Chp 3 Summaries

Front 1

Globalization

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Is the flow of goods and services across country borders.

Three stages of interdependence among countries in the world through globalization with the current one relating to creating relationships in the marketplace with other countries.

This interdependence lessens the influence that a country has on its national economy, but affects the economies of other countries

Technology facilitates globalization

There are pros and cons to globalization. One con would be increased competition for local firms from global firms; this creates extra pressure for government agencies from its constituencies, who are demanding things such as tariffs and trade barriers.

Globalization allows for smaller firms and firms in less developed countries to compete with the bigger and more lucrative firms.

Is a motivating factor in the recent success of countries like China and India in the service industry. The Bric countries are predicted to overthrow the top countries in 2040, which could be largely attributed to globalization.

Front 2

Institutional Environment

Back 2

Consists of:

1. Economic development

2. political legal institution

3. physical infrastructure

An influence on the behaviors of the people in a country

Front 3

Economic Development

Back 3

Contributes to the well being of a country;

3 categories:

1. Developing

2. Developed

3. Emerging

Emerging are countries with young and emerging capital markets

Developing countries have virtually no capital markets

Developed have well established and rigid capital markets.

Front 4

Political-legal institution

Back 4

Laws and regulations of a specific country may deter a firm from entering the market of that country. They also may suitable for a firm to enter into the market of that country. The regulations may be too strict. Also, it may hamper relationships with the local firm because the firm may be unwilling to share certain technological advances because of the intellectual property laws of the local firm's country.

Front 5

Physical Infrastructure Institution

Back 5

Makes it more costly for a firm to export products because of the lack of adequate infrastructure such as roads for transportation of goods

discourages foreign investment because foreign investors will have a harder time distributing goods in a country lacking an adequate physical infrastructure

Developing economies have the least amount of physical infrastructure, while developed economies have the most.

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Importance of Institutional Environment

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It's important because it affects the decision making process of a firm. A firm has to analyze the components of a country's institutional environment before it decides on investing in the market place of a specific country. Also, a multi-national firm presence in a certain country may be beneficial, since it discourages corruption; however, countries with corruption discourage firms from investing in it. I would say corruption is related to the political legal environment of a country.

Front 7

Culture

Back 7

The type of national culture is different with each country and must be considered by a firm before it decides to invest in a specific country. Culture has grave effects on a firm's decision making process.

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Cultural Dimensions

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Include:

1. Uncertainty avoidance

2. Power distance

3. Individualism

4. Gender focus

The more uncertainty avoidance a country has, the more rules it has.

Power distance has nothing to do with the separation of wealth or power, but rather the level of acceptance people in a country have for authority

Individualism: The level of value people in a country place on independence and personal achievements.

Collectivism: The level of value people in a country place on dependence to a group. The group offers support for each individual.

Gender focus: Related to the masculine and feminine traits that a country emphasizes, such as work, which has lower value in countries with feminine traits.

Important because it predicts how a manager will react under certain circumstances.

Managers must deal with suppliers, customers, etc. of many different culture, so understanding these cultural dimensions is important.

It's also important to enter into international markets.

Front 9

International Market Strategies

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Firms want to enter international markets because it expands their operations(economies of scale), which allows for greater profits and revenues.

However, not all foreign markets are created equal. Firms like to first enter markets with cultures and institutional environment similar to their own before entering into markets with cultures and institutional environment different from their own. While entering into these similar foreign markets, firms gain experience which could be applied to other foreign markets.

These facets influence the means that firms use to enter a foreign market; they don't use the same approach to enter a market similar to their own as they would with one that isn't.

The means include strategic alliance, cross-border acquisitions, wholly owned subsidiaries, exporting, and licensing.

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Exporting

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A firm makes goods in its home country and sends them off to a foreign country. Low risk but high cost method to entering a foreign market. Some firms may be limited in their exportation efforts because of higher transportation costs. Exchange rates could also have an effect on the profits as well.

