ISM week 2

Question 1

What are the location advantages offered by the environment?

Answer 1

Efficiency seeking, Market seeking, Natural resource seeking, Strategic resource seeking

Question 2

The FDI (foreign direct investment) checklist (OECD)

Answer 2

A predictable and non-discriminatory regulatory environment and an absence of undue administrative impediments to business (Ukraine or Russia 2022)

A stable macroeconomic environment, including access to engaging in international trade (= openness of trade) - Brexit, for example, coz we might prefer to go somewhere, where we get access to the region instead of a single country.

Sufficient and accessible resources, including the presence of relevant infrastructure and human capital.

Question 3

Wernerfelt (1984)

Under what circumstances will a resource lead to high returns over longer periods of time? (Resource-based view)

Answer 3

1) Ownership over the production of the resource.
2) Your products can be sold in non-monopolistic markets.
3) Substitute resources are not available.
Resource position barriers (diamonds - diamonds sights are held already by another company; customer loyalty).

Question 4

Under which conditions the firm’s resources are a source of sustained competitive advantage? VRIN/VRIO framework

Answer 4

Valuable / Rare / Imperfectly imitable / non-substitutable / organized to capture value

Question 5

The concept of transferability of FSAs (firms specific/sustainable advantages)

Answer 5

Non-tansferablity can occur for two reasons: the advantage is not mobile internationally or the advantage itself loses value in the targeted country

Question 6

The Eclectic Framework
Three specific conditions need to be presented for successful FDI

Dunning (1981)

Answer 6

1) Ownership advantage (resource based view)
2) Location advantage
3) Internalization advantage

Question 7

Internalization theory
Why do firms internalize foreign activities?

Buckley & Casson (1976)

Answer 7

The basic idea of the theory:
1) The existence of market imperfections generate benefits of internalization. Sometimes it’s better to do things by yourself than to have someone to do it considering imperfections around.
2) If a profit-seeking manager finds it more profitable for a company to do the production abroad by the company itself, they will do so. If they find it more costly to do it by itself, they externalize the activities.

Question 8

Two types of internalization

Answer 8

1) Operation internalization
2) Knowledge internalization

Question 9

Benefits and downsides of internalization

Answer 9

Benefits:
1) Reduced external transaction costs.
2) Control over activities
3) Protection of proprietary knowledge
4) Avoidance of trade barriers

Downsides:
1) Increased communication and coordination costs
2) Lack of access to resources offered by potential partners