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Innovations Management > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q
  1. Exports and Imports
A

Trade in goods - U.S. calls it trade merchandise
exports and imports; UK calls it visible trade.
Trade in services - US calls it trade service exports and imports; Uk calls it invisible trade

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2
Q

International investment:

  1. FDI
  2. FPI
A
  1. Foreign direct investments (FDI) are made for the purpose of actively controlling property, assets, or companies located in host countries.
  2. Foreign portfolio investments (FPI) are purchases of foreign financial assets (stocks, bonds, etc.) for a purpose other than control, such as increasing the rate of return on a portfolio of assets.
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3
Q

Challenges attached to the internationalization of R&D

A

Level of outsourcing and offshoring (or even back-shoring) of R&D
Role of subsidiaries in the MNC that perform R&D
Coordination of internationally distributed R&D activities

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4
Q

R&D investment of top 3 spenders by

industry

A

ICT producers
Health industries
Automobiles and other transport

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5
Q

Other forms of IB activity

A
  • International licensing
  • International franchising
  • An international management contract
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6
Q

International licensing

A

International licensing is a contractual arrangement. Under this arrangement, a firm in one country licenses the use of its intellectual property (such as patents, trademarks, brand names, or copyrights) to a firm in a second country in return for a royalty payment.

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7
Q

International franchising

A

International franchising
is a specialized form of international licensing. It occurs when a firm in one country (the
franchisor) authorizes a firm in a second country (the franchisee) to utilize its operating
systems, product range, brand names, trademarks, and logos in return for a royalty
payment.

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8
Q

Intl. management contract

A

An international management contract
is an arrangement wherein a firm in one country agrees to operate facilities or provide
other management services to a firm in another country for an agreed-upon fee.

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9
Q

Actors in IB

A 
Multinational Corporation (MNC) is a firm that engages in FDI and owns or controls value-adding activities in more than one country.
• Because some large MNCs, such as Lloyd’s of London, are not true corporations, some writers distinguish between MNC and MNE. We use MNC and MNE as synonyms.
• Not-for-profit organizations, such as the IOC and the International Red Cross, are not true enterprises, so the term multinational organization (MNO) can be used when one wants to refer to both not-for-profit and profit-seeking organizations.
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10
Q

Innovation and IB views?

A

Macro and Micro view.

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11
Q

Macro view on Innovation and IB

A

Aggregate levels of business activities: Inter-country or inter-regional activities & Useful framework: innovation
system
• Innovation systems: Heterogeneous actors & Firms / education org / research org / government & Various types of links and interaction & Jointly generating, accumulating and diffusing knowledge, competences and artifacts.
Target: Facilitate the development, diffusion and utilization of new technologies and innovations
• Concept of innovation systems goes back to mid 1980’s but is still a popular approach to analyze aggregate innovation activities.

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12
Q

Innovations systems graph

A

describe the graphs. slide 65

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13
Q

Innovation systems based on the demarcation criteria

A 
geographic criteria (national IS, regional IS)
technological criteria (technological IS)
sectoral criteria (sectoral IS)
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14
Q

Within the innovation system:

A

Activities are not centrally orchestrated
Actors do not necessarily pursue the same objective and employ the same approaches
Under certain conditions innovation is an emergent phenomenon created by the interaction of heterogeneous actors

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15
Q

System’s dynamics is driven by the tension and conflicts created by:

A

Heterogeneity of motives, objectives and approaches
Development of heterogeneous solutions
Market selection works on the level of technologies, products and firms

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16
Q

Micro view:

A

Analysis on the firm level:
MNCs & Subsidiaries
In the last 25 years (starting with Kogut and Zander) the interest in innovation activities in the context of IB has grown.

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17
Q

Why do we have MNCs?

A

MNCs are seen to be superior
• MNCs have been seen as organizations that have an comparative advantage through their superior cross border capabilities to acquire and utilize resources, in particular knowledge.
• Also MNCs are better than other organizational configurations in transferring knowledge across borders.

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18
Q

Challenges for MNCs:

A

Simultaneous achievement of
• Efficiency
• Flexible responsiveness
• Worldwide learning and innovation

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19
Q

MNCs as centralized hubs:

A

Subsidiaries
• Implement central decisions
• Are not autonomous
• Are strongly dependent on HQs

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20
Q

Centralised hubs:

A
  • most key assets and resources centralized
  • tight control through centralized decision-making, product flows from centre Out
  • foreign subsidiaries are treated as delivery pipelines to their market
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21
Q

Matsushita (=Panasonic)?

