CIF Flashcards
Forces of globalization
- Emergence of WTO
- Creation of free trade areas
- Benefits of international trade
- Revolution in digitized comms
- Fast and efficient transportation
- Opening of previously closed markets
- Increased cultural awareness
- Emergence of global industry networks (e.g., biotech)
(Levitt)
Criticisms of global business
- Environmental exploitation
- Labor exploitation
- Can outcompete local players
- Shift of power to multinational enterprises
- Negative externalities
Emerging issues in global trade
- Distrust in global supply chains
- Critical components of value chain
- Emerging new tech standards
- Decrease of trade between West and China
There is pushback on global trade in several ways
- Decoupling (severing ties in global market, process signified by decrease in
inter-dependence) -> Witt et. al - BRIC markets challenging to do business in
- Regulations on MNEs (e.g., corruption acts)
Business has not become as global as Levitt expected - why?
- Backlash for global business strategies
- Crippled by protectionist movements and trade wars
BUT - global business has many advantages - standardization leads cost effectiveness
(Ghemwatt)
Distance model for market entry
Market entry model - based on distances between current market and target market:
1) Economy (can serve also poor markets, PP vs population)
2) Culture (ways of doing business)
3) Geography/distribution (geographical distance)
4) Administration (differences in regulation)
Hofstede’s cultural dimensions
1) Power distance (Equality)
2) Femininity (Masculinity)
3) Individualism (Collectivism)
4) Risk-avoidance (risk-acceptance)
Types of distribution dominance
1) Physical dominance of dist. - ikea
2) Digital dominance of dist. - Zalando
3) Leveraging platforms/marketplaces
4) Direct sales/contractual sales - Baby Bjorn
What does Stephen Hymer say about international expansion?
- International firm is automatically at a disadvantage
- Competitive advantage is basis for internationalization
Eclectic paradigm:
The OLI framework, brings theories and aspects to one model
(Dunning)
Behavioral reasons for internationalization
- Networking opportunities (making desirable discoveries of goods opps.)
- Growth aspirations
- Heuristics (experience)
What are Lundan’s 3 components of competitive advantage?
Oa - based on access to an asset
Ot - based on capabilities to organize assets
Oi - based on leadership with formal and informal institutions
Static vs Dynamic o-advantages
Static: Patent, license, brand
Dynamic: Institutional influence, inovativeness (lego), differentiated concept (starbucks), organizational culture (patagonia)
VRIO:
1) Valauble
2) Rare
3) Inimitable
4) Organization
Don’t forget transferability!
Alternatives to the strategic view of the o-advantage
- O-advantages can be optimally matched with foreign markets; assuming rational behavior (Dunning)
- Other researches challenge this as for rationality you would need to have full info (which nobody has)
- instead assume “bounded reality”
Uppsala process model for internationalization
- Companies do not go to optimal markets
- They avoid risk
- Internationalizaton spurred by knowledge development
Model:
1) Market knowledge (state) –>
2) Commitment decisions (change) –>
1) Current activities (change) –>
2) Market commitment (state)
(Johanson and Vahlne)
What is the uppsala model establishment chain:
Y-axis - market commitment
X-axis - market knowledge
1) Export
2) Licensing agreements
3) Partnering/JV
4) Acquisiton
5) Greenfield investment
Sarasvathy’s effectuation model:
Argues firms create their market through collaboration and adaptability by (a) embracing uncertainty and (b) using available resources
1) (a) Different types of uncertainty
- risk -> calculable
- normal uncertainty -> can estimate with variables
- true uncertainty -> unknown unknowns
2) Predictive logic (dunning on established situations and firms with resoruces) vs effectual logic (sarasvathy on new firms, startups and actual uncertainty)
- If you can control the future you do not need to predict
(b) Principals of effectuation
1) Bird in hand - use the resources you have available
2) Lemonade - surprises are inevitable -> adapt
3) Crazy quilt - leverage partnerships and networks
4) Affordable loss - only invest what you are willing to lose
Effectuation logic vs predictive logic
Applicable:
- E - true uncertainty - startups, new firms
- P - established situations, access to resoruces, large firms
Market:
- E - company creates market with stakeholders
- P - market and companies are separate
Market dynamics:
- E - focuses on collaboration
- P - focuses on competition
Resources:
- E - resource-constrained firms
- P - available resources and can be used
Process:
- E - evolutionary process, outcome certainty
- P - planned process, pre-set objectives
Schweizer - internationalization as an entrepreneurship process:
IB is a structure of networks you can be a part of or not
Entrepreneurs know who they are; the knowledge corridors they are in; the social networks they are a part of
Knowledge, opportunities, capabilities (state) -> Relationship commitment decisions (change variables)
Learning, creating, trust building (change) -> creates network position
- LEADS TO NEW O advantage
Entrepreneurial view on internationalization by combining a network perspective and an effectuation perspective:
- Network perspective - internationalization is a by-product of improving the network position
- Effectuation perspective - entrepreneurs act based on effectual logic within the network
What is product/market fit?
