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Strategy & Contemporary Issues > Chapter 10: International strategy > Flashcards

Chapter 10: International strategy Flashcards

1
Q

What is international strategy?

A

It refers to a range of options for operating outside of an organisations country of origin

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2
Q

What are the 4 internationalization drivers? (Yips globalization framework)

A
  1. Market drivers
  2. Cost drivers
  3. Government drivers
  4. Competitive drivers
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3
Q

What are the market drivers? (yips globalization framework)

A
  1. Similar customer needs
  2. Global customers
  3. Transferable marketing
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4
Q

What are the cost drivers? (yip)

A

1.Scale economics
2. Country-specific differences
3. Favourable logistics

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5
Q

What are the competitive drivers?

A
  1. Interdependence between countries
  2. Competitors global strategies
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6
Q

What are the government drivers?

A
  1. Trade policies
  2. Technical standards
  3. Host government policies
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7
Q

What are the main reasons for internationalization? (pp)

A
  1. Market seeking motives
  2. Resource seeking motives
  3. Efficiency seeking motives
  4. Strategic asset seeking motives
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8
Q

What is the liability of foreigness?

A

facing additional costs of doing business compared to the locals.

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9
Q

What is the Porters diamond?

A

Porters diamond suggests four determinants of national advantage; why some countries are better than others in a specific industry; such as the Swiss in private banking or the northern Italians in the leather industry.

  1. Factor conditions
  2. Firm strategy, structure and rivalry
  3. Related and supporting industries
  4. Demand conditions
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10
Q

What is the international value system?

A

Sources of geographical advantage is not only from the domestic conditions. It can also be thanks to internationalization. Ericsson is from Sweden but 95% of its sales is from outside Sweden.

So for International companies, advantage also needs to be drawn from the international configuration of their value system. The different skills, resources and costs of countries around the world can be systematically exploited in order to locate each element of the value chain in that country or region where it can be conducted most effecitvely. Large MNC often develop and manage complex global or regional supply chains in this way. This can be achieved through foreign direct investments (FDI) and joint ventures, but also through global sourcing: purchasing services and components from the most appropriate suppliers around the world.

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11
Q

What are the two major locational advantages?

A

Cost and unique local capabilities

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12
Q

What are the four international strategies?

A

Export strategy

Multi-domestic strategy

Global strategy

Transnational strategy
- an integrated network of distributed, interdependent resources and capabilities.
- each national unit is a source of ideas and capabilities that can benefit the whole corporation

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13
Q

Where to locate production? (three factors)

A
  1. National resource conditions
  2. Firm-specific advantages
  3. Tradability issues
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14
Q

How to think when deciding which country to enter?

A

Countries can initially be compared using standard environmental analysis techniques, such as PESTEL (PESL) or 5 forces for specific industries. But there are specific determinants of market attractiveness that needs to be considered in internationalisation strategy: the inner characteristics of the country and market. A key point is how initial estimates of country attractiveness can be modified by considering various measures of distance and the likelihood of competitor retaliation (response)

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15
Q

What is the CAGE framework?

A

By Ghemawat. He said that PESL is not enough. He points out that the compatibility of the countries with the internationalizing firm itself and its country of origin is important. So, the MATCH between the countries. Ex: a Spanish firm might be closer to a South American market than an East Asian market and might therefore prefer that market EVEN if its lower ranked on standard criteria.

Ghemawats CAGE framework: emphasizes the importance of the cultural, administrative, geographical and economic distance between county to enter and country of origin.

C=cultural distance
A=administrative and political distance
G=geographical distance
E=economic distance

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16
Q

How can country markets be assessed when considering potential competitor retaliation?

A

International competitor retaliation refers to actions taken by a company in response to a foreign competitor’s entry into their home market or an important international market. Retaliation is a competitive reaction meant to discourage the competitor from gaining market share or profits in that new territory.

According to three criteria:
1. Market attractiveness to the new entrant based on PESL, CAGE, 5forces

  1. Defenders reactiveness
  2. Defenders clout
17
Q

Which are the 4 entry mode strategies?

