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84 Cards in this Set
- Front
- Back
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Home country costs of FDI
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Initial capital outflow
Employment-FDI subs for home production |
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FDI Flow and FDI Stock
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FDI Flow-amount of FDI undertaken over a period of time
FDI Stock-Total amount of FDI at a given time |
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Horizontal FDI
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Horizontal-FDI in same industry firm operates at home
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Backward and Forward Vertical FDI
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Backward Vertical- Investment in input industry for firm's domestic use (extractive industry)
Forward Vertical-Investment in industry that sells outputs of a firm's domestic operations (sales industries) |
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Explaining FDI Growth
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1. Circumvent trade barriers
2. Developing countries more open to new FDI 3. End of Communism 4. Globalization of markets and production |
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Why MNE's Exist?
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1. High Transport Costs
2. Market imperfections (internalization) 3. Oligopolistic Rivalry 4. Multipoint competition 5. OLI Framework |
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Internalization Theory
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Explains why firms prefer FDI to licensing strategy
1. Licensing gives away firm secrets to competitor 2. Firm does not have tight control over firm operations 3. When firm's skills are not amenable to licensing |
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Multipoint Competition
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Firms face each other in different markets, don't want firms utilizing resources from abroad market in home market
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Oligopolistic Rivalry
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Follow competitors abroad to not lose advantage
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OLI Framework
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Ownership-Firm specific resources that can be exploited abroad (patents, tech, organizational capability)
Location-being in foreign markets provides for advantages such as low input costs, bypass tariffs Internalization-Are there benefits to doing it yourself over licensing |
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Host Country Benefits of FDI
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Resource transfer
jobs BOP-import substitution competition economic growth |
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Costs of FDI to Host country
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Reduction of competition
Repatriation of earnings to parent firms National sovereignty concerns |
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FDI Flow and FDI Stock
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FDI Flow-amount of FDI undertaken over a period of time
FDI Stock-Total amount of FDI at a given time |
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Components of Political Economy
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Political, Economic, and Legal Systems
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Components of Political Economy
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Political, Economic, and Legal Systems
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Collectivism v. Individualism in Political Systems
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Collective- collective goals over individual, communism, Social democracts
Individual-indiv. economic and political freedoms as ground rules for organizing society |
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Collectivism v. Individualism in Political Systems
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Collective- collective goals over individual, communism, Social democracts
Individual-indiv. economic and political freedoms as ground rules for organizing society |
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Legal System
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Rules and laws to regulate behavior
Processes through which laws are enforced and grievances are addressed |
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Legal System
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Rules and laws to regulate behavior
Processes through which laws are enforced and grievances are addressed |
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Components of Political Economy
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Political, Economic, and Legal Systems
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Collectivism v. Individualism in Political Systems
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Collective- collective goals over individual, communism, Social democracts
Individual-indiv. economic and political freedoms as ground rules for organizing society |
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Legal System
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Rules and laws to regulate behavior
Processes through which laws are enforced and grievances are addressed |
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Common Law, Civil Law, Theocratic Law
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Common-based on precedent and custom, courts have room to interpret laws (UK, US)
Civil-detailed set of laws, courts evaluate facts not interpet laws (Germany, Japan) Theocratic-Religious precepts (Pakistan, Egypt) |
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Political Risk
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Probability of disruption of operations of MNE by political forces or events in host country, home country, or change in international environment
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Strategies for dealing with political risk
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Risk Analysis and Scenario planning
Local Tie ups (JVs) Operational Hedging Experiential Learning Engagement with host gov. |
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How firm can influence government
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Contribute to political campaign
Offering concessions that makes policy makers looks strong Labor groups Influencing legislature, president Influence electorate via media |
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Why Political Economy matters to managers
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Influences attractiveness of country (balance risk-reward, benefits depend upon wealth, size, future prospects, costs)
Country differences give rise to ethical issues (human rights, product safety, bribery) |
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Culture
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System of values and norms that are shard among a group of people and when taken together constitute design for living
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Components of Culture
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Values-attitdudes about honesty, justice, freedoms
Norms-social rules and guidelines consisting of mores and folkways Folkways-routine conventions (dress code, manners) Mores-Norms central to functioning of society (theft) |
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Culture as Iceberg
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Behavior is visible and than values and beliefs and basic assumptions are hidden
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Determinants of culture
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Social Structure, economic philosophy, political philosophy, religion, language, education
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Individual v. Group Orientation
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Individual-high innovation and entrepreneurship, but lack of company loyalty
Group-lifetime employment, investment in firm specific knowledge, cooperation in solving problems, but lack of individual creativity and initiative |
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Hofstede's Dimensions of Culture
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Indiv v. Collectivism
Power Distance Masculinity/Femininity Uncertainty Avoidance Long term orientation (Confucian)-thrift and perseverance Indulgence v. restraint |
