Lecture 2

Question 1

What are location advantages?

Answer 1

An entire set of strengths of a location, and accessible by firms in that location, which should always be assessed relative to the strengths of other locations, are instrumental to FSAs, and can be in the firm’s home or host country

Question 2

What are the factors in Porter’s diamond?

Answer 2

Factor conditions; firm strategy, structure and rivalry; demand conditions; related and supporting industries + chance and government

Question 3

Explain factor conditions (Porter’s diamond)

Answer 3

Basic factors versus advanced factors (regarding physical resources); generalized factors versus specialized factors (regarding human capital)
They are particularly valuable if they are specialized, meaning customized towards effective deployment in specific economic activities and companies (e.g. created factor conditions such as skilled labour, scientific knowledge and infrastructure)

Question 4

Explain demand conditions (Porter’s diamond)

Answer 4

3 broad attributes of the home demand conditions: nature of buyer needs, size and pattern of growth of the home demand, internationalization of domestic demand (domestic buyer sophistication)

Question 5

Explain related and supported industries (Porter’s diamond)

Answer 5

Industries that share the same technology, inputs, distribution channels, skills, customers, or that are providing complementary products
High-quality, internationally competitive home-based suppliers and companies in related industries are critical to the firm’s international competitiveness

Question 6

Explain firm strategy, industry structure and rivalry (Porter’s diamond)

Answer 6

The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry
A highly competitive, home-based industry with efficient macro-level governance and several domestic rivals may help the firms in that industry become internationally competitive

Question 7

Explain Porter’s diamond view on firms

Answer 7

The synergetic interaction between the four elements and governance and chance determine the international competitiveness of specific industries

Question 8

Evaluate criticisms of Porter’s diamond model (Grant, 1991)

Answer 8

There is no real role for the host country, as Porter argues that firms develop FSAs because the home country conditions force the firm to do so
Tautological: no matter what way you look at the diamond, Porter will have an explanation for what’s going on. So, it is hard to say how things are going to work well together
The framework is more descriptive than predictive
Operationalization of many factors is difficult
Less applicable to small open economies and to resource-rich economies

Question 9

Explain firm strategy (firm strategy, structure, and rivalry of Porter’s diamond)

Answer 9

How firms think about competing in a particular industry

Question 10

Explain structure (firm strategy, structure, and rivalry of Porter’s diamond)

Answer 10

How concentrated the industry is which then determines the rivalry

Question 11

Explain rivalry (firm strategy, structure, and rivalry of Porter’s diamond)

Answer 11

How much competitive dynamics are involved

Question 12

What are motivations to internationalize?

Answer 12

Market seeking: market size and growth, consumer wealth and taste, availability of sales channels, availability of marketing and sales professionals
Efficiency seeking: availability of production factors at low cost (labor, energy)
Resource seeking: availability of inputs (natural resources, material inputs, land, infrastructure)
Strategic asset seeking: availability of knowledge-related assets, availability of specialized intermediaries and service providers
Export platform: for MNEs to ship produce to third countries, infrastructure is important

Question 13

What are Guler and Guillen (2019) views on institutions and the internationalization of US venture capital firms?

Answer 13

Venture capital firms make capital investments in “opportunities” that typically entail high risk, and potential for high returns - they are typically strategic asset seeking
- Traditional portfolio investment theories assume no managerial control
- Traditional foreign direct investment assumes the firm exercises managerial control over the foreign operation
While venture capitalists exhibit some characteristics of traditional foreign portfolio investor, they provide the venture with organizational, managerial, industry, and even technological expertise, and they exert much more frequent and extensive control over the company than a typical portfolio investor

Question 14

What are the features of the institutional environment that influence venture capital firms’ foreign market entry decisions, and how does this effect changes as firms acquire experience (Guler and Guillen (2010)?

Answer 14

Venture capital is an activity difficult or nearly impossible to organize effectively and successfully across borders
- The local nature of deal-making
- Venture capitalists tend to fund ventures located relatively close to their domicile so as to facilitate monitoring and control

Question 15

What are characteristics of locations that positively influence the rate of entry of venture capital firms into a foreign market, the stronger they are?

Answer 15

National systems of innovation: profit-making opportunities, entrepreneurial activity
Legal institutions: facilitating contracts between the firm and the entrepreneur, protects investor rights
Financial institutions: exit (to help the entrepreneur realize capital gains), helps attract, reallocate, and reward investors’ capital
Political institutions: preventing harm to property rights

Question 16

What is the moderating role of experience in the rate of venture capital firms’ entry into foreign markets?

Answer 16

International investment experience provides venture capital firms with skills to: evaluate and monitor investment opportunities, write contracts, lead investments towards successful liquidity events under different institutional constrains
As firm experience increases, it negatively influences some of the effects of the characteristics

Question 17

What is the conclusion of Guler and Guillen (2010) on (venture capital) firms to expand internationally?

Answer 17

Firms frequently expand abroad in order to enhance and complement their existing capabilities with new knowledge
The decision of venture capital firms to invest in companies located in foreign markets is driven by
- institutions that foster the availability of innovative and entrepreneurial opportunities
- the ability to commercialize these opportunities
- the extent to which the institutional infrastructure of each country enables the appropriation of returns
As the firm accumulates international experience, the effect of institutions becomes smaller in size, which the authors interpret evidence that firms learn to overcome institutional constraints

Question 18

What are the 4 dimensions of Pankaj Ghemawats distance model?

Answer 18

Cultural, administrative, geographical, and economic distance

Question 19

Examples of cultural distance (Ghemawat’s CAGE model)

Answer 19

Different languages, different ethnicities (lack of connective ethnic or social networks), different religions, different social norms

Question 20

Examples of administrative distance (Ghemawat’s CAGE model)

Answer 20

Absence of colonial ties, absence of shares monetary or political association, political hostility, government policies, institutional weakness

Question 21

Examples of geographical distance (Ghemawat’s CAGE model)

Answer 21

Physical remoteness, lack of a common border, lack of sea or river access, size of country, weak transportation or communication links, differences in climates

Question 22

Examples of economic distance (Ghemawat’s CAGE model)

Answer 22

Differences in consumer incomes, differences in costs and quality of natural resources, financial resources, human resources, infrastructure, intermediate inputs, information or knowledge

Question 23

What are highly affected industries or products due to cultural distance (Ghemawat’s CAGE model)?

Question 24

What are highly affected industries or products due to cultural distance (Ghemawat’s CAGE model)?

Answer 24

With high linguistic content (TV), related to national and/or religious identity (foods), carrying country-specific quality associations (wines)

Question 25

What are highly affected industries or products due to administrative distance (Ghemawat’s CAGE model)?

Answer 25

That a foreign government views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)

Question 26

What are highly affected industries or products due to geographical distance (Ghemawat’s CAGE model)?

Answer 26

With low value-to-weight ratio (cement), that are fragile or perishable (glass, meats), in which communications are vital (financial services)

Question 27

What are highly affected industries or products due to economic distance (Ghemawat’s CAGE model)?

Answer 27

For which demand varies by income (cars), in which labor and other cost differences matter (textiles)