Week 8

Question 1

3 main categories of entry modes in a foreign market:

Answer 1

Exporting, strategic alliances (done by franchising, licensing, or joint ventures), and foreign investments (done by acquisition or greenfield).

Question 2

Exporting:

Answer 2

Resource commitment and control: low.

Home-based international trade activities, i.e., selling products/services to foreign countries.

Least resource-intensive and the least expensive.

Usually works through contractual agreements.
High transaction costs, sensitive to tariffs.

Question 3

Licensing (strategic alliance):

Answer 3

Also inexpensive. Foreign partner takes on all risks/benefits of production and sales. Uses the licensor’s product.

High risk of opportunistic behavior from the licensee as they have more control over licensor.

Question 4

Franchising (strategic alliance):

Answer 4

Relatively less expensive way to enter a foreign market, but has slightly more control than licensing. Allows to use another company to use an entire or a part of a business system in exchange for compensation.

Predefined marketing, distribution, and production. Lowering the risk of opportunistic behavior.

Question 5

Joint venture (strategic alliance):

Answer 5

More intense in terms of cooperation with local partners. Opportunity for both firms, as they share risks as well as resources, which helps to develop core competencies.

High risk of conflict and incompatibility.

Question 6

Acquisition (foreign investment):

Answer 6

This is done by directly investing to purchase an existing company or a facility which helps the company to enter the market.

Can make integration difficult. Reasons: complexity of negotiations and transaction, high cost, and the possible hostility of local market and government.

Question 7

Greenfields (foreign investment):

Answer 7

Investment to build new manufacturing, marketing, or administrative facilities instead of acquiring existing ones. The most expensive mode.

High complexity, the highest potential profit and risk, and offers the most control.

Question 8

Choice of entry mode:

Answer 8

Two factors influence which choice to make: company-specific international experience, and the local circumstances of the foreign market environment.

Typically firms in the early stags of international expansion use exporting and alliance-based foreign entry modes. If local market uncertainty is high firms use joint ventures.

When there is a need for strong control (poor protection of intellectual property), companies tend to make foreign direct investments.

Question 9

Globalization and business:

Answer 9

Globalisation has enabled much faster transportation, communication and decreased the cost of transportation and communication systems.

Question 10

Global strategy:

Answer 10

Global strategy is a strategy that views the world as a “single, if segmented, market”. To able to minimise redundancy and maximise efficiency, integration, and learning companies try to gain a substantial control over operations.

Question 11

Global strategy benefits:

Answer 11

Economies of scale and replication, serving global customers, learning benefits, and springboarding.

Question 12

Economies of scale and replication (benefit):

Answer 12

With knowledge-based resource, it is easier and takes less time to expand it.
Developing such resources and replicating them helps to achieve economies of scale in the development of their products.

Question 13

Serving global customers:

Answer 13

Certain services (audit, banking, advertising) want to globalise mainly because their clients operate globally and they want to be able to serve them.

Question 14

Learning benefits:

Answer 14

Knowledge not only runs from the parent company to subsidiaries (parent advantage), but also from local firms to the parent company.

Question 15

Springboarding:

Answer 15

Connected to processes, behavior, and motivations of multinational corporations that are from emerging economies and expand into developed countries.
These companies use international activities to systematically be able to obtain resources, speed up learning and gain more scope, and to be less sensitive to market and institutional constraints in their home market.

Question 16

CAGE framework:

Answer 16

Managers should always be conscious of all dimensions of distance. It divides distance into 4 dimensions: Cultural, Administrative/political, geographical, and economic distance.

CAGE benefits:
1) Increases awareness for multiple dimensions of distance
2) Identifies specific differences handicapping MNCs compared to local competition
3) Explains why certain firms are better than others (geographical scope)
4) Helps determine countries that offer more attractive opportunities.

Question 17

Cultural distance (CAGE):

Answer 17

Describes the difference in beliefs, social norms, race, and language and it states that these type of differences lead to cultural distance between two countries.

Question 18

Administrative distance:

Answer 18

When countries do not share a common history or made conscious choices such as FDI restrictions against another country. Because of this, the administrative systems between countries can differ a lot.

Question 19

Geographical distance:

Answer 19

The real physical distance between countries which makes it difficult for companies to do business, mostly when the countries are far away from each other.

Question 20

Economic distance:

Answer 20

difference of wealth and income of consumers. MNC companies exploit poorer country’s resources and labour. Nowadays, MNC try to avoid this.

Question 21

Integration vs. responsiveness:

Answer 21

Companies choose between integration or responsiveness strategy.
Economies of scale and heterogeneity are the two trade-offs.

Firms should aim to find balance between global integration and local responsiveness.

Question 22

MNC (multinational corporation):

Answer 22

A company that uses its capabilities and resources in the production, distribution, and procurement of goods in 2 or more countries.

Multinational federations - subsidiaries of MNCs that were highly autonomous in the early 20th century.

Coordinated federations - US companies after ww2, where resources and capabilities in the US, but with a lot of autonomy for subsidiaries.

Centralized hubs: Japanese companies in 1970s and 1980s, concentrated r&d and production in Japan. Subsidiaries focused sales, service, and distribution. Enormous cost and quality benefits.

Long lasting effects:
Europe - adapting to local conditions;
US- Top-down transfer of tech and products
Japan - efficiency of global operations and quality.

Question 23

Transnational corporation:

Answer 23

focuses on both integration and responsiveness strategy. Two roles:
Coordination and integration of subsidiaries to achieve a shared strategy.
The flow of tech, people, materials, and finances between independent subsidiaries.

Relationship between subsidiaries.

Question 24

Decisions affected by distance in CAGE:

Answer 24

Internationalization - is a process where firms go abroad to seek new markets/resources. Host country and entry mode selection.

marketing strategy - Differently perceived by consumers in different countries. Product promotion strategy and distribution channel choice.

governance - focused on how the company works internally. Management team composition - the more diverse company, the more diverse the management team should be. Headquarters relocation.

Question 25

Integration responsiveness grid:

Answer 25

A tool that states that internationally active companies must choose an organizational structure that matches their business model. Focuses on the importance of decentralized learning and states that the key to global competitiveness is gaining new localized knowledge.

The grid:
Y axis - Global integration (must capitalise on this criteria in the following ways: economies of scale, global quality standards, strong panting advantage, interdependence of business units, intra-company sourcing)

X-axis - Local responsiveness (must be responsive in: Consumer goods, Local variations on tase, Demand for modified products, Locally adapted marketing, Closeness of r&d to end user).

Question 26

Strategies of Integration-responsiveness grid:

Answer 26

International strategy - low integration/low responsiveness (not viable).

Global strategy - high integration/low responsiveness.

Multi-domestic strategy - low integration/high responsiveness.

Transnational strategy - high integration/high responsiveness. Each national unit seen as a source of learning, skills and capabilities.