Language
- Measure through primary research
- Affects businesses by having to appeal products to different cultures, and adapting to employee differences
Administrative and political distance
- Trade and political unions, common currency, tariffs, trade quotas, political instability, trade agreements
Economic distance
- Disparities in the two countries’ wealth
- Variations in the cost and quality of financial and other resources
Three types of industries in response to worldwide innovation forces
- Global industry
- Multinational industry
- International industry
Global industries
- Responded to economic forces for globalization (e.g. consumer electronics, airplanes)
- Treats the world as a a single integrated strategic unit
- Centralized, scale intensive manufacturing
- Standardized product
