International Business
Caroll's Responsibilities
Economic (be profitable) Legal (obey laws) Ethical (do what is right and fair) Philanthropic (be a good citizen)
Transaction exposure
Wechselkursrisiken bei einzelnen Geschäften, The risk that a firm could suffer economic loss or experience economic gain upon settlement of individual transactions as a result of change in foreign exchange rates
Most important aspects of enter a new country
o 61% market size o 17% political and economic stability o 13% structural institutional conditions
David Arnold
o An MNE should maintain their relationships with local distributors over the long term, even after having established their own local network • the local distributors complementary (ergänzende) capabilities are in that case substitutes (Vertretungen) for developing new, location-bound FSAs that are required to access the host country market in cases where market success is highly uncertain
3 options for managers when entering a new market
o Change emerging economy's institutions and apply uniform business model o Accept institutional aspects and adapt business model o Stay out of emerging economies
Concepts of CSR
o Corporate social responsibility - emphasizes obligation and accountability to society o Corporate social responsiveness - emphasizes action and activity o Corporate social performance - emphasizes outcomes and results
Critique on Ferdow
o Ferdows believes that management should upgrade all factories; that is not necessarily true. o Ferdows underestimates the value of low cost (highly efficient) factories in host countries. This may still be important. o The choice for permanent offshoring can be a good one if the firm's FSA is the capability to flexibly offshore activities.
Limitations of Kuemmerl's models
o Ignores tension between host country lab(s) and central headquater lab in setting the research agenda: subsidiaries managers versus central Top management team, e.g. are R&D initiatives of subsidiary in line with overall corporate strategy? o He does not include the possibility of a JV or a SA as options to tap into foreign country's knowledge o Hidden (and rising) costs of offshoring
Dunn and Yamashita
o MNEs can engage in initiatives that not only benefit their stakeholders, but also fulfil the firm's "corporate citizenship obligations" to the society o Kunden werden mit Produkten befriedigt und mit zB Produktionsmethoden zufrieden gestellt o successful business means positive CSR outcomes
Barlett and Goshal
o MNEs making a mistake by adopting to the two simplifying strategies of homogenization and centralization o offer a model that helps manager to differentiate among their subsidiaries and decide which subsidiary should do more than only implement the centrally determined strategy
Ghemawat (Talking about Distance), CRITIQUE
o Macro level distance, does not always hold for all firms (distance for one firm ≠ distance for all firms) o A firm's FSA can be that it is able to deal with these distances o Impact of distance differs for each part of the value chain o Assumption that FSAs are developed in the home market, but firms may also develop FSA in a host country o No discussion of cooperative entry modes (like joint ventures or strategic alliance) and how they may help to reduce distance (because they are complementary resources)
Centralized Exporter
o Market Seeker o standardized products • FSA=final product o manufacturing at home o home-country managed o only minor activities abroad that create value o focus on economies of scale&scope
Why do firms go to emerging markets?
o Market seeking: home markets and other developed markets saturated, new markets that are developing rapidly (China, India) o Efficiency seeking: these markets may be developing rapidly, but still relatively cheap to produce locally.
Home base augmenting site (Kuemmerle)
• should be located in critical knowledge clusters relevant to the MNEs business activities • gets information in the local, host areas and sends it back to the central lab • the key challenge for HBA is to get access to local knowledge and to be able to use it while not being an insider (that is really difficult) → try to strenghten the ties with local community (nice example p. 189 top) à but also make sure knowledge is useable and relevant for manufacturing operations
United Nations Model (by B&G)
• treat each subsidiary in the same way in terms of roles, responsibilities, coordination and control systems • each subsidiary is completely independent (like multi-centred MNE) • or is complete dependent like the centralized exporter of the international projector • there is only little need for uniformity and symmetry among the different units
Implementer
• weaker specialized resources compared to black hole • located in a more or less unimportant market concerning long term survival, growth and profitability • most MNE subsidiaries are in this category • often the key to firm's overall success • steady stream of cash flow, may build competitive advantage
Porter and van der Linde, Approaches
•the authors favour the first approach o resource productivity approach • embedding new environmental initiatives in the production system o pollution control approach • dealing in new ways with the produced waste
How to overcome costs associated with distance?
