MIGE

Institutional Voids***

"The absence of specialized intermediaries, regulatory systems, and contract-enforcing mechanisms in emerging markets - "institutional voids".... - hampers the implementation of globalization strategies" (Khanna et al., 1997). "When there are voids in formal institutions, informal institutions become important in reducing uncertainty and enhancing trust and reliability between social and business actors" (Khanna, 1997; Peng, 2002). MNE's have three distinct choices: (i) adapt business model while maintaining core value proposition (ii) try to change the contexts (iii) stay out of the countries where adapting strategies may be uneconomical or impractical. (Khanna et al., 2005)

Contextual Intelligence related to institutional voids

"the capacity to exploit business moments and operational events in a way that enables to make informed decisions and take effective action in varied, changing and uncertain situations" (Geurts, 2014)

VRIO Framework

(Barney, 1991) Is it valuable /> competitive disadvantage; rare /> competitive parity, costly to imitate /> Temporary competitive advantage; organised to value capture /> Temporary competitive advantage. In order to understand the sources of competitive advantage firms are using many tools to analyze their external (Porter's 5 Forces, PEST analysis) and internal (Value Chain analysis, VRIO Framework) environments.

ARK Framework (How to win)

(Enright, 2002) A companies ability to recombine firms Activities Resouces and Knowledge to those at the location .. how to integrate the FSA to the LA of the host country. Once you successfully do so you create a competitive advantage

Absolute cost advantage

(Smith, 1776) If a country monopolies a large portion of market share within an industry

Resource Based View (Tripod)

(inward looking), e.g. business model canvas (Barney's RBV Theory & VRIO Framework) To transform a short-run competitive advantage into a sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile (Peteraf 1993) The resource-based view posits that FSA's differentiate successful firms from failing ones.

Institution Based View (Tripod)

(outward looking), e.g. Khanna & Palepu's Institutional Voids & Ghemawat's CAGE Distance Framework The institution-based view adds that IB need to take into account the influences of formal and informal rules of the game. (E.g. Japanese pharmaceutical industry vs car industry)

Industry Based View (Tripod)

(outward-looking), e.g. business environment map (Porters' Diamond & 5-forces Models) The industry-based view suggests that the strategic task is mainly to stake out a position that is less vulnerable relative to the five forces within an industry.

Porters Five Forces

- Entry Barriers: Economies of scale, Proprietary product differences and learning curve, Switching costs, capital requirements, Access to distribution and necessary inputs, Government policy, Expected retaliation. - Determinants of Supplier Power: Switching costs of suppliers, Presence of substitute inputs, Supplier concentration, Importance of volume to supplier, Threat of forward integration relative to threat of backward integration by firms in the industry. - Determinants of Buyer Power: Bargaining Leverage, Buyer concentration versus firm concentration, Buyer volume, Buyer switching costs relative to firm switching costs, Buyer information, Ability to backward integrate, Substitute products - Rivalry Determinants: Industry growth, Fixed (or storage) costs, Product differences, Brand identity, Switching costs, Diversity of competitors, Corporate stakes, Exit barriers - Determinants of Substitution Threats: Relative price performance of substitutes, Switching costs, Buyer propensity to substitute

Eclectic Paradigm Dunning 1980 (OLI theory) related to FDI

- O: Ownership advantages (or FSA's), e.g. ability to leverage firm's own resources & capabilities; trademark, production technique, entrepreneurial skills, returns to scale. - L: Location-specific advantages (LAs), e.g. raw materials, infrastructure, low wages, special taxes or tariffs. I: Internalization advantages (IAs), e.g. avoid "liability of foreignness" -> Domestic antitrust cases don't tend to succeed. FDI allows to bypass "jump over" antidumping barriers (Blonigen, 2002).

Q. I understand that the some IB scholars think that OLI theory doesn't explain EMNE internationalisation, hence the emergence of the LLL model, and the idea of dynamic capabilities and AAA theory etc. However, I was wondering how we relate Haier all of these theories?

