Theme 1 Flashcards
Value Chain Analysis
Primary Activities
- Inbound Logistics
- Operations
- Outbound Logistics
- Marketing and Sales
- Service
Support Activities
- Firm Infrastructure
- Human Resource Management
- Technology Development
- Procurement
Boundary of the firm =
Boundary of the firm = what part of the value chain does the firm do, and what part does another firm do (outsource). You can outsource a lot (e.g. TNT can do your logistics, HRM can be done by Adecco). In international context this is even more interesting.
Outsourcing =
Outsourcing = turning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm.
- Offshore: outsourcing to a firm abroad.
- Onshore: outsourcing to a domestic firm.
IN CONTRAST TO: FDI
FDI: you set up subsidiaries abroad and the work done is “in-house” but the location is overseas.
Transnational corporations (TNCs)
Transnational corporations (TNCs) = are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates.
A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake.
Differences in factor endowments
Differences in factor endowments = the amount of land, labour, capital and entrepreneurship a country possess and can exploit for manufacturing) across borders will lead to international transactions, whether transfers of capital or goods.
- This is a strong assumption.
- Assumes it is not an organizational problem (at firm-level).
- Focused on capital mobility.
- Assumes more or less perfect markets.
Life Cycle of the International Product
Product Life Cycle (PLC)
- Country Level Analysis
- Introduction
- Growth
- Maturity
- Decline
- Main idea: manufacturing products evolve through a cycle of roughly 4 stages.
- Industrial changes may force firms to relocate activities to other countries.
country specific advantages (CSA):
• E.g. China has low labour costs
• USA has technology-related CSA
o The advantage is embedded in US firms
o To exploit such CSA, and transfer technology in foreign markets, US parents company create replicates (branch plants) in Canada and Western Europe.
Liability of Foreignness (LOF) =
+ factors contributing to LOF
= Costs of doing business abroad
Liability of Foreignness (LOF) = the aggregated effect of the firm’s interaction with all elements of the International Business Environment (IBE).
- LOF means not knowing the rules of the game of the local market. Costs of doing business abroad.
- LOF the fundamental assumption driving theories of MNEs (International theory, OLI Paradigm, Uppsala model)
- To overcome LOF, MNE’s need to provide foreign subsidiaries with FSAs (traditional view)
Factors contributing to LOF:
- Spatial Distance (travel, transportation, coordination costs).
- Unfamiliarity with local environment.
- Lack of legitimacy, discrimination faced by foreign firms (e.g. campaigns such as “buy local”).
- Restrictions from the home country
LOF is serious and hard to overcome. As a manager you need to monitor all these costs of doing business abroad
o Examples: cultural differences, political risk, foreign exchange risk, transportation costs, etc.
Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) =
an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor.
The investor’s purpose is to gain an effective voice in the management of the enterprise
- So FDI is not taken for financial reasons (making profit), but you want to have control of a foreign subsidiary, which allows you to engage in business activities in a foreign country.
- FDI is a firm level strategy decision rather than a capital-market financial decision.
There are 2 conditions for the existence of FDI (instead of trade):
There are 2 conditions for the existence of FDI (instead of trade):
- MNEs must possess a countervailing advantage over local firms.
- The market for selling this advantage must be imperfect.
MNEs possess firm-specific advantages (FSAs) that allow them to overcome liability of foreignness (LOF) i.e. ‘cost of doing business abroad’.
MNEs’ FSAs include:
- Product differentiation ability.
- Superior marketing and/or distribution skills.
- Brand names.
- Access to capital and/or raw material.
- Intangible assets, e.g. know-how, management skills, technology.
OLI
Stages Model / Uppsala Model
Resource-based view (RBV)
Firms performance is related to their sustainable competitive advantage at firm-level, which is the result of superiority in resources recombination vis-á-vis competitors.
VRIO:
V = Valuable? - NO? - Competitive disadvantage
R = Rare? - NO? - Competitive parity
I = Inimitable? - NO? - Temporary competitive advantage
O = Organized? - NO? - Unused competitive advantage
Institution-based view
- Period 1 (1980s): industry-based view
- Period 2 (1990s): resource-based view
- Period 3 (2000s): institution-based view
Institution-based view = Recognition that the (broader) context ‘matters’
Formal Rules & Informal Constraints
o Assumes actors will behave predictably and make (boundedly) rational choices: seeking rewards while trying to avoid sanctions.
o Institutions reduce uncertainty for different actors by conditioning the ruling norms of behaviours and defining the boundaries of what is legitimate.
Institutions: weak or strong
• Around the world there are differences in institutions, some are weaker, others are stronger.
Institutional weakness = means incentive structures are absent, arbitrary, or ambiguous.
o When you are engaging business in such places: this translated into unpredictability and thus risk.
Depends in part on whether society is rule-based or relationship-based:
o In rule-based settings, institutions are more transparent and predictable (to outsiders) than in relationship-based settings (who do you know; can be corrupt).
Institutional frameworks are very much heterogeneous around the world.
