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26 Cards in this Set

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Investment in controlling and managing valueaddedactivities in other countries

firm owns (part of) the shares (“equity”) of a foreign unit

Foreign portfolio investment

investments in foreign equitythat do not entail the active management of foreign assets(<10% equity)

Horizontal FDI

A firm duplicates itshome country-basedactivities at the samevalue chain stage in ahost country

Vertical FDI

A firm invests in adifferent value chainstage in a host country(upstream vs. downstream)

uppsala model

internationalizing firmsgradually gain experiential knowledge…• knowledge learned by engaging in theactivity and context• …and will therefore incrementally commitmore resources to foreign markets

Learning: Firms learn fromtheir experience ofoperations, current activities,in foreign markets.

Commitment: Firms changethrough the commitmentdecisions that they make tostrengthen their position inthe foreign market.Commitment is defined as theproduct of the size of theinvestment times its degreeof inflexibility

Emphasizes the importance of networks in the internationalization process: • Internationalizing firms need to build local networks • thereby reducing the liability of outsidership • Firms can use their networks to learn about: • new business opportunities • the internationalization experiences of others • Network position a reflection of commitment

Models depicting internationalization as a sequence of expansions

1. From low to high commitmententrymodes• sporadic exports →exports throughsales agents →sales subsidiary →productionsubsidiary• licensing → jointventures → whollyownedsubsidiaries

2. First FDI in corebusiness, then FDI innon-core businesses• example: Hondaand otherJapanese MNEs

3. Successivelyentering countriescharacterized by agreater cultural/institutional distance• moving fromregion to region

The Uppsala-based stages model explains:

1. the selection among countries in which to enter,arguing that managers minimize risk by first selectingcountries that are close in psychic distance (a measureof the differences between countries that limit thetransfer of information) to the home country becausemanagers can use their knowledge there more easily,and later selecting those that are further away.

2. the selection of the mode of operation in a country,arguing that managers select the mode of operationthat limits the perceived risk and exposure as theylearn about how to operate in the country. Thus, theychoose first to export using agents, and then theyestablish sales subsidiaries and eventually productionsubsidiaries.

traditional internationalization

experiental learning and knowledge acquisition

network building and exploitation

accelerated internationalization process

building entrepreneurial team with international experience

learning from importing and inward foreign investors

learning from others operating in foreign countries

acquiring resources in foreign countries (possibly firms)

why do global born firms exist?

Born global firms oftenoffer products thatcomplement theproducts/services orcapabilities of otherMNEs, take advantageof global ITinfrastructure, orotherwise tap into ademand for aproduct/service that atits core is somewhatuniform across nationalgeographic markets

Overcomeresource limitationof newfirms by tappinginto experienceand knowledgeof top managers/ board members/ networks

Often located incountries withrelatively smalldomesticmarkets

example born global

google, htc, logitech, skype

Formal Institutions

Laws, regulations, and rulesthat are set by authorizedbodies (regional, country, orsupra-national level)

Informal Institutions

Rules that are not formalizedbut exist in for example normsand values (culture)

institution based view key idea

Features of the context in which firms areembedded influence economic behavior


selfcenteredmentality by agroup of people whoperceive their ownculture, ethics, and normsas natural, rational andmorally right

approaches to national culture




ContextApproach (Hall)

The underlyingbackgroundupon whichinteraction takesplace (low vs.high-contextcultures).

Cluster Approach(Ronen &Shenkar, GLOBE,Huntington)

Groups countriesinto “clusters” –i.e., countriesthat share similarcultures


Describingnational culturesalong variousdimensions –allows to identifyheterogeneitywithin “clusters”

PowerDistanceThe extent towhich lesspowerfulmemberswithin acountryexpect andaccept thatpower isdistributedunequally

Individualismvs. CollectivismPerspective thatthe identity ofan individual isfundamentallyhis or her own(vs. identity ofan individual isprimarily basedon the identityof his or hercollectivegroup)

Masculinityvs. FemininityValuestraditionallyassociated withmale role, suchas assertive,decisive andaggressive(valuesassociated withfemale role,such ascompassion,care and qualityof life)

UncertaintyavoidanceThe extent towhichmembers indifferentculturesacceptambiguoussituations andtolerateuncertainty

Long-termorientation vs.Short-termorientationEmphasizesperseveranceand savingsfor futurebetterment

core competencies

collective learning in the organization,especially how to coordinate diverse production skills and integratemultiple streams of technologies

Core competencies should:

be difficult to imitate– give access to a wide variety of markets– add significant value to end products• Core competencies may take a long time to develop• Top management should develop a strategic architecturespecifying which core competencies to build– centralized approach• Competence carriers should be rotated across SBUs tostimulate the development and transfer of corecompetencies

cultural distance

The differencebetween twocultures along someidentifiabledimensions (forexample,individualism)

institutional distance

The extent ofsimilarity ordissimilarity betweenthe regulatory,normative andcognitive institutionsof two countries.


Idea: The value of higherorder core competenciesdeveloped in the homecountry (guided bysenior levelmanagement) diminishesas the various distancesgrow between the firm’sdomestic base and thehost location considered.

Idea: In order to accessthe foreign marketslocation specificadvantages, the firmneeds to develop LBFSAsin the host countryand bundle them withtheir NLB-FSAs; greaterdistance increases theinvestment required tobuild LB-FSAs in the hostcountry.

Internationalization process model:

Firms should reduce their geographic scope andfocus on those countries where low distance willallow the easy transfer, deployment and profitableexploitation of the firm’s main FSAs


Firms should develop additional, location-boundFSAs in foreign markets – in line with the “thinkglobal – act local” perspective –