W05: Why firms go abroad

Question 1

Multinational corporations

Answer 1

Firm that has at least one working affiliate in another country

1. MNC
2. TNC
3. MNE

Question 2

Liability of foreigness

Answer 2

CAGE perspective (disadvantages in all four dimension compared to local)

C: in achieving a local face, catering local preferences (design, standards)

A: host government discrimination against foreigness (regulations, national security concerns)

G: high transport cost, lack of required communication/ transportation

E: cost disadvantages (labor, managers), know-how disadvantages

–>Compensated through value adding activites

Question 3

Value add through…

Answer 3

Seeking new markets to leverage existing competitive advantages
- added value arises from introducing something from a firm’s home country in a new market

Seeking new sources of competitive advantage
- added value can also arise from accessing something in the new market that would be valuable in the domestic market

• Comparative Advantage leading to competitive advantage
  > relative efficiency in production
  > locate value chain activities there
  > smiling curve of the value chain

Question 4

AAA Framework

Answer 4

Trade-off from

Aggregation: Integrate activities around the world to develop global economies and scale and scope
–>Global Integration

Arbitrage: Integrate activities to take advantage of national differences in knowledge or cost
–>Global Integration

Adaptation: At the same time firm need to adapt to local rules, markets, and customer
–>Local responsiveness

Question 5

The right balance between localization and globalization

Answer 5

Globalization vs localization factors

• Global integration of value chain
• Adaptation of product and marketing
• Organizational centralization/ decentralization
• Market entry decision
• Integrated non-market strategy

Deeper look Slide 231

Question 6

Integration/ adaption framework

Answer 6

Slide 232, but should be known by now

Product Standardization vs Adaptation

Global Production Integration

Core idea: MNCs are subject to confkicting pressures for cross-border integration and local responsiveness while going abroad

Question 7

Matching global strategies to industry condition

Answer 7

Multinational corporation is defined by tradeoff between fragmenting pressures to respond to differences in the local environment and gains from integration across borders.

Advantages of multinationalism vs. liabilities of foreignness

–>Managing tension global integration vs. local responsiveness recurring management problem in sustaining competitive advantage in multinational context.

Question 8

Comparative advantage to competitive advantage

Answer 8

–>Comparative: a country is relative efficient in the production of certain products and activities

Global firms try to locate their value chain activities in those countries having a comparative advantage in these activities.

–>advantage by exploiting differences in country-level comparative advantage.

Question 9

Product Adaption vs. Standardization (Pros)

Answer 9

Product Standardization pro:

• ability to develop global brand name
• ability to centralize know-how and skills
• speed entering multiple markets

Product Adpation pros:

• able to better adapt to local preferences
• can fosters learning

Question 10

Global Integration (pro vs. con)

Answer 10

Pro:

• benefit from differences in comparative advantage
• increased bargaining power
• economies of scale in production
• global learning

Cons:

• maybe necessary to adjust/ adapt product to local tastes
• potentially high transportation costs
• potentially high import duties

Question 11

Transnational strategy

Answer 11

Attempts to adapt the product to local conditions while integration globally the production progess.