with internal strengths, namely: technological, marketing or administrative knowledge
Headquarter Hierachy Syndrome Model (B&G)
• senior management views the organization as consisting out of two distinct levels (one dominant and one subordinated) • dominant= control key decision making process and overall company resources in order to implement a consistent (bestehende) global strategy o BUT: unimportant things are treated in the same way as important ones • subordinate= all national subsidiaries are subordinated and do only act as implementers and adapters of the global strategy in their locations o no escape from the implementer role is possible
Home base exploiting site (Kuemmerle)
• should be located close to key markets • receives information from the central lab in the home country and adapt its products to local demands • the key challenge for HBE is to overcome the distance and to manage the information flow, the solution is to take managers that know the central lab as well as the firm and the foreign lab
Ferdow's Factory roles
o Offshore Factory: access to low cost production o Source Factory: similar to Offshore, gain access to low cost production on the input side but gets more resources for development of FSAs → might become a strategic leader o Server Factory: manufacture goods and supply them to the national or regional markets o Contributor Factory: orientation towards host country outpost market, similar to the Sever but more resource combination o Outpost Factory: gather information (like Black Hole) o Leader Factory: resource combination & FSA development
Verbeke: Firms must develop unique resources
o Physical resources (natural resources, buildings, equipment) o Financial resources (equity, capital) oHuman resources (individuals, teams, entrepreneurial unternehmerisch skills, operational betrieblich skills)
CSR (started in 1950's)
o The impact of a company's actions on society o Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system o Many interpretations exist o may lead to new FSAs • "There is no such thing as business ethics....There's just ethics; and we all have to practice them every day in everything we do." - Peter Drucker
Costs" of an SA
o The own FSAs could be appropriate for the alliance partner → so important to develop safeguards against knowledge flows o learning race -> risky: o dysfunctional knowledge sharing: bounded reliability (each partner tries to learn as much as possible, but to contribute as little as possible) o managers may pay too much attention to the learning race and forget about the goal of the SA in the first place o If the MNE has too many SAs, this reduces coherence and increases management problems
Verbeke's Unique Resources
o Upstream knowledge (product and process-related technological knowledge) o Downstream knowledge (marketing, sales, distribution and after sales service) o Administrative knowledge (organizational structure, culture and systems) o Reputational resources (brand names, reputation for honest business dealings)
Vachani and Smith
o ability of the MNE to drop prices o different strategies how to do so: • donate product • out license product, so make product in the country where the product is needed possible • differentiated pricing, offer the same product with different prices in different countries
Hart & Milstein
o advocate global sustainability strategies o three types of economies • developed= advanced infrastructure, one billion wealthy customers • emerging= minimal purchasing power, two billion people • survival= three billion potential customers, most individuals have unmet basic need o managers are always able to improve
FDI
o allocation of resource bundles by an MNE in a host country with the purpose of performing business activities over which the MNE retains strategic control in that country o MNE should only do FDI if the host country has a really big advantage compared to the home country o Ausländer investieren Geld im Ausland anstatt im Inland (z.B. ein Deutscher der in Deutschland lebt eröffnet ein Museum in Moskau)
Benefits of SA
o allow firms to share costs&risks o firms can get benefits from their partner's complementary resources o quicker development of capabilities for delivering products and services
Porter's Diamond Explanation
o an MNEs long term competitiveness results from home-base pressure, which then forces the company to innovate and improve productivity • a nations competitiveness depends on the capacity of its industry to innovate and upgrade • companies have actually benefits when having strong competitors at home, due to the fact that they're also getting better in doing business o FSAs are developed to face external pressure o Companies shouldn't trust in abundance (Überfluss) of raw materials, low labour costs and large domestic markets or favourable exchange rates. If they only think this way, just short-term advantages will be possible. o The characteristics of the home base play a central role in explaining the international competitiveness of the firm
A core competency should
o be difficult to imitate o provide potential access to a wide variety of markets o make a significant contribution to the perceived value customer benefits of the end product o the loss of a core competency would have a large negative effect, especially on satisfying the stakeh. objectives, but the negative effect might also influence the company's performance and value creation
Cultural Distance
o differences in national cultural attributes such as language, religious beliefs, social manners and race
Administrative (institutional) Distance
o differences in societal institutions • can be lowered if two or more countries share a common history, have political ties, synchronized policies, are engaged in the same efforts towards economic and monetary integration or preferential trading arrangements
Economic Distance
o distances in consumer wealth (Wohlstand), income level and distribution, infrastructure characteristics, costs and quality of resources (natural, financial & human), different business practices
Economic Exposure
o economic exposure: impact of changes in real exchange rates (Abweichungen des Wechselkurses) o May result in negative effects on the MNE's income compared to its rivals o Adds uncertainty to the value of a firm's location advantages o MNEs are active in multiple countries and need to look at their overall economic exposure; not just in one country, but the overall risk (country diversification)