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Licensing

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Licensor and licensee come to an agreement(contract) on how the licensee is going to use the licensor's product. In the context of entering a foreign market, the licensor is a firm in its home country, while a licensee is a local firm in a foreign country. The licensor doesn't incur a lot of risk, while the license incurs a lot of risk. However, the licensor doesn't profit too much off this arrangement and has limited control over the actions of the licensee and the political legal institution of the licensee.

Front 12

Creating Strategic Alliances

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Allows two firms to share risks, costs, and profits.

Firms can use strategic alliances to facilitate outsourcing, in which a firm saves money by outsourcing certain functions to firms they have a strategic alliance with in another country, such as India.

Equity based strategic alliances are more successful because a firm has more control of the alliance and each firm is held accountable. Trust is also a big factor in strategic alliances.

Additionally, firms are wary of entering strategic alliances with firms in countries that have unstable institutional environments. There are many risks which a strategic alliance can lessen, but a firm still rather only maintain short-term alliances with firms in countries with unstable institutional environments and long-term relationships with firms in countries with more stable institutional environments.

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Acquisitions

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What is it? A firm purchases another firm in a foreign country.

An advantage of this method to entering a foreign market is that a company immediately acquires the assets of a foreign firm(customers, supplier relationships, etc.). However, this could be controversial.

Disadvantage could include cultural integration whereby in cross-border acquisitions there's a double layer issue of cultural integration as opposed to a single layer one with a domestic acquisition. Primary reason for why cross-border acquisitions fail.

The firm may also have to pay a premium, which could be higher depending the level of corruption in the country. This is an added cost of cross-border acquisitions.

Also the disparate institutional environments may pose a problem.

To enter into a foreign market with this method, a firm must find the appropriate target and not overpay.

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Establishing New, wholly owned subsidiaries

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A high risk, high cost strategy to entering a foreign market where a firm builds a subsidiary ground up in a foreign market. This is called a greenfield venture

Expensive because firms has attract a new customer base away from competitors and build relationships with new suppliers.

Firms have to take into account the differences of culture and institutional environment before establishing a new subsidiary in a foreign market.

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Managing International Operations

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To manage international operations, a firm takes three general approaches: region-country, transnational, and globally focused

They differ in the amount of autonomy given to the subsidiary for making strategical decisions.

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Taking a global focus

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Major strategic decisions made by the firm in the home country.

Allows for the efficient distribution of a standardized product, which allows for a company to take advantage of innovation in home country and economies of scale. This cuts costs, thus increasing profits.

However, problems may arise from the centralized approach. Firms in foreign countries will lack the autonomy to take potentially beneficial market opportunities and they'll be more vulnerable to firms in that particular country from taking their market share. They will also be slower to respond to customer needs. Overall, it may make a company less flexible.

Thus, a company may be more rigid, but less flexible.

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Taking a region-country focus

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A decentralized approach whereby the power to make strategic decisions lies with the management in foreign subsidiaries

This allows management to be more flexible, such as by taking market opportunities, responding to competitor attempts at taking their market share.

However, this may be more costly because a firm won't be able to achieve economies of scale. And it may disallow necessary governance, such as evaluating the particular strategies used by the managers of foreign subsidiaries.

It is most beneficial for a firm when a firm has subsidiaries in foreign markets that vary significantly in institutional environments and cultures.

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Taking a transnational focus

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Method that is both centralized and decentralized, which is the hardest to achieve. Decision making lies with the managers of the subsidiaries, so it's decentralized in that regard, but firm encourages the sharing of resources, which is centralized.

The goal of this approach is global efficiency and local market responsiveness.

Front 19

Managing across cultures

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Managers must consider cultural context when managing a group of people of disparate cultures.

Front 20

Managing multicultural teams

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When dealing with a virtual team, managers must try to get the team members to build swift trust.

Front 21

Developing a global mind-set

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Adopting a global mind-set is a necessity to manage international operations, manage multicultural teams, and compete in international environments.

Cultural intelligence is important as well for globalization.