Lecture 2 - Internationalisation Theories Flashcards
What is the transaction cost analysis argument?
Only makes sense to buy (outsource) if costs involved in monitoring are still low enough to make money
What are the backbones of transaction costs theory?
Assumptions of malfeasance and opportunism
What is malfeasance?
When a supplier tries to cut costs and save money, something often assumed to be true
What is opportunism?
When a supplier thinks they can get away with malfeasance
What is the definition of make?
when a firm producs goods/ services internally
What are the advantages of the make decision?
Greater control over production
Protection of proprietary technology
Consistent quality management
What are the challenges of the make decision?
High capital investment
Management complexities
Limited flexibility
What is the definition of the buy decision?
A firm outsources production to third party suppliers
What are the advantages of the buy decision?
Cost efficiency (lower labor and production costs)
Focus on core business activities
Accessed to specialised suppliers
What are the challenges of the buy decision?
Loss of control over quality and production speed
Dependency on suppliers
Risk of intellectual property theft
What are the key factors influencing the make or buy decision?
Cost analysis
Qulaity and reliability
Core competencies
Supply chain stability
Regulatory and legal considerations
Describe Apple’s supply chain
Designs software and proprietary chips in house
Outsources hardware manufacturing
Why does apple choose to make software and proprietary technology and outsource hardware manufacturing?
it balances innovation with cost efficiency
What are the challenges in Apple’s supply chain?
Supply chain disruptions affecting production timelines
Heavy dependence on third-party manufacturers, leading to risks in case of political or economic instability
Quality control issues due to reliance on multiple suppliers
What is the decision framework for makingor buying?
Strategic analysis, aligning with business goals
Cost benefit evaluation, to ensure financial viability
Risk assessment to assess market uncertainties
Long term sustainability assessment, to decipher potential to grow
What is the order of decisions in the decision making framework?
Decide whether the process is a core competency (Yes = Make)
(If No) Decide whether outsourcing provides significant cost savings (No = Make)
(If Yes) Can quality and supply chain risks be managed effectively? (Yes = Buy, No = Make)
What are the types of resources a firm can exploit strategically to expand internationally?
Tangible
Intangible
Human Resources
Organisational capabilities
How do resources influence international strategy?
Firms analyse their resources before choosing an international expansion strategy
Strong brand equity allows direct entry into foreign markets
Firms with limited financial resourcs may opt for joint ventures
What may firms with limited financial resourcs opt for?
Joint ventures
What are the different entry modes?
Exporting
Licensing and franchising
Joint ventures and strategic alliances
Wholly owned subsidiaries
Describe Coca-Cola’s global expansion
Utilised respurces through strong brand equity, extensive distribution network and financial strength
Their strategy contained a combination of franchising, joint ventures and direct investment
They were able to adapt to local tastes while maintaining global branding
What are the challenges in international expansion?
Resource constraints
Cultural and regulatory barriers
Competition from local firms with better market knowledge
What are some strategies to overcome the challenges of international expansion?
Strategic partnerships to leverage local expertise
Incremental market entry to reduce financial risk
Investing in local talent and adapting products to cultural preferences
What does a strong resource base allow for?
Firms to choose more aggressive expansion modes
What are the steps involved in the international planning process?
1) Preliminary analysis and screening, matching company/ country needs
2) Defining market segments and adapting marketing mix
3) Developing the marketing plan
4) Implement and control
What do different authors posit is the best marketing strategy?
Levitt - standardisation
Porter - control or dominance of market through scale
Hamel and Prahalad - broad portfolio of products
What are some modes of internationalisation?
Uppsala model
Sprinkler approach
Born Globals
What is the Sprinkler approach to internationalisation?
Multiple entry into different markets, first mover advantage important
Describe Dunning’s Eclectic Theory
a generic set of variables which contain the ingredients necessary for any satisfactory explanation of particular types of foreign value-added activity
explains why eirms engage in FDI
Consists of 3 key advantages: OLI
Helps businesses decide where and how to expand internationallu
What are the advantages of Dunnings’ Eclectic Theory?
Ownership specific advantages
Location specific advantages
Internalisation advantages
What are the ownership specific advantages of Dunnings Eclectic theory?
The competitive edge that makes a firm successful abroad
Includes: brand reputation, proprietary technology, economies of scale, superior management
What are the location specific advantages of Dunnings Eclectic theory?
Why firms choose specific countries for FDI
Includes: cheap labour and production costs, access to resources, market proximity, government incentives
What are the internalisation advantages of Dunnings Eclectic theory?
Why firms choose FDI over licensing or franchising
Includes: protecting IP, ensuring product quality, reducing transaction costs
What criticisms has Dunnings Eclectic Theory received?
Ownership advantages is perhaps just a simple case of scale following the acquisition along with the resulting market power
Seperating ownership advantage from location advantage is difficult since there is inherent overlap amongst the two
Methodologically it may be difficult to meausre these three advantages without overlap
(Itaki 1991)
Why is OLI important?
Helps firms decide where and how to expand internationally
Explains why firms invest abroad instead of licensing/ franchising
Useful for multinationals, governments, and business strategists
What is the Uppsala model of internationalisation
Conceptualises the decision making process regarding international commitment, based on risk reduction that is achieved through experiential learning
Is network based rather than atomistic, where relationships are built, as opposed to unconnected buyers and sellers transacting
What two things are achieved by the Uppsala model/ Stage model?
Increasing commitment to international investments with respect to entry modes
Addresses the increasing tolerance for psychic distance in terms of location choices
What does the Uppsala model primarily focus on?
Risk reduction or management
Gaining knowledge
Building experience
What does the Uppsala model describe?
Internationalisation as a step by step process, where firms start with domestic operations and gradually enter foreign markets with increasing commitment
What is the Uppsala model based on?
Experiential learning and market knowledge
Why is the Uppsala model important?
Helps firms expand revenue, reach new customers, and diversify risks
What are the key assumptions of the Uppsala model?
Firms expand internationally in stages
Companies start with markets that are culturally and geographically close
Learning from experience reduces uncertainty
Initial entry is low risk, commitment increases with knowledge
What are the stages of the Uppsala model?
1) No regular export activity, firm operates only domestically
2) Export via agents, small scale exporting with local partners
3) Sales subsidiary, establishing an in market presence
4) Production/ manufacturing subsidiary, full scale investment in the foreign market
What are some criticisms of the Uppsala model?
Not applicable to all industries, high tech firms often expand rapidly
Ignores role of networks and partnerships in modern globalisation
Some firms enter multiple markets simultaneously (born globals)
What are Born Global firms?
Firms that internationalise from inception instead of gradually
Typically expand within first few years
They leverage technology, niche markets, and networks to grow globally
They challenge traditional models like Uppsala
What are the characteristics of Born Globals?
Niche market focus to serve specialised needs
Technology driven to enable global reach
Small but agile, iften SMEs but highly adaptable
Network and partnerships to overcome resource constraints
Provide an example of Born Global firm?
Spotify
Launched in multiple european countries early on
Is a digital product, and there is global demand for an internet based service
How does Knight et al. (2004) define Born Globals?
Firms internationalising within 3 years and having 25% or more of revenue from overseas markets, yet this 25% figure is dropped in later work
