Why firms internationalize Flashcards
international business
consists of all commercial transaction that take place between two or more countries
7 forces drive globalization
- increase in appliction of technology
- liberalization of cross border trade and resource movement
- development of services that support international business
- growth of consumer pressures
- increase in global competition
- changes in political situation and government policies
- expansion of cross-national cooperation
why do firm internationalize
- seeking markets
- seeking resources
- diversifying/ reducing risk
- learning (acquiring, transferring, applying knowledge)
seek market advantage
large size and economies of scale
lower input cost due to large size
scale economies in shipment, distribution and promotion
access to low cost financing
seek resources
ability to access raw materials overseas
ability to shift production overseas
reduce risk
financial flexibility
ability to shift production overseas
learn
information advantages
managerial experience and expertise
MNC advantages (8)
1.superior tech, marketing, resource extraction
2.ability to leverage existing reputation, brand image
3.large size & scale economies: increases bargaining power,
cover high fixed cost in capital intensive.
lower input costs.
logistics, distribution.
lower credit risk .
4. managerial experience
5. ability to locate raw materials/ production facilities
6. tax inversion
7. information advantages
8. risk diversification
tax inversion
firms move to country where corporate income taxes are low or nonexistent
bermuda was the destination
ireland is now the go to
liability of foreigness
cost that MNC has to face compare to domestic firms
domestic firms have advantage of lower CAGE distance and knowledge to local market
internalization theory of internationalization: general
firms internalixes activites under commone owneship when transaction costs of coordinating through the market are too high
internalization theory of internationalization: pre WWII
firms involved in multi-stage production proccess–> each component is separately owned
incentive to internalize value chaain through veritcal integration under common ownership
less transaction cost and risk of oportunism by other firms
internalization theory of internationalization: post-world war II
firms with IP–> uncertainty with licensing and skills (IP leakes, high transaction cost)
incentive to internalize application of brank and marketing across multiple products
horizontal scope: diversifying by applying IP, brand & skills across product markets
internalization theory of internationalization: post 2000
firms with network platforms: risk IP leaks, buyer uncertainty
incentive to internalize ownership and application of network platform across multiple markets
network effects
greater number of users/ buyers the higher value to each user
learning model
initially no regular export
export via third parties
estabilishment of own foreign production facilities
born global
entrepenurial vision
mobile knowledge- intensive resources
network platform
non- equity
exporting licensing franchising contract manufacturing managment contract turnkey operation strategic alliance (somtimes lead to acquisition)
equity
equity alliance (minority stake in alliance partner)
joint venture
wholly-owned subsidaries
(acquisition vs. greenfield)
choice of entry mode if firm has low experience or low resources
exporting, leasing, licensing, management contract, contrac manufacturing, strategic alliance
choice of entry for learning goals
strategic alliance equity alliance joint venture management contract licensing
choice of entry mode if firms has distinctive competencies
technological
wholly owned subsidary is prefered over licensing, strategic alliance and joint venture
choice of entry mode if firms has management competency
franchising, licensing, management contract, joint venture, equity alliance, wholly owned subsidary
choice of entry mode if firm need control
wholly-owned subsidary
greenfield investment
build new facilities
appropriability
capacity of firm to retain for itself the added value it creates
denying rivals access to resources
reduce IP leaks that are possible in alliances/ joint ventures
strategic alliance
business arrangement in which two or more firms choose to cooperate for their mutual benefit
joint venture
arrangement in which two or more firm set up another entity
jointly owned subsidary firm, for a common purpose
equity alliance
business arrangement in which cooperating company takes an equity postion (usually minority)
used to solidify alliance or supplier and buyer relationship
joint venture advantage
benefit from partner’s knowledge
shared costs/risks with partner
reduced political risk
joint venture disadvantages
risk giving control of techology to partner
may not realize experience curve or location economies
shared ownership& divergent goals can lead to conflict
