ib week 6 lecture

factors that make international expansion more interesting for the companies

push factors and pull factors

push factors

entry of international competitors in home country; saturation of home market; strong competition in home market; internationalization of customers

pull factors

success in home market; attraction of new customers; entrepreneurial spirit; calls from abroad; learning from competitors

resources

productive assets of the firm

capabilities

abilities of firms to use resources

VRIO

characteristics that create a sustainable competitive advantage (Valuable, Rare, Inimitable, Organized to capture value)

Competitive disadvantage

resource or capability that is not valuable

competitive parity

resource or capability that is valuable but not rare

temporary competitive advantage

resource or capability that is valuable and rare but not costly to imitate

unexploited competitive advantage

resource or capability that is valuable, rare and costly to imitate but not organized to capture value

sustained competitive advantage

resource or capability that is valuable, rare, costly to imitate and organized to capture value

country atractiveness factors

market, resource endowments, competition, institutions

4 strategic objectives in expanding internationally

1. natural resource seeking; 2. market seeking; 3. efficiency-enhancing; 4. capability-enhancing

non-equity expansion modes

exporting, licensing, and franchising

equity expansion modes

joint ventures, greenfield operations or acquisitions

restrictive local mandates

local subsidiaries need to operate within strict boundaries of their task and responsibility

liability of outsidership is caused by

distant origins; lack of local experience; lack of nearby experience

key factors for market seeking

strong market demand and customers are willing to pay

key factors for natural resource seeking

quality and costs of natural resources

key factors for efficiency-enhancing

abundance of cheap and qualified labour force and suppliers; transportation and communication structure; proximity to customers

key factors for capability-enhancing

innovative individuals, firms and universities, industry clusters

non-equity modes

international transactions take place between two or more independent companies, but there is no equity involved

equity modes

follow FDI, only these result in ownership of foreign operations

licensing

one firm sells another firm rights to use a different technology or trademark

franchising

"licensing" that covers an entire business concept rather than just the product or the trademark

joint ventures

partnerships at which two or more independent companies establish a joint company under a new name

greenfields

subsidiaries established from scratch

international acquisiotions

buying foreign companies to enter a particular country

OLI framework

conditions under which FDI is the most appropriate business; Ownership, Location, and Internalization Advantages

Ownership Advantage

internal firm-specific capability that is transferable across borders; e.g. brands, patents

cultural distance

difference between two cultures along some identifiable dimensions

institutional distance

extent of similarity or dissimilarity between the regulatory, normative and cognitive institutions of two countries

comparative Location Advantage

is it more attractive to locate new activity in the foreign country than at home?

vertical FDI

production. locating assets or employees in foreign countries with the purpose of securing production (e.g. somewhere with different weather or raw materials)

horizontal FDI

ability to sell products abroad. desirable to produce abroad if there are protectionist barriers, high transport costs, etc.

created factor conditions

skilled labour, scientific knowledge

natural factor conditions

may be undesirable factor conditions

demand conditions

strong advantage if domestic demand is large and sophisticated. demand heterogenity: within-country differences

managerial practices

different corporate regulations

presence of related and supporting industries

suppliers and producers of related products contributing to efficiency and innovation

horizontal expansion

about the merits of licensing a local producer in a foreign market before commiting to a foreign investment

vertical expansion

the beneficial comparative advantage in foreign locations by buying inputs or exporting to that market

Internalization Advantage

market exchange has to come with high transcation costs; is it more attractive to have the activity performed by external party or by the company itself?

hold up problem

being very reliant on the supplier, which leads to them being able to hold you up and force you to agree to worse conditions as you have no other options

4 strategies for organizing the multinational company

global standars (global products division), transnational (global matrix), home replication (international division), localization (geographic area strategy)

global standardization strategy

high global integration and low local reponsiveness (autonomy); standardized products worldwide; Warner Bros - same films shown across different countries, but also centralized activities in home country

home replication strategy

low global integration and low local reponsiveness; replicating the firm in a new market with low adaptation to local tastes or needs; Starbucks - replicating coffee stores without adapting products in any way

transnational strategy

high global integration and high local reponsiveness; Netflix - domestic productions in local markets to adapt to consumer tastes; geographical divisions to serve different content in different countries

localization strategy

low global integration and high local reponsvieness; number of foreign countries, regarding each as a standalone local domestic market worthy of attention and adaptation; McDonald's - large standardized core around which it innovates

lack of absorptive capacity

capacity to recognize the value of new knowledge and apply it

FDI

directly investing in activities that control and manage value creation in other countries

foreign portfolio investment (FPI)

investment in a portfolio of foreign securities such as sotcks and bonds

horizontal FDI (explained better)

duplicating home country-based activities at the same stage in the value chain in a host country through foreign direct investment

vertical FDI (explained better)

foreign direct investment in which a firm moves upstream or downstream in different value chain strategies in a host country

upstream vertical FDI

for example gaining control over natural resources (similar to vertical integration backwards)

downstream vertical FDI

for example gaining control over distribution facilities (similar to vertical integration forward)

FDI flow

amount of FDI moving in a given period in a certain direction (inbound (inflow) - moving into a country; outbound (outflow) - moving out of a country)

FDI stock

total value of foreign-owned firms operating in a country or controlled by a country's firms abroad at a certain point in time