Week 1: Theoretical Foundations

Question 1

What is an MNE?

How do they contribute to globalisation?

Answer 1

an MNE owns and controls value-creating activities in at least one other country than the home region and commonly uses FDI to do so

as a result of their activities, the world is becoming increasingly interconnected through e.g. GVCs

Question 2

What is Internationalisation?

Answer 2

The extension of economic activity across borders

Question 3

Internationalisation + _______ = globalisation

Answer 3

elements of functional integration

Question 4

Globalisation is a non-static process that…

Answer 4

observes integration of economic activity and regulations across countries

it also observes culture, technology and political dimensions

Question 5

Why do we need to understand globalisation? (4 points)

Answer 5

understanding globalisation allows understanding the very existence of MNEs and what room they have to manouvre in the international business world, how much they are affected by trends and the extent to which they need to adapt in foreign markets

Question 6

Name the three main debates around globalisation and their main concern.

Answer 6

Hyperglobalists vs sceptics - is globalisation real?
End of globalisation - is globalisation dead?
Consequences of globalisation - is globalisation good?

Question 7

Briefly elaborate on what hyperglobalists believe.

hyperglobalists vs sceptics

Answer 7

hyperglobalists believe that today’s economy is genuinely borderless and that information, capital and innovation flow all over the world at top speed, enabled by technology

They argue for global products, standardisation and homogenous consumer tastes (the world is flat)

Question 8

Briefly elaborate on what skeptics believe.

hyperglobalists vs sceptics

Answer 8

Sceptics believe globalisation is a myth and in certain aspects the world economny is less globalised than 120 years ago

They argue for enduring variation in national business systems (e.g., germany liberalised finance and labour regulations after the reunion) and regionalisation is what truly is hapening. Most trade and FDI happens inside the triads.

Question 9

Briefly elaborate on the discussion around the end of globalisation.

Answer 9

`this stream in academia argues whether globalisation is dead; it discusses the future of globalisation as a result of anti-globalisation movements, such as brexit or america first

some argue globalisation is just picking up pace now, while others argue recent events of increasing opposition hinders the globalisation process

Question 10

Briefly elaborate on the discussion of the consequences of globalisation.

Answer 10

this stream asks whether globalisation is good; it discusses whether or not globalisation is good for all parties involved or just a select few (MNEs might have power over governments by threatening to offshore, which cripples democracy)

also often argued is the negative environmental issues as well as instability and homogeneisation of cultures

Question 11

What are the two main pressures of globalisations MNEs need to respond to?

How do the pressures of globalisation differ for MNEs?

Answer 11

1) global integration, local responsiveness
2) pressures differ - some firms wont need to integrste global operations and may just control a network of a few standalone subsidiaries; others, such as automotive industries, have strong pressures of global integration and need to operate carefuylly coordinated value chains to reap the avantages of low cost locations as they face stronger global competition

simulatenously, companies may have to serve and react to local markets and adapt products to local demands - if they source inputs locally, their subsidiary network may not be as globally integrated

Question 12

Quickly explain the difference between global integration and local responsiveness.

Answer 12

global integration: the extent to which industry is globalised and the extent to which the country it operates in is part of the global economic system

local responsiveness: extent to which companies need to serve and react to local markets

Question 13

What are the four strategies firms can apply in response to pressures from local responsiveness and global integration?

Answer 13

1. global
2. international
3. multidomestic
4. transnational

Question 14

Global Value Chains can already be complex for MNEs to coordinate. What two factors/layers add to the complexity?

Answer 14

1. first layer of complexity of MNEs GVCs arise from geographic and organisational dispersion of business activities - GVC activities are not only distributed within the MNE network and boundaries (through subsidiaries) but also involve players outside the MNE boundaries (suppliers, universities, etc.)
2. Second layer of complexity is added through the fact that these players are also located in different locations around the world, which may create distance, high frictions and coordination costs

Question 15

What two sets of activities are portrayed on the global smiling curve?

Answer 15

1. production networks - lower value adding activities, such as logistics, production and distribution that are mainly reliant on tangible assets
2. innovation systems - higher value added activities, such as basic and applied R&D, design, marketing and brand management, sales, those largely dependent on intangible assets (innovation capabilities or brand power)

Question 16

How do MNEs organise their GVCs? What drives this decision?

Answer 16

key decision drivers according to transaction cost theory of MNEs depend on FSA (e.g., IKEAs strong brand association), CSA (e.g., Saudi Oil) and internalisation advantages (benefits associated to keeping acitivities within the firm, e.g., amazon buying whole foods to transform amazon from web-only to physical outputs)

Question 17

What three things do you need to keep in mind when thinking of the interaction between FSA, CSA and IA? (1 each)

Answer 17

These three factors are interdependent and cannot be considered in isolation because:
1. fsa are not only developed in the home country, but also in the foreign subsidiaries, which can then be transferred back home or within the network

2. csa (also in a specific host country) can contribute to the development of new FSA
3. IA depend on a company’s transactional FSA to operate in foreign subsidiaries

Question 18

Briefly explain what the transnational solution is.

Answer 18

simple case of an MNE in a home country, mirrored to its subsidiary in a host country; both child and parent have their own standalone FSA, routines and resource recombination abilities; both have individiual CSA in their own country of operation and both sides FSA interact with each other. CSA help the development of new FSA.

Question 19

What is the difference between location bound and non location bound FSA?