A
  1. Exporting/importing
  2. Liscensing or franchising to local partners
  3. Joint ventures with local companies
  4. Foreign Direct Investments
18
Q

What is a foreign direct investment?

A

FDI, definition: investment abroad in order to control a foreign asset. Much of FDI takes the form of Greenfield ventures, building up your subsidiary from scratch. Or a merger or acquisition. I decide to target the foreign firm.

19
Q

Why do firms invest abroad? (OLI Framework, John Dunning) aka The Eclectic Paradigm

A

OLI:
O=ownership advantage
L=location advantage
I=internationalisation advantage

If you meet the OLI criteria, then the firm is likely to engage in FDI (merging, acquiring, Greenfield).

20
Q

What is Porters competitive advantage of nations?

A

It extends and adapts traditional theory of comparative advantage to take account of three factors:

international CA is about companies and not countries

SCA depends upon dynamic factors and innovation

the critical role of the national environment is its impact upon the dynamics of innovation and upgrading

21
Q

What is the nature of international business?

A
  1. Value-adding activities of a firm
  2. International trade
22
Q

Firms can internationalize through different entry strategies. Which are these?

A

1.

23
Q

What is a foreign direct investment?

A
  • Invovles greenfield subsidiaries (setting up your own organically growing firm). building up your subsidiary from scratch.

or

  • A merger or acquisition.
24
Q

Why do firms invest abroad in FDIs according to John Dunning?

A

One of the key explanations connects to the Eclectic Paradigm or OLI-framework. (John Dunning).

If you meet the OLI Criteria, then the firm is likely to engage in FDI.

Ownership advantage:
aka firm specific advantage or just competitive advantage. means that you have a competitive advantage that allows you to compete and outcompete others. it needs to be sufficiently great to compete or outcompete the local businesses in the target country. because there is something called liability of foreigness. you don’t know about the nitty gritty stuff always about the host markets. To do this you need a great cost or differentiation advantage.
Ownership: Do I have an ownership advantage that is sufficiently large to allow me to overcome the liability of foreigness? If yes -> move on to 2.

Location advantage: similar to the notion of comparative advantages. locational advantages echoes comparative advantages. specific advantages that exist in the host country. low labour costs. access to natural resources. skilled labour. its a synergetic type of argument. my competitive advantage feeds into location factors. OR the comparative advantage of my home country feeds so much in to my competitive advantage and has synergetic effects that I am still able to overcome the liability of foreigness.

Internationalization advantages: If a company decides to internalize, they are more likely to engage in foreign direct investment (FDI). This is because FDI allows the company to own and control its operations directly in a different country, which aligns with the goal of internalization.
Make or buy. Is it more efficient to internalize?

25
Q

What is the difference between internationalization and internalization?

A

Internationalisation: being active in the global marketplace

Internalization: make or buy decision

26
Q

What is the definition of a multinational enterprise?

A

Carrying out business in multiple countries

27
Q

What does internationalization mean for industry analysis?

A

Nowadays its easier to entry markets. So lower entry barriers. This leads to increased rivalry and competition. Meaning that firms compete more on price. Therefore differentiation and innovation is becoming more important.

Resource availability in other markets influences the firms resources and capabilities. For the industry environment you reach a wider market, more diverse customer preferences. But also more competitors.

28
Q

What are the four elements of the Porters national diamond for specific countries?

A
  1. Factor conditions (home grown: the role of specialized resources, the know-how, the intangbile, are more important than natural endowments. Like Sillicon Valleys success has nothing to do with natural endowments, but of home-grown resources and capabilities).
  2. Related and supporting industries
    Locate in environments where you can fit into the local knowledge base
  3. Demad conditions
    Ex: airconditioners. Mostly Japanese companies.
  4. Strategy, structure, rivalry
    Lots of firms doing the same things that drives innovation.

These four elements identifies key factors that determines if a firm within a country can establish a CA within their global industry.
If these factors are available, you can achieve synergies that help you develop resources and capabilities that allows you to have a competitive advantage.

29
Q

Location decisions must take account three sets of factors. Which?