A

• Founded in 1918 by Konosuke Matsushita
• By 1980s international revenues: 1.5 billion $
• Highly centralized, no local autonomy, one product – one division,
• Competitiveness through global scale
• Mid 1980s
Successful product – VCR; VCR needed replacement; Replacement product probably from technology convergence this needed a different organizational structure more truly international.
Also some protectionist tendencies in some of its main markets and high Yen, lack of software
engineers in Japan
• End of 1980s
More local autonomy for subsidiaries (personnel, sourcing)

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22
Q

MNCs as decentralized federations?

A 
Subsidiaries
• Enjoy large degree of autonomy
Delegation of responsibility
• Weak linkages to the HQ (weak
or no ties to other subsidiaries)
• Financial control system and
informal contacts between HQ
and subsidiary
• Example: Philips from the 1970s to
the 2000s
23
Q

Decentalized federations?

A
  • most key assets and resources decentralized
  • loose control, financial flows: capital out, dividends back
  • foreign subsidiaries are treated as independent national businesses
24
Q

Philips (1970s to 1990s)?

A

Philips was a decentralized federation
Strong national subsidiaries
Weak linkages and decision power of the HQ
• Example:
Philips could not become a major player in the VCR industry
Local managers could decide about a product strategy
US managers choose not to market the superior V2500 VCR; Rather bought a low cost VCF from Japan and rebranded it

25
Q

To an integrated network model of MNCs?

A

Concept: „decentralized centralization“ (Morschett et al. 2015, p8)
• Interdependent organizations with linkages between a dispersed set of units.
• Goes back to Ghoshal and Bartlett (1990)
For the last 3 decades the
predominant model
Transnational organizations /
Heterarchy /
Differentiated network

26
Q

Integrated network features?

A
  • distributed, specialised resources and capabilities
  • large flows of components, products, resources, people and Information among interdependent units
  • complex coordination processes and cooperation in a shared decision making
27
Q

Insights from this model of MNC?

A

• Network nodes (subsidiaries) are linked by bi-directional flows of
• Products
• Resources
• People
• Knowledge (Note for later: International R&D is only conceivable with bi-directional flows of knowledge
• Some subsidiaries have a strong effect on MNC decisions and strategies
Competitive advantage
• Does not necessarily originate from the MNC’s HQ
• Not created at home and transferred abroad
• Can come from any single or more subsidiary/ies
• Learning is essential in this context (creation and diffusion of knowledge in the MNC netw.)
• High autonomy of subsidiaries might cause problems when orchestrating activities.

28
Q

Heterogeneity of subsidiaries

A

The integrated network model stresses that subsidiaries are heterogeneous. Dimensions of subsidiary diversity:
• Value-added activities (from single - e.g. sales – to full value chains)
• Reasons for establishing the subsidiary (market seeking,
resource seeking)
• Endowment with resources and capabilities
• Local environment of the subsidiary
• Type of linkages maintained (horizontal, vertical)
• Responsibility of the subsidiary
• Age
• Size
• Performance

29
Q

Subsidiaries as centers of excellence:

A

Subsidiaries regarded a source of important capabilities can be seen as a center of excellence in the MNE.
Target: leverage these capabilities for the whole network (= other subsidiaries)
• They receive a global mandate for certain activities and functions
• High level of autonomy and freedom
• Strong integration into the MNC for (knowledge) diffusion
• Prerequisite
High level of competence

30
Q

Mandate of a subsidiary?

A

Mandates
• Are awarded to subsidiaries by their parent companies
• Define the scope of activities the subsidiary is responsible for
• Define the performance expectations
• Determine the level and type of investment of the parent into the subsidiary
• Determine the level of skills located in the subsidiary
Mandates that require strategically critical, high skill functions are more sticky

31
Q

Intra- and interorganizational
networks
Networks?

