MGMT 352 Chapter 10

why do firms expand internationally?

-gain access to a larger market -gain access to low-cost input factors -develop new competencies

what are the disadvantages of going global?

-liability of foreignness -loss of reputation -loss of intellectual property

CAGE distance framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance.

Foreign Direct Investment (FDI)

Investment made by a foreign company in the economy of another country.

multidomestic strategy

MNEs pursue this to attempt to maximize local responsiveness, hoping that local consumers will perceive their products or services as local ones. Arises out of the combination of high pressure for local responsiveness and low pressure for cost reductions. (NESTLE)

globalization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs. Globalization also allows companies to source supplies at lower costs, to learn new competencies, and to further differentiate products

Multinational Enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

international strategy

a strategy in which a company sells the same products or services in both domestic and foreign markets. It enables MNE's to leverage their home-based core competencies in foreign markets. It is advantageous when the MNE faces low pressures for both local responsiveness and cost reductions. Often used successfully by MNEs with relatively large domestic markets, strong reputation, and brand name. (ROLEX)

liability of foreignness

additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

death-of-distance hypothesis

assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

location economies

benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be

globalization hypothesis

consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

cultural distance

cultural disparity between an internationally expanding firm's home country and its targeted host country

Global Strategy

part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

global standardization strategy

strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost. arises out of the combination of high pressure for cost reductions and low pressure for local responsiveness (LENOVO - computers)

integration-responsiveness framework

strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally

transnational strategy

strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable). Used by MNEs going after the blue-ocean strategy

local responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements

national culture

the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society

national competitive advantage

world leadership in specific industries