Locations advantages in home country
o favourable location o superior educational system o the location advantages can be spread out geographically, but still giving the same possibilities, although location advantages can be just for one part of a country o if your location is near to a border, this might be an advantage o it can be motivating for firms to work in a specific environment
Jack Welsch
o firms should only be active in a business in which they can be the world's number 1 or 2 in terms of size → they should leave businesses in which they cannot achieve that goal →Ghemawat&Ghadar say that this approach is inappropriate
Kolk & Pinske
o focus on strategies that firms can use to mitigate (abschwächen) their impact on climate change o flexible public policies o innovation (new FSA development) o compensation (transfer emmions, generating activities)
Locke and Romis
o improvements of labour standards o collaboration instead of attacking the suppliers o monitoring (but is it possible to get useful information in developing countries) o different systems of work organizing and human resource management is the key variable in working conditions o Generation 3: MNE supports the FSA development of their suppliers
Bounded rationality
o information problems (incomplete information & difficulties with processing the information that exists) • no good access to information's to guide decision making processes or to fulfil managerial actions • limited capability to process complex information bundles • problems in determining if issues are relevant to the firm and therefore the problem to decide if an issue might influence the firms strategy Bounded rationality is about the imperfect assessment of a present of future state of a thing, which might lead to incorrect beliefs.
International Projector
o knowledge is developed in the home country o internationally transferable FSAs are taken to host country • essentially, home operations are copied (Disney) o systematic and continuous transfer of tacit knowledge is required o no development of location bound FSA in host country o manufacturing takes place in the host country o focus on economies of scale&scope o no new FSA development
Beachhead Strategy
o low risk, low investment o the MNE just wants to see what could be achieved o in cases that there might be a potential success, the MNE wants to stay longer but in reality, investments are not made for the long term • this is why the local distributor often thinks the MNE is unreliable
Kuemmerle
o many MNEs decentralise their R&D activities by building up worldwide networks of R&D labs (Offshoring)
Herifindhal Index
o measure of market share concentration if its smaller or equal to 1
Bounded reliability
o people are not always reliable • firm should provide protect mechanisms, sometimes the company needs to force people or give punishments • opportunism (Einstellung, bei der man seine Meinungen o. Ä. sehr schnell mit den einzelnen Situationen und der Meinung anderer ändert, um Vorteile zu haben) → self interest behaviour • benevolent preference reversal = people change their opinion over the time, which might be negatively for the company Bounded reliability is about the imperfect effort towards pre-specified (vorgegebenen) goals achievements, thereby leading to incomplete fulfilments or promises.
Quelch & Klein
o perspectives and possibilities offered by the Internet o price reduction due to online sales o Internet reduces bounded rationality problem o they advocate single websites for each brand name o it might be a growth factor for firms that are acting as international projector
Geographic Distance
o physical distance between two countries, concerned to the issue of transport o low distance is given if two countries have a common border or easy access is given by an ocean/river o high distance if given if the company's are for example located on two different continents and if the climate is completely different o distance can be lowered by the creation of efficient transportation methods and communication linkages
Porter and van der Linde, Theories
o regulations made by the governments force companies to come up with innovative ways of using resources • this leads to green FSAs because the competitiveness is enhanced → if companies wouldn't develop new FSAs, customers might start to only buy their products at firms that produce in a green way
Theory of comparative advantages
o specific production activities will become concentrated in countries with advantages o the theory predicts the geographic concentration of production, not the number of companies in one industry
International Coordinator
o specific value adding activities o vertical value chain across borders o manufacturing takes place in most efficient locations o main FSA is the ability to coordinate location advantages that are present in different countries o efficiency seeking (example: NIKE) o global value chain o focus on arbitrage o all locations are linked o development of location bound FSA
Location bound FSAs
o stand alone resources: immobile (unbewegliche) things like stores or suppliers o resources with different values in different countries, for example brand names and knowledge about marketing o local best practices (routines) may be seen in different ways in different countries o domestic recombination capability
Levitt
o standardize products and services worldwide o implement global strategies o people have homogenized needs and desires o most customers want low prices, high quality and high reliability o the customers taste is not fix, this is why the customer is willing to make exceptions when the products has a low price, high quality & high reliability o due to the fact that tastes get closer to each other all around the world, companies have the chance to offer globally and standardized products
Emerging Markets
o still low levels of development, high growth figures, but also associated with high volatility (Unbeständigkeit) → hence risky o High levels of corruption, low levels of trust, difficult to do business, networking is very important (but bribery...??)