Answer 19

NLB-FSA: refers to advantages which are highly flexible and can be transferred from one lcoation to another within the MNE network at low marginal cost (e.g., unilevers brand power and recognition can be leveraged in more than one country); NLB-FSA lead to benefits of scale, scope or exploitastion of national differences

LB-FSA: refers to advantages that create value for a firm if deployed in a certain location and cannot be transferred across MNE networks (e.g., unilevers knowledge developed for local products), as it incorporates knowledge that cannot be deployed elsewhere; leads to benefits of national responsiveness but require significant costs and adaption to be used elsewhere

Question 20

How do NLB-FSA and LB-FSA relate to the transnational solution?

Answer 20

the transnational solution counts on the transfer of NLB-FSA in the MNE network, therefore, for such advantages NLB-FSAshould be developed for transnational MNEs while LB-FSA should be leveraged in the host environment for reasons of local responsiveness if need be.

Question 21

What are the two things you need to consider when formulating an international strategy?

Answer 21

1. how to organise international activities along the GVC
2. how to leverage differences across countries

• its not so much about becoming an MNE but about formulating a strategy for an MNE

Question 22

What is the difference between a multi-domestic and a global industry?

Answer 22

Multidomestic: competition is fragmented from country to country, so if a firm operates in two countries, the competitive strategies adopted in one market may not be successful in another (e.g., insurances)

Global industries: competition crosses borders and occurs on a world-wide basis - companies operating in the global industry should design their strategy to fit different markets served by the firm, since these tend to be highly connected (e.g., electronic consumer goods)

Question 23

What other framework can be used to determine international strategy?

Answer 23

AAA Framework - Ghemawat, 2008

Question 24

What does the AAA Framework stand for?

Answer 24

Adaptation
Aggregation
Arbitrage

Question 25

Explain the AAA Framework.

Answer 25

According to Ghemawat, there are three strategies for international activities – the first two suggest either adapting or overcoming differences across countries, the last one exploits differences between countries and their CSA.

1) adaptation - translates into local responsiveness
2) aggregation - aims to build economies of scale and scope
3) arbitrage - absolute specialisation scale (e.g., labour artibtrage)

Question 26

When should arbitrage be used?

Answer 26

When international activities are organised by function (e.g., HR, IT, Procurement) and allows for the creation of shared-service centers

Question 27

What positive impact can arbitrage have?

Answer 27

scholars have found a positive impact on productivity, capacity and internal customer satisfaction

Question 28

Under certain conditions, focussing on similarities may reduce the _____ for managers, while focussing on differences may increase the _______ as differences are developed from much deeper and broader sources.

Answer 28

choice set

set of solutions

Question 29

Bartlett and Goshal (1989) propose 4 other international strategies. What are they?

From what two factors are they derived?

Answer 29

global, transnational, international, multidomestic

low-high pressure for global integration
low-high pressure for local responsiveness

Question 30

Global Integration:
1) Global integration is driven by _____, structured by _____ and turns a firm into a _____.

2) Increased global competition forces MNEs to look for efficiency and economies of scale by ________ and to maintain low cost.
3) The main subsidiary role is to ….

Answer 30

1) globalisation, GVC, global factory
2) standardisation of products
3) implement parent decision and act as a pipeline of products and strategies

Question 31

Local Responsiveness:
1) although competition drives MNEs to look for similarities in countries in light of aggregation, they cannot ignore the differences across _____, _____, _____, _____ and _____.

2) companies need to adjust their products to…
3) countries that do so can be considered _______.

Answer 31

1) countries, consumer tastes (e.g., sugar intake), infrastructure, business practices, distribution channels
2) meet local demands
3) locally responsive

Question 32

Besides Global integration and local responsiveness, what other factors can an international strategic choice depend on?

Answer 32

the product offered and industry in which they operate

Question 33

Explain Bartlett & Goshals International Strategy.

Name a company that pursues such a strategy.

Answer 33

export-approach, some companies are globally recognisable and are suitable for exports - they face limited pressure to relocate value chain activities and limited pressures to adapt to local consumers

Apple /wine or beer

Question 34

Explain Bartlett & Goshals Multi-Domestic Strategy.

Name a company that pursues this strategy.

Answer 34

fast-moving consumer goods industries face strong pressures to be locally responsive; they offer different products in different markets, subsidiaries operate relatively autonomously and independently from HQs

Starbucks

Question 35

Explain Bartlett & Goshals Global Strategy.

Name a company that pursues this strategy.

Answer 35

similar/identical products anywhere (e.g., pharmaceuticals) in a tightly coordinated GVC

P&G/Pfizer

Question 36

Explain Bartlett & Goshals Transnational Strategy.

Name a company pursuing this strategy.

Answer 36

aims to macimise local responsiveness and gain benefits from global integration; interdependent and integrated networks of subsidiaries dispersed around the world - usually locally responsive in downstream activities e.g., marketing or sales

Nestle

Question 37

Can a firm be a mix of B&Gs typologies/strategies?

Answer 37

Yes, Ikea is a mix of global and transnational, doing much of sourcing in low-cost locations like Poland rather than Sweden, but maintaining most products similarly while adapting some to local consumer tastes.

McDonalds is a mix of an international and multi-domestic firm as it offers some identical products and adapts others to local taste.

Question 38

Which scholars offer a response to Bartlett and Goshals 4 typologies/strategies?

Answer 38

Rugman & Verbeke, 1992

Question 39

What do Rugman and Verbeke (1992) do to extend the B&G approach?

Answer 39

although its popular, the B&G framework still undergoes scrutiny and criticism. R&V aim to understand how compatible this framework is with different IB theories - the TCT and Internalisation theory

R&V argue that with some adjustment these existing theories are very much capable of explaining the differences between the types of international strategies. They say that what we need is a better differentiation between NLB- and LB FSA which would allow for an analysis of the B&G typology