A

• MNCs (as networks) maintain network ties to actors external to the MNC (those actors might be networks as well)
• Contrary to the initial idea of Ghoshal and Bartlett (1990) MNCs are also embedded in external networks
• Various linkages also across borders Imports, exports, ownership, joint ventures, R&D alliances, licensing …
• Networks between companies are important for competitiveness
Dunning (1997): From market capitalism to alliance capitalism.
• Boundaries of the firm (MNC) gets blurry – with all its implications for the theory of the firm
- MNCs (as networks) maintain network ties to external actors (that might be
networks as well) (see graphs p. 86 & 87

32
Q

Local embeddedness - Pt. 1

A

Linkages to the local environment is important for subsidiaries of MNCs
• Local environments serve as containing social structures in which information sharing and collective knowledge development is nurtured by
• personal network formation,
• labor market mobility and the
• formation of trustful collaborative ties.
• Local linkages can be a substitute to subsidiary capabilities (subsidiaries provide access to these local resources)

33
Q

Local embeddedness - Pt. 2

A

Such localized linkages tie innovativeness of MNCs to the properties of
geographic locations
• Geographic locations are heterogeneous
Geographical properties
Endowment of resources
Environment (economic, social, technological, economic)
Knowledge and capabilities
• Network structure within the MNC and network structure outside of the MNC is crucial for MNC performance.
• Subsidiaries have to balance the embeddedness in the MNCs internal network and the local embeddedness.
Balance local interests of the subsidiary with global interests of the MNC network.

34
Q

Local embeddedness - Pt. 3

A
  • The flip side of this coin
  • the danger of over-embeddedness of actors and
  • lock-in to diminishing return paths, stemming from high cost of establishing non-local linkages and low marginal cost of continuing to use existing ones.
  • This may cause actors
  • to over-search those environments they already know and
  • to focus on already established linkages.
35
Q

Irrelevance of the HQs?

A
  • Even in differentiated networks HQs
  • Still exist (and are relevant)
  • Have a (somewhat) hierarchical position
  • Mostly HQs have more power than the subsidiaries
  • Usually HQs have the strongest power to
  • Create knowledge (= R&D) and decide
36
Q

Heterogeneous roles of subsidiaries?

What is a role?

A

A role is the business the subsidiary participates in and which it is responsible for within the MNC.
• A role can be seen as a statement of purpose including
Task
Market
Customer
• Roles are described along the following dimensions:
• External context
• Internal context
• Coordination variables (level of autonomy)
• Strategy or task

37
Q

Role typology by Bartlett & Ghoshal - Pt. 1

A

Most prominent typology of subsidiaries is by Bartlett and Ghoshal (1986) and has been updated by Rugman, Verbeke and Yuan (2011).
• Strategic importance of the local environment (in the host country)
Market size, access to resources …
• Level of internal competences of the subsidiary

38
Q

Role typology by Bartlett & Ghoshal - Pt. 2

A

Contributor subsidiary has more capabilities than required in the not so important market or environment, capabilities can be leveraged in projects within the MNC network
Implementer just sufficient competences for a not so important market, no potential to contribute to the MNC beyond the local market, only exploits the local market
Strategic Leader potential partner for the HQ in developing and implementing strategies, can take the lead within
the MNC, ‚world product mandate‘, ‚center of excellence‘
Black Hole important markets require strong (local) presence, black holes lack those capabilities, MNC must find solutions here, one is to find a strong external local partner for the subsidiary

39
Q

How can HQ manage those subsidiaries?

A

Contributor: Central coordination, but HQ management should not discourage local management of subsidiaries
Implementer: Formalization, to achieve tight control
Strategic Leader: Loose and decentralized control, important: support subsidiary, provide resources and freedom for entrepreneurial role
Black Hole: Support subsidiary in finding strong local partners

40
Q

Role typology by Gupta & Govindarajan

A

Based on the network perspective of MNCs. Typology focusses on knowledge flow. Knowledge flows are bi-directional (⇿)
• Knowledge inflow from the MNC into the subsidiary (S ⇽ MNC)
• Knowledge outflow from the subsidiary into the MNC (S ⇾ MNC)

41
Q

Role typology by Gupta & Govindarajan

A
  • Global innovator (knowledge provider) source of knowledge for other subsidiaries and HQ, potentially embedded in a knowledge rich environment
  • Local innovator (knowledge independent) rather detached from the knowledge flows within the MNC, responsible for creating required knowledge itself locally
  • Integrated player (knowledge networker) also creates knowledge for other subsidiaries in the MNC, but needs knowledge input from the MNC as well, it is maybe a center of excellence embedded in the MNC and the local environment
  • Implementor (knowledge user) heavily dependent on knowledge input from the MNC network, exploits this knowledge in the host market, no knowledge outflows to the rest of the MNC
42
Q

Role typologies - Benefits

A
  • Traditional view of MNC research (focus on HQ) has changed.
  • Subsidiaries have entered as units of analysis.
  • More nuanced view on the role of subsidiaries and on the composition of MNCs.
43
Q