How the favorable market conditions fit with the company’s O-advantage - advantages may be transferable but not fit the market
Creating fit may be costly due to liability of foreignness
What are the types of LoF (liability of foreignness):
1) Costs directly associated with spatial distance, such as travel costs
2) Costs from company’s unfamiliarity with local environment
3) Costs from host country - such as lack of legitimacy of foreign firms or economic nationalism
4) Costs from protectionist restrictions issued by home country
(Zaheer)
Two (conflicting) solutions to alleviate LoF:
1) By leveraging company’s competences and adapting best practices (resource-based view)
2) By mimicking local actors (institutional theory)
(Zaheer)
Methods to analyze foreign markets:
1) PESTLE analysis - fit (Political, economic, social, technological, legal, environmental)
2) CAGE-distances model - fit (Culture, Administration, Geography, Economy)
3) Porter diamond - country attractiveness (Firm strategy/structure, demand conditions, supporting industries, factor conditions)
4) Porter 5 forces - industry attractiveness (threat of new entrants, buyer power, threat of substitutes, supplier power)
Market assessment process:
1) Market screening (1 or 2 selection criteria to create a manageable list of countries to investigate further)
2) Rank the most attractive markets (CAGE or Porter Diamond)
3) Segmentation (which are most attractive customer groups in the chosen market/s)
What are the 2 criticisms to the traditional market assessment process?
1) Too much emphasis on macro data: market driven (looking through the data and spotting a gap) vs market driving approach (e.g., Tesla)
2) Does not focus enough on new forms of industrial structures (ecosystem theory)
Market driving vs market driven logic
Customer value:
-EN: Extension
-ING: Novelty
The customer:
-EN: Passive
-ING: Co-creator
Society and regulators:
-EN: Rules exist
-ING: Rules are required
The industry:
-EN: Easily defined
-ING: Blurred lines
What is industry 4.0?
4th industrial revolution: new era with convergence of industrialization and globalization
DITI - interplay between 4 key pillars:
- digitisation, intelligence, tech, innovation
Technological drivers -> new IB features (supported by organizational support) -> critical changes for MNEs in implementing
- Technological drivers: Data science and analytics, industrial IoT, automation technologies
- New IB features: digital connectivity, smart manufacturing, platforms
- Needed org. support: visionary leadership, cross-border orchestration capabilities, complex problem solvng
- Critical changes for MNEs: global supply chains, global design, foreign subsidiary management
(Luo)
5 guiding questions for an eco-system strategy:
1) Can you help other firms create value?
2) What role should you play? (complementor, orchestrator)
3) What should the terms be? (how open source vs exclusive?)
4) Can your organization be adaptable?
5) How many eco-systems should you manage?
Evolution of ecosystems (Moore)
1) Birth
2) Expansion
3) Leadership
4) Self renewal
Transaction cost theory
Transaction costs > Admin costs - FDI up
Transaction costs < Admin costs - FDI down
Transaction cost types:
1) Ex ante costs - search costs
2) Ex post costs - monitoring costs
(Coase)
Internalization (and externalization) drivers
1) Low quality distributors
2) Positive previous experiences
3) Strong strategic commitment to SDGs in the market
4) High service content
5) Low market uncertainty
6) High asset specificity
7) Developed internal control mechanisms
Types of market entry:
1) Direct export
2) Franchising
3) Licensing (fee based)
4) JVs
5) Acquisition
6) Greenfield
What are wicked problems :) :
o Are complex due to increased interconnectedness of different stakeholders
o Have no formulation, and their solutions are not true or false but better or worse
o No way to test solutions
o Fully unique
What are scope 1,2,3 emissions?
Scope 1: direct emissions from sources that are owned or controlled (fuel, company owned trucks)
Scope 2: Indirect emissions from consumption of purchased electricity, heat, or steam
Scope 3: Indirect emissions from activities but not in scope 2 (waste disposal, business travel)
Types of SDGs:
Increasing positive externalities:
1) increasing knowledge
2) increasing wealth
3) increasing health
Decreasing negative externalities:
1) reducing resource over-consumption
2) reducing harm to social cohesion
3) reducing overconsumption
- Internal SDG related investments can benefit multination competitiveness and the host country’s SDG agenda
- External SDG investment benefits the host country and by extension can create positive externalities to MNE operations
(Montiel)
Systemic vs operation innovation for SDGs:
1) Systemic innovation - make an impact outside the boundaries of MNEs operations, long-term
2) Operational innovation - targets specific task, delimited to MNEs key operations, risk mitigation, short-term
What is the advantage of investing in emerging markets?
What are the benefits/drawbacks to the emerging markets from FDI?
Sales incentives:
1) Market size
2) Market growth
3) Bottom of the pyramid strategies
4) First mover advantages
Production incentives:
1) Low-wage labor
2) Institutional voids
Benefits the local economies:
1) Knowledge spillover
2) Jobs
3) Increases in tax base
Issues to local economies:
1) Pollution havens
2) Lowering of production standards - race to the bottom
New hot markets:
- Bangladesh
- Pakistan
- ASEAN
What can cause transaction costs?
Friction:
- Asset specificity
- Information asymmetry
- Opportunism
Describe current tendencies in globalisation:
Geopolitical conflict, clashing ideologies and trade wars push towards era of regionalization (back in protectionist era)
(Levitt)
Why do firms internationalize?
Both economic and behavioral reasons!
- opportunity (bigger market, regulatory advantages, etc.)
- cost reduction (cheap labor)
- piggy backing, serendipity (good fortune)
- growth aspirations to please shareholders
- heuristics (to gain experience)
Value curve
Most value is often added at the beginning or end of value chain (often in established markets)
Problem with bottom of the pyramid strategy:
Fatal flaw - need to build up the industry from 0, so at least 30% market pen. needed to profit (Simanis)