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Ethnocentric, Polycentric, and Geocentric Responses
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Ethno-what works at home will work abroad
Poly-Local managers fully adopt to local conditions Geo-balance home and host country |
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Cultural Differences and implications for managers
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Cultural difference reconciliation-are foreign workers rude or inconsiderate
Must company adapt to local culture? Culture and comp advantage-which countries will produce viable competitors |
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Critiques of Hofstede Study
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1. Data from one Company (IBM)
2. Static view of culture 3. Biased results due to composition of research team 4. Is culture a national construct? |
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Limitations of political risk analysis
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Retrospective
Too narrowly defined Risk varies among diff. investors risk contingent on relative importance-how easy for firm to walk away, how bad does gov. want deal? |
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Strategy (Plan, pattern of actions, position)
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As plan-management seeks outcomes consistent with org. goals
As pattern of actions-must have patterned string of decisions As position-taking offensive or defensive measures to create defendable position |
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Strategic management
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What we do to attain goals and how we do it
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Value Creation
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Increase profitability by creating value (low cost strategy or differentiation strategy)
Product of value, price, and cost |
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Value Chain
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Chain of activities for firm operating in industry
Primary Activity-R&D, Customer Service, Production, marketing Secondary- inputs for primary activities to occur: IT, logistics, HR |
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Global Potential of Industry-Yip
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Gov. Drivers-trade barriers, regulation, taxes
Competitive Drivers-industry concentration, globalization of competitors, feasibility of protecting intangibles Cost Drivers-differences in costs across countries, transport costs, economies of scale and scope, learning economies Market Drivers-similarity of customer needs and tastes, existence of global customers, similar dist. channels, transferability of know hows |
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Reasons for Global Integration
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1. Scale Economies
2. Standardized Marketing 3. Transferable Marketing 4. R&D intensive products 5. Global customers 6. Global competition |
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Reasons for Local Responsiveness
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1. Differences in tastes
2. Differences in standards 3. Distributional differences 4. Advertising 5. Differences in econ. development 6. Laws and regulations |
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Types of global strategies
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Global Exporter
Transnational International Localization |
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Global Exporter
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High integration, low response
Capitalize on highly coordinated activities to serve global markets (scale manufacturing, transferable marketing) |
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International
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Low integration, low response
Exploit some competitive advantage that does not depend on high global coordination or high local responsiveness (tech breakthrough) |
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Multidomestic/Localization
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High Responsiveness, low integration
Capitalize on strong and resourceful subsidiaries that are responsive to local market needs |
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Transnational
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High integration, high response
Exploit both efficiencies associated with global coordination (economies of scale) and the capability to respond to local markets |
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Reasons for Global Integration
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1. Scale Economies
2. Standardized Marketing 3. Transferable Marketing 4. R&D intensive products 5. Global customers 6. Global competition |
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Organizational Structure
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Asks basic question of how to create groups
Formalized pattern of interaction that links an orgs people, tasks, and tech Structure as means of balancing two conflicting needs: integration/specialization and responsiveness |
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Organizational Architecture
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Formal division of org (product divisions, national operations)
Location of decision making responsibility (central v. decentralized) Integrating mechanisms (coordinating activities of subunits) |
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Horizontal differentiation
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Formal division of org into subunits
How does firm divide self into subunits? What is role of each unit? |
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Vertical differentiation
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Where is org decision making concentrated?
Where in hierarchy and geographically? |
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Functional structure v. product structure
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Functional-CEO and than different division below (R&D, marketing, legal, logistics etc)
Product-CEO and than heads of different units each with functional areas beneath them (Energy division and than the marketing and manufacturing division under) |
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Strategy and Structure
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Structure follows strategy
Design org that balances global integration and national responsiveness |
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Types of global organizational structures
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Product
Matrix International Division Area |
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International Division
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Low response, low integration
Have multiple functional domestic divisions and than one international division with different regions underneath |
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Global Product Division
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High integration, low response
Different product division each with its own geographic areas Each division controls its own value creation activities |
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Global Area Division
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High response, low integration
Different geographic areas each with own value creation activities (R&D, marketing etc) |
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Matrix Organization
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High integration, high response
Org split up simultaneously between geographic area structure and product structure Philosophy that local area and product division should share decision making for specific product Reinforces idea of equal responsibility but is also clumsy and bureaucratic |
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Pros and cons of centralization
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Pros-Coordination, consistency with objectives, helps with major changes, no duplication of activities
Cons-Overwhelming at top, Bureaucratic, is the person up top a super expert? |
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Pros and cons of decentralization
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Pros-More attention to critical issues, more motivating at lower levels, faster response time, better decisions through local knowledge, better control within subunits
