Week 4 Flashcards
Aggregation definition
performing the same strategic activity across a diverse set of foreign markets.
Adaptation definition
modifying an existing business model to foster success in a foreign environment.
Learning definition
using knowledge from one market to improve one’s product or service.
Arbitrage definition
exploiting persistent differences between markets to create value.
Businesses operate in two environments simultaneously
Formal institutions definition
written in law and regulation and are legally enforceable. E.g., labor regulations, financial disclosure regulations, enforcement of legal contracts.
Informal institutions
exist as “standards of practice” and “rules of thumb” that are enforceable through the decision of potential partners to engage in transactions. E.g., Acceptable practice with respect to bonuses and pay differentials among employees.
Liberal Market Economies definition
Firms coordinate with other actors in the economy primarily through the mechanism of competitive markets characterized by relatively short term relationships and formal contracts.
Coordinated Market Economies definition
Firms coordinate through long-term strategic interaction. Institutional arrangements create a context in which credible long-term commitments are possible with regard to information, monitoring and enforcement between firms, unions and providers of financing.
Liberal Market Economies competitive advantage
fluidity of labor and capital markets as well as pressure to deliver short-term profits mean LMEs are better at creating radical innovation.
Coordinated Market Economies competitive advantage
incentives for long-term investment in capital and labor as and emphasis on “patient” return on investment favor incremental innovations that refine existing product categories. Emphasis is on quality.
Institutional complementarities among liberal and coordinated market economies
Institutional borrowing definition
A form of institutional arbitrage where a company in a country with weak or disadvantageous regulatory structure seeks “safe haven” in a country where regulations are stronger.
Example: Mexican companies listing on American stock exchanges to take advantage of stronger reporting requirements which make them a better target for investment.