Low hanging fruit strategy
o the MNE sells their core products to the distributor's existing customer base
Ghemawat & Ghadar abour M&As
o the main aim of a M&A is that companies can reach a much wider geographic region than that reached by each partner individually o idea that global merger and acquistion transactions usually don't make economic sense o several management biases lead to ineffiecient M&As o a general belief exists in many industries that increasing internationalization will lead to industry consolidations whereby only a large few firms will survive
Prahalad & Hamel
o the main strategy of a company should be to build up or to acquire core competencies o management should rethink the concept of diversified firm seeking leadership o core competencies may also differ within an industry o shared knowledge, abilitiy to integrate multiple technologies, routine and recombination skills → higher order FSAs o core competencies are more important than stand alone resources
Core competencies
o vital routines and recombination abilities o help producing physical and tangible things, namely core products • those core products present the level of technological leadership in form of key components • end products are developed and created from these key components Core competencies meaning the firm's routines and recombination skills to produce components called core products, which are put together to create end products.
Porter's Diamond Dimensions
• Factor conditions: basic factors= minerals, oil (low mobility) advanced factors=skills from humans • Demand conditions: market size, growth rate, home demand etc • Related&supporting industries: available suppliers, transportation costs etc • Firm strategy, structure and rivalry: how are companies managed and organized, what are their objectives, who are their rivals, and a highly competitive home based industry with efficient macro-level governance and several domestic rivals may help the firms in the new host industry to become internally competitive •Government: finance, laws, regulations, infrastructure •Chance •TOO MUCH FOCUS ON HOME COUNTRY & deterministic (entschlossen) view
Contributor
• also a highly competent local subsidiary • located in less important markets • develops new FSAs • has a specialized resource base that might benefit other units in the firm if the headquarter understands the potential value to the entire MNE
Strategic Alliance (Hamel)
• cooperation with a rival • the challenge is to learn as much as possible from this parter while giving away as few of your own FSAs as possible • the advantage is that risks and costs are shared, you can learn from partners complementary resources and quicker development of capabilities to deliver products and services is also possible
What distances can bring additional costs to MNEs?
• cultural, economic, institutional and spatial (geographic) distance
Multi Centered MNE
• each host country develops own location bound FSA • only transfer of core routines (IT systems or financial management) •maximum local responsiveness • example: Mc Donalds, Ikea • only a few location bound FSAs
Merger and Acquisitions
• from low level of commitment (foreign distributor) to medium level of commitment (SA) to high level of commitment: merger or acquisitions • M&A done to create larger firms "that are supposedly better able to deal with globalized markets" • If a firm is active in a mature industry with low growth, a M&A can be a strategic move to a breakthrough. That is, the M&A serves as a radical break that changes the organization radically. Sometimes this is needed.
