International Business

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Int'l Business

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activities that involve transfer of goods, resources, services, and knowledge across national boundaries

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4 implications of globalization

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more choices, lower prices, blurred nat'l identity for products/services, career choices/progression

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Drivers of Globalization

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economic, technological, political, cultural

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3 strategic perspectives

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strategy as a plan, strategy as action, strategy as integration (theory)

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4 advantages to strategy as integration (theory)

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integrate both planning & action, explain and predict, require replications, explain difficulty of change in strategy

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4 fundamental questions in theory

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Why do forms differ?

How do firms behave?

What determines firm's scope?

What determines success and failure of firms around the globe?

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Strategy Tripod (views)

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Industry-based view, resource-based view, institutional-based view

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Views of globalization history

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new force, long-run evolution since humanity, pendulum that swings back and forth

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non-gov't organization (NGO)

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organizations advocating environmental, human, and consumer rights

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Why do firms expand globally?

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market motive, economic motive, strategic motive

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Types of market motives

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offensive - seize foreign mkt to expand share

defensive - protect and hold market power bc of threats of gov't policy...

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Types of economic motive

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increase returns bc of advantages in low cost labor, resources, capital, regulations...etc

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Types of strategic motives

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be the first mover, capitalize on distinct resources, vertical integration, follow customers

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Int'l firms differ from domestic firms

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Environmental factors - currency, inflation, laws, politics, culture, interest rates...

Operational Nature - communication, coordination, motivation, organizational principles

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Industrial Organization Economics (IO) -

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economies that seek to understand how firms in an industry compete and how to regulate them

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mistakes when going international

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assume...

entire population is segment

they'll always capture market opportunities

local competitors are not as competitive

assume local government will aid entry

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3 factors to success in global market

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cultural intelligence

strategic thinking

global perspective

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successful strategy should have

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long term, simple, agreed objectives

understanding of competitive environment (external)

objective appeal of resource (internal)

all effectively implemented

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shumpertarian model

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efforts, assets, and fortunes are continuously replace by innovation. Ever changing technology replaces old technology

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strategic group analysis

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helps narrowly define scope of firm's competitors

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3 levels of strategy

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corporate - where we should be and why

business - how we can we compete

function - marketing, accounting...etc

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structure-conduct-performance model

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attributes and actions lead to performance results (primary contribution of the Industrial Organization Economic (IO))

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5 forces framework

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threat of competition

threat of entry

bargaining power of buyers

bargaining power of suppliers

threat of substitute

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dominance

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market leader has large market share

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incombants

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current competing industry members

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scale-based vs non scale-based advantages

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economies of scale advantages vs not EOS advantages (patents, know how)

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product proliferation

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filling product space to leave little space for new entrants

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product differentiation

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uniqueness of products that customers value through (1) Brand ID (2) Customer loyalty

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network externalties

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value of a product increases with the number of users (Microsoft word)

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excess capacity

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underutilized production capacity to punish new entrants (coca cola)

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forward vs. backward integration

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supplier threatens to become rival vs. buyer threatens to become supplier

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industry positioning

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way to position a firm in an industry to minimize 5 forces threats

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generic strategies

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cost leader, differentiator, scope

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cost leader

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corporate strategy that focuses on low cost & price competition (high-volume low margin)

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differentiation

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strategy to offer products that customers consider valuable and different (low-value high margin)

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focus

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strategy type that serves the needs of a more particular segment or niche in an industry (geographically, type of customer, product line)

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mobility barriers

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factors inhibiting movement between strategy groups (mazda to luxury market)

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flexible manufacturing technology

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modern manufacturing allowing firms to make differentiated products at low costs

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mass customization

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mass products, but customized products (cost leader and differentiator)

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high competition between competitors

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many competitors

high price low frequency (cars)

slow industry growth

high exit cost

mkt leader increases capacity

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high threat of entry

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no scale-based/non scale based cost advantages

product differentiation insufficient

no fear of retaliation

no government policy preventing entrants

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high bargaining power of supplier

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few suppliers

suppliers have differentiated product

focal firm not important

suppliers can forward integrate

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high bargaining power of buyers

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few buyers

products provide little cost savings/life enhancement

undifferentiated product from focal firm

buyer has economic difficulties

buyers can & will backward integrate (make their own)

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high threat of substitutes

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substitutes are superior to existing products in quality, innovation, and function

low switching costs (technically or psychologically (brand loyalty))

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dangers of cost leadership

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price war

service drops with low price

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danger of differentiation

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difficult to sustain w/ imitations

as industry quality increases, brand loyalty decreases

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8 debates of 5 forces

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clear vs blurred industry boundaries

threats/opportunities

6th force (compliment companies)

industry/strategy groups (more focused)

integration/outsourcing

stuck in middle/all-arounder

positioning/hypercompetition

industry/firm/institution specific

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strategic group analysis

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defines scope of competition within subgroups

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competitor analysis

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understanding key competitors in game theory through predictions based on their:

objectives

strategy

assumptions

resources/capabilities

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hypercompetition

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rapid & dynamic competition with unsustainable advantage - companies implement strategy based on findings and continuously adjusting advantage

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tangible resources & capabilities

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financial

physical

technology

organizational

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intangible resources & capabilities

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human resources

innovation

reputation

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value chain

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goods/services produced through a chain of vertical activities that add value