Cons-need for coordination mechanisms, objective alignment difficult |
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Integrating Mechanisms
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Means for coordinating tasks developed within and across subunits
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Formal Integration Mechanisms
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Direct Contact-managers of different units contact each other directly when problem
Liaison Roles-when volume of contacts becomes too great you give one representative in each unit the role of coordinating with other units on daily basis, people establish permanent relationships Teams-composed of individuals from different subunits that need to coordinate (take guy from R&D, marketing and legal to lead a new product development) Structures-use matrix structure in which all roles are viewed as integrating roles (Spanish plastics marketing belongs to all three groups) *Father down you go more complex and more integration |
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Informal Integrating Mechanisms
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Knowledge Networks-transmit information through organization not through formal process but through informal org contacts
Supported by culture of teamwork and collaboration Facilitated by IT systems, management development, management rotation, and executive education programs |
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Control Systems
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Metrics used to measure performance of subunits and make judgements about managerial decision making
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Types of Control Systems
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Personal-direct supervision of manager by superior
Bureaucratic-formal system of rules capping spending and forcing a budget Output-setting specific goals for each subunit Cultural Controls-individual control due to "buy in" into org. values and norms |
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Where org culture comes from
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Founder
Social structure of home country History of company Actions that subsequently result in high performance Important to have strong culture when completing activities involving high integration and coordination |
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Organizational Change
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Unfreeze Org-Big Bang where in order to signal change you make drastic changes (fire top management)
Moving to new state-once org is unfrozen you reorganize structures, responsibilities, control, and processes in speedy manner Refreezing Org-Long process of socializing employees into new ways through education programs, hiring policies, control, and incentive systems |
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Basic Entry decision
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Which overseas markets to enter
Timing of entry Strategic commitment and scale of entry |
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Factors determining which markets to enter
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Long Run Profit Potential (economic factors, political factors, legal factors, ability to create value)
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Advantages and disadvantages of being first mover
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Advantages:
1. preempt rival, capture demand 2. cost advantage due to learning economy 3. generate switching costs Disadvantage: 1. Pioneering costs such as liability of foreignness, educating consumers, generating distribution channels |
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Entry Modes
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1. Exporting
2. Turnkey-firm handles setting up location and than turns control over to client 3. Licensing-rights to intangibles (patents, know how) transfered to another entity for royalty fee 4. Franchising-sell intangibles but also impose strict controls 5. JV 6. Wholly owned subsidiary-can set up greenfield or buy existing operation |
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Integration v. Partnering
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Integration-absorb acquired company, replace executives, give little autonomy, rapidly integrate
Partnering-keep acquired company separate, coordinate few activities, retain executives and autonomy, gradual integration |
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Who should integrate?
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Integrate if: resources of acquired company are similar, cost reduction occurs by combining assets, hierarchical orgs with low tolerance for ambiguity and emphasis on getting results
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Factors involved in selecting Entry Mode
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Host Country-market potential, competitive structure, marketing and other infrastructure, CAGE, political risk
Home Country-comp. structure, production costs, gov regulation Firm-objectives, resources, risk aversion |
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How was IOI able to become a global palm oil player in such a short period of time?
What are its competitive advantages? |
Expanding both upstream and downstream through acquisitions.
Upstream by acquiring more land and production capabilities Downstream by selling final palm oil Comp advantages are integrated supply chain and most efficient plantation management |
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Analyze the industry that IOI is active in. What do you consider as the main opportunities and threats?
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Opportunities: more downstream uses of products like substituting palm oil for other products like body care and other food products. And EOS
Threats: Land is scarce so upstream operations are at risk. Also substitute products like vegetable oil and competitors like P&G and Unilever |
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What internal or organizational capabilities does the IOI Group have?
What are its weaknesses? |
Integrated supply chain (Up and down) leading to tighter quality control, lower costs, more reliable production. Also quick responsiveness if market demands new products
Weaknesses-entire org structure does not align with acquisitions (LC). LC has not been integrated and its supply chain and are not supervised as closely as other businesses. LC sells products to public so it is important for them align with IOI strategy and org. structure |
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In the next five years, which corporate changes should Dato' Lee initiate?
Which aspects of the IOI Group should not be changed? |
Should work to align org structure with strategy and bring LC under same managerial umbrella as everything else. This will lower costs, increase communication, and attend to customer wishes of buying in bulk from one location. However, a spontaneous fit does not always work so they will have to socialize workers. Also transnational strategy to increase responsiveness and integration but also take advantage of scale economies.
He should not change the companies' integrated operations as they already exist since every part of the world is different |
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What is global potential of large appliance industry?
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Market Drivers-different preparation of products, different distribution channels, brand perceived differently in each country
Cost Drivers-difference in cost structures across countries, hard to attain EOS Gov-different standards and regulations, intervention in China Competitive-different companies market leaders, low concentration Overall low global potential because there are no standard products |
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How would you characterize Haier's current global strategy?
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Multi-domestic since they have different product offerings (more responsiveness) across different countries also decentralized operations
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Is there a strategic rationale for Haier to go global?
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Yes, they already respond to different market needs and can utilize their innovative products and R&D abroad (ie washing machine for potatoes)
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