Role typologies - Deficiencies

A

Picking the dimensions is somewhat arbitrary
• 2 by 2 matrices are oversimplifying
• Roles differ along the value chain, which is not accounted for in the typologies

44
Q

Motives for internationalization

A
  • Internationalization activities are always driven by certain motives. And the motives are not always to increase sales in this region. The term ‚market entry‘ for internationalization might be misleading Internationalization is also not always triggered by lower production costs.
  • Internationalization should always be linked to corporate strategy. Hence, the motives are as well.
  • We have to look at the strategy that drives internationalization to see the motives (and vice versa)
45
Q

Four dominant motives for internationalization

A

Market seeking
• Resource seeking
• Efficiency seeking
• Strategic asset seeking

46
Q

Market seeking - Pt. 1

A

Market seeking relates to the output
• Access to new markets can be the driving force for starting activities in a foreign country (…exporting)
• Country selection by the sales potential
Market size / market growth / attractive customer segments/ barriers of entry / competition
• Market seeking does not imply production
• FDI can help to avoid barriers of entry, reduce shipping costs
• Being there (rather than just selling there) can help to understand the market

47
Q

Market seeking - Pt. 2

A

First steps often with the help of local cooperation partners (they know the market)
• Subsidiaries can become gate-keepers to foreign markets. May control distribution channels and marketing activities Power versus the HQ
• Current trend is to have more control over foreign sales
Increasing involvement in the local market – higher levels of ownership. Vertical integration rather than cooperative arrangement
• Follow the customer
B2B: if one firms customer internationalizes it might be profitable to internationalize as well (piggybacking) e.g. a service company for a production company internationalizes once the production is internationalized

48
Q

Resource seeking

A

Securing the input can be a motive for internationalization
Natural resources (oil, gas …)
Topographical situations (harbors … )
• Country selection by the resource potential
Resource availability
Cost of the resource
Regulatory framework
• Partnership strategies are necessary, if local companies have secured access to the resource
Acquisition might not work because of legal restrictions
• As the resource is important the resource seeking motive leads to strong ties with other parts of the MNC network of subsidiaries

49
Q

Efficiency seeking

A

Efficiency seeking relates to the production process
• Target: improvement of the cost efficiency of the MNE
Exploitation of factor cost differences
Generation of economies of scale
• Country selection criteria
Labor costs
Productivity differences
Distance to relevant markets (transportation costs)
Suppliers
Production can be integrated in company‘s overall cross-border production processes (see the current discussion about tariffs)

50
Q

Strategic asset seeking

A

• Relates to knowledge and capabilities
• Assumption: knowledge and capabilities are a crucial determinant of competitive advantage.
• Assumption: MNCs can identify, assess, access, digest and exploit knowledge for their competitive advantage
• This can explain the investment (FDI) in certain regions (e.g. Silicon Valley)
• Country criteria for selection
Innovation level
Sophistication of demand
Related and supporting actors in the innovation system

51
Q

Strategic asset seeking - Pt. 2

A
  • Requires a close link to the rest of the MNC to secure that knowledge diffuses within the whole network
  • Too tight control might discourage creativity and the acquisition of knowledge
  • Subsidiaries have to have appropriate capabilities to identify, assess, access and process the knowledge
  • Cooperation to access this knowledge can be helpful. Antecedents: local relationships and trust
52
Q

Geographic sources of advantage - Pt. 1

A

Traditionally the geographic sources of advantage are (see Johnson et al. 2017, p. 282) going back to Michael Porter in the 1990s
• The underlying idea of Porter’s Diamond is that location are associated with sustainable competitive advantage for
firms originating from there (or being located there, more generally)
• Factor conditions
• Firm strategy, structure and rivalry
• Demand conditions
• Related and supporting industries.
We can add additional geographic sources of advantage
Cost advantages
Unique local capabilities
National market characteristics
• Each one of the geographic sources of advantage can be mapped to one or more motives for internationalization

53
Q

Geographic sources of advantage - Pt. 2

A

The traditional view
Location based sources of advantage are immobile
They are accessible by any firm being there
• However MNCs may differ in their ability to makes sense of the place (their locational capabilities)
- Not all MNCs are equally good in exploiting the geographic sources of advantage
• Rather immobile geographic sources of advantage and mobile MNE specific sources of advantage have to evolve
together to generate value.

Innovations Management (2 decks)

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