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primary activities (define and categories)

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create value exceeding cost

inbound logistics, operations, outbound logistics, marketing/sales, service

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supporting activities (define & categories)

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support primary activities

procurement, technology development, HR mgmt, firm infrastructure

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offshoring, inshoring, captive-sourcing (FDI)

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outsource foreign, outsource domestic, inhouse foriegn

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VRIO model

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value, rarity, imitatable, organizational aspects

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casual ambiguity

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difficult to identify what determines success of a firm's performance (low imitability of toyota)

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4 debates of resource-based view

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firm/industry determined performance

static resourcing/dynamic capabilities

offshoring/non-offshoring

domestic resources/international capabilities

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resource heterogeneity & resource immobility

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each firm has unique combo of resources/capabilities

resources/capability unique to one firm can't be easily migrated to competing firms

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why is imitation so difficult?

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time, unknown source, easier to stay on path, embeddedness

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Institution-based view

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rules of the game

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3 supportive pillars to Institution

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regulative

normative

cognitive

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regulative pillar

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coercive power of the government (scare)

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normative pillar

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values, beliefs, and norms of other relevant organizations

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cognitive pillar

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internalized, take for granted beliefs that guide behavior

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What do institutions do?

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reduce transaction costs and uncertainty

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formal institutions

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human devised constraints that structure human reaction

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informal institutions

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unwritten rules of the game

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relational contracting

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the first kind of economic transaction is known as an informal, relationship-based, personalized exchange.

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arm’s-length transaction

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the second institutional mode to govern relationships is a formal, rule-based, impersonal exchange with third-party enforcement

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global leadership success triangle includes

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iq, eq, cq

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what is culture?

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the collective programming of mind distinguishing people of different categories

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two core propositions

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Hofstfede's dimensions of cultural value

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power distance, individual/collectivism, masculinity/femininity, uncertainty avoidance, long-term orientation

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power distance

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depth between top and bottom (social inequality accepted by society) (power is centralized at the top if high, dispersed if low)

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individual/collectivism

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focuses on the important of individuals versus the group in social and business situations

individualism - I'm more important/separate business from personal life

collectivism - put interest of company before that of the individualism

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masculinity/feminimity

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measures degree of sex role differentiation

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uncertainty avoidance

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identifies tolerance for risk (high countries rely on rules, low countries rely on experience and training)

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long-term orientation

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emphasizes perseverance and savings for future benefit

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purpose of Hofstede's Study

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three perspectives on ethicals standards around the world

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ethical relativism - when in rome

ethical imperialism - we have only good ethics

middle-of-the-road guiding - respect for human dignity and basic rights, respect for local traditions

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3 stages on entry strategy

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pre-entry, entry, post-entry

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pre-entry stage asks 2 questions

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why, why not go abroad?

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general rationel to answer why to go abroad

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Market, resource, management, learning

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general rational to answer why not to go abroad

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liability: informal and formal institutions not recognized & customers discrimination against foreign firms

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where to enter depends on the following factors:

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cost/tax (transportation/wage), demand (mkt size and growth), strategic (investment infrastructure), regs/econ (fdi policies), sociopolitical (political risk/instability)

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Entry timing strategies

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early mover, follower, late mover

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Advantages/disadvantages of early mover

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market power, preemptive opportunities (time to build brand), strategic advantages

environmental risk, operational risk

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4 groups of entry modes

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1. import/exports

2. contractual agreements

3. Joint Ventures

4. Wholly owned subsidiaries

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types of contractual agreements

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licensing/franchising, turnkey, R&D, coMarketing

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advantages/disadvantages of export

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EOS, control

transportation cost, marketing, trade barriers

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advantages/disadvantages of joint ventures

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access to knowledge, political factors, overcome restriction on competition

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3 factors that affect entry strategy

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time, country, and location

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Articulate the two propositions underpinning an institution-based view of strategy

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Proposition 1: Managers and firms rationally pursue their interests and make strategic choices within formal and informal institutional constraints.

Proposition 2: In situations where formal constraints fail, informal constraints will play a larger role.

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Three leading debates on institutions, cultures, and ethics

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(1) opportunism versus individualism/collectivism

(2) cultural distance versus institutional distance

(3) “bad apples” versus“bad barrels.”

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What is the main purpose of institutions?

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to reduce uncertainty

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Chart "Firm Size, Domestic Market Size, and Propensityto Internationalize" (left to right)

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enthusiastic, follow, slow, occasional

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obsolescing bargain

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deals struck byMNEs and host govern-ments, which changetheir requirements afterthe entry of MNEs.

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expropriation

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Confiscation of foreign assets invested in one country

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Threekey advantages of beinga multinational enterprise (OLI benefits)

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ownership, location, internalization (transforming internal mkts with in-house links)

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Strategic goals firms seek when matching locations

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natural resource

market seeking

efficiency seeking

innovation seeking

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Trade barriers

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tariff/non tariff

local content requirements

restrictions on certain entry modes

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Formal institutional constraints

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regulatory risks, trade barriers, currency risks

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Country-of-origin effect

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The positive or negativeperception of firms andproducts from a certaincountry

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Three leading debates on foreign market entries (learn)

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(1) liability versus asset of foreignness, (2) globalversus regional geographic diversification, and (3) cyberspace versus conventionalentries.