Einheit 5: International Economic Actors Flashcards
multinational firms
International business activity is carried out by multinational firms, countries only
establish the framework.
Global Presence: Operate in multiple countries, establishing a substantial and often diversified presence in various regions around the world.
Diverse Business Activities: Engage in diverse business activities, including
production, marketing, research and development, and sales, across different countries.
Complex Organizational Structure: Typically have complex organizational structures,
often with a centralized management coordinating operations across different
subsidiaries or business units in various countries.
Multinational firms can have various different faces: MNEs, Born Globals, SMEs,…
MNEs
MNEs such as VW develop, produce and market their products across markets
Scale: Large corporations with a significant global footprint. They have established
operations in multiple countries and operate on a global scale.
Foreign Direct Investment (FDI): MNEs make substantial investments in foreign
markets, often through FDI, acquiring assets or establishing subsidiaries.
Global Supply Chains: They often manage extensive global supply chains, sourcing
inputs and components from different countries to optimize production processes.
Risk Management: Operating in multiple countries exposes MNEs to various risks,
including currency fluctuations, geopolitical instability, and regulatory changes.
Adaptation: MNEs might have very different approaches in different countries e.g. production of VW Beetle stopped in Germany in 1978, in Mexico 2003
SMEs
SMEs = Small & Mediun-sized Enterprises such as Toms often enter global markets more gradually
Scale: Generally smaller with a more localized or regional focus.
While some SMEs may engage in international trade, their operations are typically on a smaller scale compared
to MNEs.
Internationalization: May begin as local or regional businesses. If they choose to
internationalize, may do so at a more gradual pace than Born Globals.
Capabilities: May have limited resources compared to MNEs but can still engage in
international trade, often focusing on niche markets or specific regions.
Organizational Complexity: Usually have simpler organizational structures, with a
more localized or regional focus, and may face challenges in establishing a global
presence.
Flexibility: Often more agile and flexible in responding to market changes and adapting to evolving business conditions due to their smaller organizational structure.
Born Globals
Born Globals such as Airbnb navigate the global stage from day one
Immediate Internationalization: Characterized by their rapid and early engagement in international markets shortly after establishment.
Global Mindset: Born Globals have had a global mindset since its foundation, intending to operate globally rather than focusing solely on domestic markets.
Technologically Savvy: Often leverage technology to facilitate their global operations, utilizing digital platforms, e-commerce, and online marketing.
Innovative Products or Services: Typically offer innovative and niche products or
services that have global appeal, allowing them to quickly attract an international
customer base.
Network-Based Operations: Tend to rely on extensive networks, partnerships, and
alliances to establish a global presence and overcome resource constraints.
liability of foreignness
Liabilities of foreignness (LOFs), refer to the disadvantages or challenges that
foreign firms may face when operating in unfamiliar or foreign markets.
These liabilities arise, for example, from differences in formal and informal
institutional conditions between the firm’s home country and the host country where
it operates.
Essentially, LOFs represent the costs and obstacles associated with being an
outsider or foreign entity in a particular market.
The LOF arises in the form of unfamiliarity costs, relational costs, and
discrimination costs in host country markets.
One important consequence of the existence of LOFs is that – to be able to
successfully internationalize – firms must hold a sustainable competitive advantage
over local firms. Otherwise, the cost disadvantage may outweigh the potential benefits of internationalization.
strategies to earn competitive advantages
Cost Leadership strategy:
▪ Focus on achieving the lowest cost of production and operation within an industry
▪ Achieved through economies of scale, efficient processes, supply chain optimization,
volume production
Differentiation strategy:
▪ Unique and distinctive products to charge premium prices and attract customers
seeking these unique features
▪ Achieved through innovation, strong brand management, and effective
communication with potential customers
Focus Strategy:
▪ Cost-Focus: Offer products at the lowest cost in a narrow market segment
▪ Differentiation-Focus: Cater to unique preferences in niche markets
-> Competitive advantage: lower cost vs. differentiation
-> competitive scope: broad target vs narrow target
-> need to decide which strategy to pursue and avoid being stuck in the middle
following different motives
In simple terms, increasing profits can either take place by an increase in revenue, or by a decrease in cost.
Both objectives can be achieved either by exploiting existing advantages or by exploring new ones.
International business researchers have identified four main categories of
motivation. The first three aim to exploit already existing advantages while the fourth (strategic asset seeking) aims to create new advantages.
Market Seekings
Resource Seeking
Efficiency Seeking
Strategic Asset Seeking
Market Seeking Motive
By entering foreign markets, companies can tap into new customer bases, diversify
their revenue streams, and extend the lifecycle of their products or services.
Additionally, international markets might offer different consumer preferences,
allowing firms to diversify their product lines and cater to a broader range of tastes
and demands.
Resource Seeking Motive
Firms venturing abroad to gain access to natural resources, unskilled labor, or
commodities that might be scarce, of superior quality, or more affordable than in
their home country.
Efficiency Seeking Motive
Firms enter other countries with the goal of promoting a more efficient division of
labor or specialization, thereby reaping economies of scale and scope.
Strategic Asset Seeking Motive
Firms seek to access resources that either enhance an existing competitive edge or
diminish a competitor’s advantage. This motivation goes beyond immediate financial gains and looks at the long-term strategic positioning of the firm.
First Mover Advantage
First mover can select the most lucrative business opportunities, establish
robust distribution networks, shape consumer preferences, and accumulate
valuable location experience.
Furthermore, by preemptively securing distribution channels, engaging in
aggressive marketing, and promoting their brand, these pioneers can create
barriers to entry for subsequent entrants.
First Mover Disadvantage
First movers and early followers often grapple with heightened market and
regulatory uncertainties.
They bear the costs associated with pioneering a new market, which can be
time- and resource-intensive.
strategic options on how to grow internationally
Value Chain Activities
When entering a market, firms can decide what elements of the value chain
they want to operate in the market. Just sales, sales, and production, maybe
also R&D and/or sourcing. Multiple alternative combinations are possible.
Ownership
Firms can decide to enter a market with full ownership (wholly owned investment), shared ownership (joint venture), or no ownership (export,
license)
Establishment of Ownership
When deciding on a shared or full ownership entry mode, firms can decide
whether they want to set up a new company or acquire an existing one.
Joint Ventures
Joint Ventures can have two or more partners
Partners share equity in an investment (the joint venture)
Partner firms remain legally independent
In 1984, Volkswagen set up the Shanghai Volkswagen Automotive Co.
Ltd. (now SAIC Volkswagen Automotive Co. Ltd.), an International Joint
Venture with three Chinese Partners.