Strategic resource seeking
• gain access to advanced resources • not gernerally accessible • need for takeovers, building alliances or becoming an insider in foreign knowledge clusters • the goal is to becoming an established industry player in a set of strategically important knowledge development centres/output markets
Strategic Leader
• highly competent local subsidiary • located in strategic important market • assists corporate headquarters to identify industry trends and developing new FSAs in response to opportunities and threats
Black Hole
• located in strategically important market • maintains presence in key markets • undesirable competitive position • weak unit in terms of specialized resources • in the long term view, the MNE wants to commit (einsetzen) more resources and build up a new subsidiary • may want to do acquisitions or build up strategic alliances to access complementary resources and improve market success
Efficiency seeking
• making technological breakthroughs • making specific locations more attractive • increased industry focus on innovation --> more R&D investments • shorter product life cycles • reduction of trade and investment barrier through aggreements like North American Free Trade Agreement (NAFTA) or the EU
Natural resource seeking
• precondition: host country environment needs to allow access to resources • higher value creation is possible • company is looking for physical, financial and human resources
Market seeking
• search for customers in the host country • business activities take place in the host country
The illusion of causality (Critique on CDI)
Distance is a multidimensional construct and should be studied not in isolation but together with geographic distance, institutional distance.
6 different types of firms concerning environmental pollution
1. Cautious Planner: says something will be done but gives no information about results 2. Emergent Planner: targets to reduce grennhouse gas but there are no measures 3. Internal Explorer: strong internal focus, targets and improvements in production process 4. Vertical Explorer: focus on environmental measures within their supply chain 5. Horizontal Explorer: seek opportunities to mitigate their impact on climate change in markets that are outside their current business 6. Emission Trader: trade on emission markets and participate in offset projects
Ferdow 1997, 3 major changes that leads production subsidiaries to become more than just cheap production locations
1. International tariffs went down: need to establish plants to overcome trade barriers is not that important anymore 2. Production is more complex in terms of supply chain management and planning. Not just low wages, but overall productivity counts, including technology and infrastructure. 3. Time to go from manufacturing to marketing has become shorter: MNEs increasingly co-locate development & manufacturing (broad mandate for subsidiaries).
If cultural distance increases
1. Level of investment in culturally distant country decreases 2. Type of investment changes from high to low level of commitment. 3. The investing firm will not want to cooperate with a local partner (eg. no joint venture). 4. BUT: The investing firm needs to cooperate with a local partner because the host country is so different from home that all help is needed.
Lessard & Lightstone 1986
1. MNEs should develop a flexible sourcing strategy, and they should be able to shift production from one country to another quickly and efficiently 2. MNEs should be able to include the possible costs increase in their calculation because of exchange-rate exposure that could create price increases (called "exchange rate pass through on the output market side" in the book).
Khanna, Things that managers should focus on when entering a new market
1. Macro level political and social context (independence of media, rights) 2. Macro level openess of the economy (free travel, investments) 3. Product market (cultural barriers, demands&offers, access to material) 4. Labour market (skilled workers, language) 5. Capital market (are analysing tools for the financial market available?)
Alternatives to M&A
1. Pick up the scraps 2. Stay home (there are always opportunities to improve the situations on the home market, especially when rivals leave) 3. Keep your eye on the ball (firms can improve their position by keeping focus on developing and exploiting their key FSAs) 4. Make friends (strategic alliances) 5. Appeal to the referee (assuming a company cannot pursue a mega M&A itself, it may be able to slow down its competitors by calling regulations) 6. Stalk your target (wait and observe how your competitors acting in new market) 7. Sell out (it may be more profitable to be the seller than the buyer)
7 guidelines for MNEs when dealing with a local distributor
1. Select at first locations and look thereafter for suitable distributors 2. Focus on the distributor's market development capabilities 3. Manage the distributors as long term partners 4. Provide resources (managerial, financial, knowledge) to support the local distributor → market development purpose 5. Do not give the realization of the marketing strategy in the hand of the local distributor 6. Secure shared access to the distributors critical market and financial intelligence 7. Link national distribution with each other, especially at the regional level
3 opportunities to avoid economic exposure