1) OLI theory originally predicted that Ownership Advantage i.e. FSAs - the firm's own resources and capabilities - was a pre-condition of internationalization. However, researchers found that EMNEs (or late-comers) managed to internationalize without them through alliances with companies already possessing them (from which Mathews developed his LLL framework). Haier is a good example of this because it acquired much of its technical expertise (learning) in this way, developed links by initially supplying OEM to US manufacturers, and then leveraged itself into the US white goods market by its niche strategy and then internalized much of its supply chain providing a launch-pad from which to re-position itself as a direct competitor in the mainstream white goods market. Haier therefore developed its dynamic capabilities and acquired ownership advantages through internationalization, not as a precursor of it. You are correct in saying that such findings caused the validity of OLI theory in relation to EMNEs to be questioned by some IB scholars. 2) Wang et al. concluded from this that EMNEs should not expend vast resources trying to acquire Ownership Advantages (FSAs) prior to internationalizing, but emphasised the importance of focusing on LAs - Location Advantages (the L in OLI theory), also reflected in Porters' Diamond Model, i.e. the "industry-based view" of the IB strategy tripod. However, they also emphasised the importance of not neglecting the third leg of the IB strategy tripod (the institution-based view) which can also be related to locational factors (which Ghemawat's CAGE "distance" framework also addresses). EMNEs are often better than other MNEs at dealing with "institutional voids" because they invariably have experience of dealing with them in their home countries unlike most other MNEs (e.g. Talisman), so they often internationalize initially into other emerging economies where they have this comparative competitive advantage. Haier, however, targeted developed countries initially in order to acquire the knowledge and technical expertise (intangible resources & dynamic capabilities) it needed, and then internationalized more widely into emerging markets followed by restructuring to convert itself into a "dynamic network organization". From an IB strategy tripod perspective, Wang et al are therefore arguing that EMNEs can address the resource-based leg while internationalizing, but that industry-based and institution-based views are crucial to their decision about where to internationalize. This reflects the learning from our seminars 1-5 (i.e. that "where to play" depends largely on the suitability of the external business environment, whereas "how to win" requires internal dynamic capabilities (what Teece identifies as an ability to absorb/adapt/innovate; and what Ghemawat describes as an ability to adapt/aggregate/arbitrage) in order to develop (recombine) their FSAs. As you say, these theories are also compatible with Mathews' LLL framework.

Born Globals (contradicting PLC theory)

A born-global firm is a venture launched to exploit a global niche from the first day of its operations. E.g. Skype. Distinctive Characteristics of Born-Global Firms according to (Tanev, 2012): 1. High activity in international markets from or near the founding, 2. Limited financial and tangible resources, 3. Present across most industries, 4. Managers have a strong international outlook and international entrepreneurial orientation

Internalisation theory ***

A transaction conducted within the confines of a corporation rather than in the open market. Internalization can apply to a multinational corporation shifting assets between subsidiaries across borders. (Internal Sourcing) Internalization advantages (IAs), e.g. avoid "liability of foreignness" -> Domestic antitrust cases don't tend to succeed. FDI allows to bypass "jump over" antidumping barriers (Blonigen, 2002).

Cost Leadership

Achieving the lowest cost of operating within industry. E.g. by pursuing economies of scale, utilising proprietary tech, preferential access to raw materials. - Success of strategy dependant on commanding a price equal to or near industry avrg.

FDI

Can be measured by (i) Stock: the book value of foreign-owned firms (ii) Flow: the amount of FDI capital transferred by an MNE in a given period (e.g. a year)

Resource Dependance Theory

Concerned with how organisational behaviour is affected by external resources; its important because a companies success and ability to gather alter and exploit raw materials faster and before its competitors is fundamental to its success and development of market share and growth (Pfeffer et al., 2003)

CAGE Distance Framework

Cultural: language, ethics norms Administrative: trading block, legal system, currency, technical expertise Geographic: proximity, accessibility Economic: markets ppp, access to natural financial human resources (Ghemawat)

Dynamic Capabilities *** related to RBV (Resource Based View)

Dynamic capability is "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments" (Teece, 1997). Include ability to be (i) Absorptive - learning capacity (ii) Adaptive - (re)targeting customer segment (iii) Innovative - new product/service

Task Environment

External environment which affects ability to reach business goals: e.g. competitors, consumers (material/labour) suppliers. (related to Porters 5 Forces)

PLC Theory related to FDI ***

FDI flows to developed countries for innovation and from developed countries as products evolve from innovation to mass-production (to obtain cheaper resources (factors of production) and hence maintain profitability). (Levy 1995)

Porters Diamond

Factor conditions concern availability and accessibility to inputs e.g. capital, raw materials, labour, that it may need to operate in the host country. Demand conditions: scale and scope of the domestic market that IB will access. Related and supporting industries concern the hospitability of the country to FDI and the availability of business partners, suppliers, intermediaries, etc. Structure of firms and their rivalry concerns the relative positioning of competitors in the host country market, and the intensity of competition that the firm will encounter. These four dimensions can be used by IB to assess the attractiveness of their prospective host country business environments (i.e. LA). The four dimensions are interrelated, they're influenced by the others. For example, demand conditions also influence the firm's competitors (rivalry), and factor conditions affect the number and type of related and supporting industries. Also recognises influence of "chance" and "government".

Factor Conditions

Factors developed by a country: large pool of skilled labour (e.g. Japan and Singapore), technical innovation, infrastructure, and capital.

Ghemawat's "AAA" Global Strategy Framework (related to monopolisation theory) and Institution based view

Global value creation via (i) Adaptation strategies: changing one or more elements of a company's offer to meet local requirements or preferences. (ii) Aggregation strategies: The key is to identify ways of introducing economies of scale and scope into the global business model without compromising local responsiveness. (iii) Arbitrage: exploiting economic differences between national or regional markets, usually by locating separate parts of the supply chain in different places; buy low in one market and sell high in another.

