Lecture 2 - Why Internationalize? Theoretical Foundation Flashcards
describe the phenomenon of convergence
- The world’s needs and desires have been irrevocably homogenized
- The emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude.
—> Economies of scale in production, marketing, distribution and management - Global commonality
- Ancient differences in national tastes or modes of doing business disappear
what is the basis of competition in a global sense?
They compete on the basis of appropriate value—the best combinations of _______, _______ , _______ and _______ for products that are globally _______ with respect to design, function, and even fashion
price, quality, reliability, and delivery
globally identical
vindication of the model T:
If a company forces costs and prices down and pushes quality and reliability up—while maintaining reasonable concern for suitability— customers will prefer ____________________
customers will prefer its world-standardized products
T or F: The theory of Model T and preference of world products holds at this stage in the evolution of globalization
True
The theory holds at this stage in the evolution of globalization—no matter what conventional market research and even common sense may suggest about different national and regional tastes, preferences, needs, and institutions.
what are some practical lessons learned about global preferences?
- We cannot ignore shared similarities.
- A market segment in one country is seldom unique; it has close cousins everywhere precisely because technology has homogenized the globe
- Look for identical and similar customer segment across the world to gain economies of scale.
- In this sense you are standardizing.
describe the global corporation and what it knows and how it treats the world with regards to markets?
The global corporation knows everything about one great thing.
It knows about the absolute need to be competitive on a worldwide basis as well as nationally and seeks constantly to drive down prices by standardizing what it sells and how it operates.
It treats the world as composed of few standardized markets rather than many customized markets.
It actively seeks and vigorously works toward global convergence.
Its mission is modernity.
its mode is price competition, even when it sells top-of-the-line, high-end products.
It knows about the one great thing all nations and people have in common: scarcity-
what are the three special qualities of money
scarcity,
difficulty of acquisition, and
transience.
what are the kinds of areas where countries are fundamentally different and how can this create obstacles with regards to industries?
Countries are fundamentally different:
- culture,
- politics,
- geography,
- or other deep-seated institutional legacies
the same industries have dramatically different profitability in different countries.
what is an example of differences creating opportunities?
New Flavors to Offer the World and Tapp into Demand Side Scope Economies
The fact that Argentineans love a caramel spread called Dulce de Leche that is not eaten outside Latin America, allowed Haagen Daaz to develop a new flavor of ice cream that was successfully introduced around the world.
what are some global efficiencies?
- Economies of Scale
- Economies of Scope:
–> efficiencies formed by variety, not volume
describe the “better off” test
To justify its presence in more than one country, a firm must create some value from performing an activity in the new market or country.
What are the two values of the better off test
Value 1: Demand-Side Scope Economy
Leveraging something from its home country to the new market,
Example: More customers to sell to > $$$$
Value 2: Supply-Side Scope Economy
Exploiting or accessing something in the new market that is valuable in its home market.
Finding low-cost labor to lower expenses > $$$$
describe the ownership test (ie why does a firm justify being a multinational)?
- Identify the market failure that prevents efficient contracting between the parties in different countries
- International contracts are difficult to write:
– >The rule of law, a mutual trust in business relationships, and effective contract enforcement mechanisms are often missing or incomplete, in many countries.
– >If a firm is to compete in such countries, it will have to do so itself, or face enormous risks, such as the expropriation of its assets or the lack of effective recourse against partners that renege on contractual terms. - Whenever the asset is information whose value is transferred when it is revealed, contracts can be impossible to write.
–> Microsoft is loath to license its code to a Chinese firm to convert to Mandarin and sell in China.
what are some ways you are vulnerable because you are a foreigner? (ie some new types of costs) (8)
- Discriminatory regulations that favor local competitors
- Caps on foreign ownership
- Fees for new patents and trademarks
- Higher costs to be present in different geographical locations
- More tech pieces to deploy
- More and longer hours of work
- Lack of experience in negotiation with new suppliers > losses
- Lack of qualified suppliers > more investment needed.
describe the paradox of being consistent
This arises from what an expanding firm knows well.
- How to create and capture value in its home market.
- It reflects the fact that the firms with the greatest advantage in their home markets are also the firms most likely to fail when expanding abroad.
- Monkey and repeating the same business model and business strategy may NOT work!
– Case of McDonald in Malaysia