1. Separate business unit model: Each subsidiary configures its own operations to reduce its specific operating exposure 2. Company wide portfolio model: Country diversification, exchange rate may go up in one country and down in other, on balance total lower rate of economic exposure (even though individual units may have higher risk). 3. Flexible operational planning model: Production transfer, if X-rate goes up/down, move production from one plant / country to another. Problem: you need excess capacity
Senior Management Biases when doing M&As
1. Top Line Obsession a. focus is on sales, not on profits b. bounded reliability problem: managers do only pursue own interest 2. Stock Price Explotation a. in case of overvalued stock price, managers can benefit from that b. bounded reliability problem:opportunistic behaviour 3. Grooved Thinking a. "this is the way we always did it", even if it's worse 4. Herd Behaviour a. managers only copy and paste what their competitors do b. this can reduce managers individual risk of being not as good as the rival firm 5. Personal Commitments a. ignore everything, focus is only on own interests 6. Trust in interested parties a. investment banks can push firms out of own interests, the account might get money for your investment
5 characteristics expatriates should have
1. drive to communicate 2. broad based sociability 3. cultural flexibility 4. cosmopolitan orientation 5. collaborative negotiation style
Local distributor Trend
1. initial success: easy to capture with low hanging fruit strategy, the new product that was introduced into new markets is selling itself and all partners are enthusiastic 2. flattening, sometimes declining: after the first success, the market becomes more difficult this might be because of new entrant and increased competition (Honeymoon period is over) 3. MNE starts questioning local partner and may a) take control of distibution channel b) build a self owned distribution channel Sales are declining and the question if the local partner is still useful occurs. Knowledge is already gained and often local partners are not willing to invest relationships because they know about the lack of commitment (Bindung) of the MNE. The MNE is in an higher position and has therefore nearly all power. Problem: the MNE too often sticks too long to the beach head strategy
Three key stages of foreign R&D development
1. selecting the decision makers 2. selecting the set of decisions and actions that strengthen the facilities initial capabilities 3. implementing the decisions and actions that are designed to maximize the lab's contributions to the MNEs overall corporate strategic goal
3 stages of upgrading a foreign plant
1.Enhancing internal performance (training) 2.Accessing & developing external resources (supplier) 3.Developing new knowledge that can benefit the overall network
Black and Gregersen
3 best practices to expatriate managers: 1. focus on creating knowledge and developing global leader skills 2. make sure candidates have cross cultural skills 3. prepare people for coming back home
The assumption of corporate homogeneity (Critique on CDI)
By using national cultural measures, the CD concept only incorporates (vereinigt) variance at the national cultural level and assumes a lack of variance at the corporate level. But this is not complete →National culture vs organizational culture
Strategic asset seeking
Buy a firm to get knowledge
The assumption of spatial homogeneity (Critique on CDI)
By calculating CD on the basis of national level sores, potential intra-country variation is excluded. Also, a firm's exact location in a country is not measured, excluding potential border effects reducing the size of the CD and leading to overestimations of the CD. (Bremens Export zu Holland ist wesentlich einfacher als der von München nach Holland, trotzdem wird der Index mit der gleichen Zahl angegeben.)
Institutional voids
Lack of laws o Lack of well functioning local firms, or mostly state owned enterprises (no 'real' market yet) o lack of macro level institutions = no (well functioning) courts, difficult to get contracts, lack of well functioning financial markets, etc. o It is difficult to deal with this uncertainty o For example is giving a gift the same as bribery or 'normal' in a country?
The illusion of linearity (Critique on CDI)
Only one measure of CD for explaining the location of MNE's activity. The entry mode chosen and the subsequent (anschließende) success of these foreign activities is that CD affects all these different phenomena in a linear way. But: the effect of CD may depend on a firm's learning curve and is therefore not linear.
The illusion of stability (Critique on CDI)
The CD have been measured at a single point in time and is assumed to stay constant although cultural changes take place and firms may get experience → CD changes over the time
The illusion of discordance (Critique on CDI)
The assumption is that all aspects of the cultural distance between home and host countries matter equally. But some dimensions of a culture matter more than others
Global value chain
The different processes in different parts of the world that each add value to the goods or services being produced. By joining a global value chain, small enterprises have the ability to transform their business into an international operation offering greater opportunities.
The illusion of symmetry (Critique on CDI)
The index assumes that the CD from country A to B is the same as the CD from country B to A. In reality, that is not always the case
End of Pipe solutions
additive Umweltschutzmaßnahmen, zB der Rußpartikelfilter im Auto
Strategic Management
develop a 'map' of the future that identifies core competencies to build up the required technologies
Economies of scope
liegen dann vor, wenn zwei oder mehr Produkte gemeinsam zu niedrigeren Kosten produziert werden können als getrennt voneinander