Bounded Rationality (due to failure of addressing tripod)***

Inadequate knowledge or Inability to process complex information - cognitively complex individuals have superior information processing capabilities that may translate into superior managerial capabilities of firms operating in the global arena. Implication for MNEs (Maitland & Sammartino, 2015): -> "decision maker's [manager's] personal frame of reference, not the objective characteristics of the situation, becomes the basis for action" (Hambrick, 1996) (Nespresso: China to Japan experience)

2. What do the 3 legitimate CSR motives tell us?

Legitimacy theory argues that companies need to have socially acceptable (i.e. legitimate) motives for engaging in CSR (so NOT using CSR to cover-up or deflect attention from unethical behaviour as Talisman did). Husted & Salazar suggest 3 legitimate motives for CSR: coerced (e.g. to comply with the law); altruistic (e.g. philanthropy); and strategic (e.g. to create customer/firm value). You may notice some similarity to the three dimensions of institutional theory (regulative - how the law requires us to act; normative - how we should act; and cognitive - how we rationalise our actions). CSR initiatives tend to focus on the normative dimension but their impact is limited without commensurate shits in the other two dimensions (e.g. the sustainable development levy now being imposed on international businesses in India; and sustainability thinking, associated with a global/cosmopolitan mindset). Many companies sadly use CSR initiatives in order to divert public attention from their misconduct (e.g. VW 'dieselgate') - this is often described as "greenwashing". Talisman used their CSR initiatives to try and defend their complicity in human rights abuses, but it's clear that their claimed commitment to CSR was seriously flawed (hence the conclusion that their CSR FSAs were, at best, inadequate or inappropriate, and Talisman themselves admitted that they did not have the necessary capabilities/resources to remedy this). The seminar slides cover all these points in more depth.

Monopolization theory related to FDI

MNEs exploit their superior FSAs and LAs in overseas markets through FDI to establish local operations that achieve efficiency-gains and cost-saving, e.g. by means of Adaptation, Aggregation and Arbitrage (e.g CS of Louisiana vs Chinese crawfish growers - related to antidumping entry barriers).

Business Model Innovation

One example of successful business model innovation is changes made by Apple beginning in the early 2000s. Apple's introduction of products and services such as the iPod, iPhone and iTunes expanded the company's offerings beyond the desktop computer market. --> This relates to the Ansoff Matrix for differentiation

Business Model Canvas

Partners, activities, Resources, propositions, customer relation, channel, segments, cost structure, revenue streams

LLL Framework (complimentary to OLI)

Proposed by Mathews (2006) Linkage: focus on resources, which can be acquired externally Leverage: Establishing networks of resource exchange and exploitation can leverage the linkages between resources and competitive advantages Learning: Learn from JV's

What is the difference between the Resource-based View (RBV) and the Resource Advantage (R-A) Theory?

The Resource-based View is attributed to Barney (2001), from whose paper you will see that the focus is on Firm Specific Advantages (FSAs) which are much the same thing as "Ownership" advantages (from the OLI/eclectic paradigm), this is an "outside in" view concerning how a company can uniquely bundle (reconfigure/recombine) its own FSAs: resources and capabilities (e.g. dynamic capabilities), to achieve/maintain a competitive advantage. The Resource Advantage theory of Hunt & Morgan is more in-line with the OLI/eclectic paradigm since it combines both an "outside in" view (RBV/FSAs: Ownership advantages) with an "inside-out" view which it describes as "market oriented" but which the IB tripod defines as an "industry-based" view (i.e. LAs: Location Advantages), as reflected in Porter's Diamond Model.

Upssala Model related to conventional entry model evolution

The Uppsala Internationalization Model distinguishes four different steps of entering an international market, which cannot be viewed independently of a company's situation, market and the market knowledge. Step 1: No regular export activities (sporadic export). Step 2: Export via independent representative (export mode). Step 3: Establishment of a foreign sales subsidiary. Step 4: Foreign production /manufacturing. (Hollensen 2007) (interdependence of market knowledge and market commitment) Limitations: fail to consider franchising, licensing and strategic alliance.

Resource advantage theory (Hunt and Morgan, 1995)

Theory of (describes the process) competition; explains firm diversity, financial performance diversity, also helps depict differences in quality, innovation and productivity between competing firms. Whoever can adapt their FSA to their LA better wins.

Steenkamp (2014) 4V

Value brand Value Sources Value Deliveries Value Outcomes

liability of foreignness

additional costs that a firm operating in a market overseas incurs, which a local firm would not (Hymer, 1976)

Industrial symbiosis

gov helps corporations to create the competitive pricing which links to institution based view. China CS: Culture of collectivism (taken from Schwartz' theory of cultural values, 2005) Chinese Gov support its own industries and made special economic zone which, though it went against communist ideology, opened up their market to FDI