A
  1. National resource conditions
    What are the major resources that the product requires? Where are these resources available at a low cost?
  2. Firm-specific advantages
    To what extet is the companys competitive advantage based on firm-specific resources and capabilities, and are these transferable?
  3. Tradability issues
    Transportation costs. Any limits for moving products across countries? Are there any trade restrictions? If yes, then the production should be close to the market.
30
Q

What are different entry mode strategies? (4)

A

Two broad categories:
TRANSACTIONS AND DIRECT INVESTMEMT

Transactions
- Export
- Lischensing/franchising

Direct investment (higher resource commitment)
- joint ventures with local companies
- Wholly owned subsidiaries through either greenfied investments os aquisitions

31
Q

How does Porters Diamond exdent comparative advantage? What three factors does it take into account?

A
  1. Internatiomal competitive advantage is about companies, not countries. The national environment provides a home base for the company
  2. Sustained competitive advantage depends upon dynamic factors - innovation and the upgrading of resources and capabilities
  3. The critical role of the national environment is its impact upon the dynamics of innovation and upgrading
32
Q

What is the definition of a entry mode strategy?

A

Entry mode strategies are chosen after you have selected a market to entry. Entry mode strategies are about how to enter that market. Entry mode strategies differ in the degree of resource commitment to a particular market and the extent to which an organisation is operationally involved in a particular location.

33
Q

What is the smile of value creation?

A

The Smile of Value Creation is a concept that illustrates how value in the production process is distributed across different stages. The idea is represented visually as a “smile curve,” where the two ends of the value chain (R&D and branding/marketing) create more value than the middle stages (like manufacturing).

For a smartphone, much of the value is created in design (Apple) and software development (Google’s Android), as well as branding and retail (Samsung, Apple). The actual manufacturing and assembly, which may take place in low-cost countries, add less value to the overall price of the phone.

In summary, the Smile of Value Creation highlights that companies can capture more value by focusing on innovation, R&D, and branding rather than just manufacturing. This insight encourages firms to invest more in high-value activities to sustain competitive advantage.

34
Q

Motives for FDI? (L i OLI)

A

Market seeking
Resource seeking
Efficiency seeking
Strategic asset seeking

35
Q

What are the five typical forms of international R&D organization?

A
  1. Ethnocentric centralized R&D
    All R&D activities concentrated in home country
  2. Geocentric centralized R&D
    Central R&D but with an internatiomal orientation
  3. Polycentric decentralized R&D
  4. R&D hub model
  5. Integrated R&D Network

Von Zedtwitz & Gassman 2002

36
Q

What is internalization?

A

Internalization has to do with the boundaries of the firm (not with if you situate the activity in a home or host market), i.e., what activities it carries out under the corporate umbrella (internalized), and what activities are slated to be market transactions. This is simply put a make- or buy-decision. It goes back to what is called the nature of the firm as proposed by Ronald Coase and his transaction cost ideas. Basically, what Coase discussed was when to internalize and when to use the market mechanism.

37
Q

What does the OLI factors determine?

A

OLI-factors determine whether or not a company will enter a given foreign country via FDI (as compared to entering markets via other means of internationalizing). The baseline for understanding this is:
* Ownership-specific advantages – knowledge, skills, capabilities, relationships, or physical assets that the firm owns and which are the basis of its competitive advantages.
* Location-specific advantages – specific advantages that exist in the country that the MNE has entered, or is seeking to enter, such as natural resources, low-cost labor, or skilled labor.
* Internalization advantages – control derived from internalizing foreign-based manufacturing, distribution, or other value-chain activities.

To elaborate, the OLI-paradigm proposes that FDI is the most appropriate form of international business if the three conditions are met.
1. Ownership advantages (O-advantages)
Resources of the firm that are transferable across borders, and enable the firm to attain competitive advantages abroad.
2. Locational advantage (L-advantages)
Advantages enjoyed by firms operating in certain locations.
3. Internalization advantages (I-advantages)
Advantages of organizing activities within a multinational firm rather than using a market transaction.

Strategy & Contemporary Issues (17 decks)

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