Institutional Factors in International Business

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Questions and Answers

What is the primary effect of low trade barriers on firms?

It guarantees higher profit margins in domestic markets.

It reduces the costs of exports significantly.

It promotes local firms' monopoly power.

It encourages firms to explore international markets. (correct)

Which type of firms are more sensitive to institutional differences when expanding internationally?

Government-owned enterprises.

Startup companies.

Large multinational corporations.

Small and medium enterprises (SMEs). (correct)

What is a common objective for establishing foreign subsidiaries focused on resource acquisition?

Natural resource-seeking. (correct)

Cost reduction through outsourcing.

Market penetration.

Technological advancement.

In which scenario would a firm most likely seek to enter a culturally and institutionally distant country?

For natural resource acquisition. Signup and view all the answers

What is the aim of market-seeking investors?

To pursue strong demand for their products. Signup and view all the answers

Which of the following best describes efficiency-enhancing investments?

Identifying efficient locations for value chain activities. Signup and view all the answers

What kind of risks do export credit insurance primarily help SMEs to overcome?

Uncertainty in international business. Signup and view all the answers

Which strategy focuses on adapting to stand-alone local markets while maximizing local responsiveness?

Localization strategy Signup and view all the answers

What is a primary disadvantage of the home replication strategy?

Lack of local responsiveness Signup and view all the answers

Which organizational structure is typically used when firms first expand abroad?

International division structure Signup and view all the answers

What does a global standards strategy primarily aim to leverage?

Economies of scale Signup and view all the answers

What is a significant characteristic of the transnational strategy?

Engages in global learning and innovation diffusion Signup and view all the answers

Which of the following is a major drawback of the global standards strategy?

It lacks local responsiveness Signup and view all the answers

What problem does the international division structure face regarding foreign subsidiary managers?

Limited input in decision-making Signup and view all the answers

What does the transnational strategy strive to achieve?

Cost efficiency and local responsiveness Signup and view all the answers

What is the primary goal of the LLG's acquisition program from 1997 to 2016?

To acquire further transportation and storage capabilities Signup and view all the answers

How does the CSR-CBA connection benefit LLG's global operations?

By enhancing capabilities to respond to global social responsibilities Signup and view all the answers

In the context of LLG, what does the term 'home country-employee' refer to?

Opportunities for employee participation at the headquarters location Signup and view all the answers

What characterizes the CSR initiatives at LLG as they expand globally?

An active global CSR stance tailored to specific community needs Signup and view all the answers

Which factor is critical for LLG's CSR-CBA interrelation?

Communities and acquired capabilities Signup and view all the answers

What was a primary consideration for LLG when entering developed markets?

Targeting stakeholders in those regions Signup and view all the answers

What aspect of leadership does LLG emphasize for its top management?

Top-down commitment and leadership development Signup and view all the answers

What role does local volunteerism play for LLG employees in host countries?

It depicts employee involvement in addressing CSR needs Signup and view all the answers

What is a worldwide mandate in the context of MNE subsidiaries?

A charter to be responsible for one MNE function throughout the world. Signup and view all the answers

What is one potential advantage of providing subsidiary managers with autonomy?

Enhanced ability to develop localized strategies. Signup and view all the answers

Which of the following statements about tacit knowledge is true?

Its transfer typically requires hands-on practice. Signup and view all the answers

What is a primary concern regarding subsidiary autonomy within an MNE?

It complicates the realization of integration benefits. Signup and view all the answers

How is knowledge management defined within MNEs?

The structures, processes, and systems to develop and leverage knowledge. Signup and view all the answers

Which type of knowledge is primarily captured and transmitted through IT?

Explicit knowledge. Signup and view all the answers

What does the changing role of MNE subsidiaries often result in?

The development of subsidiary-specific resources and capabilities. Signup and view all the answers

What is a significant challenge associated with knowledge management in global MNEs?

The balance between local and global knowledge needs. Signup and view all the answers

What is a primary challenge in knowledge sharing within MNEs?

Employee turnover and knowledge leakage Signup and view all the answers

Which mechanism can help mitigate knowledge transmission issues in global MNEs?

Regular video conferences Signup and view all the answers

What is a potential downside of tying bonuses to knowledge sharing?

Focus on measurable initiatives over informal sharing Signup and view all the answers

What does the 'not invented here' syndrome refer to?

Resisting external knowledge for internal projects Signup and view all the answers

What role do informal integrating mechanisms play in MNEs?

They foster cooperation among subsidiaries. Signup and view all the answers

What is an element of knowledge governance?

Strategies for knowledge creation and sharing Signup and view all the answers

Which of the following is NOT considered a challenge in managing knowledge within MNEs?

Increased budgets for technology Signup and view all the answers

How does a lack of absorptive capacity affect knowledge utilization?

It leads to difficulty in applying knowledge effectively. Signup and view all the answers

Study Notes

Institutional Factors Impacting Firms' Exports and Profitability

Low trade barriers encourage firms to export by allowing foreign competition, motivating them to seek international opportunities.
High tariffs promote domestic growth by encouraging companies to expand within related industries or integrate suppliers.
Export credit insurance supports SME exporters by mitigating the uncertainties associated with international business.

Institutional Distance and Internationalization

Smaller firms are more sensitive to institutional differences, as the cost of business increases with cultural and institutional distance.
Internationalization models suggest that firms typically prioritize entering culturally similar countries with lower entry costs and risks.
Natural resource-seeking firms might enter culturally and institutionally distant countries to access specific resources like bauxite, copper, or oil.

Strategic Objectives of Establishing Foreign Subsidiaries

Entry strategy defines the objectives of entering a new market and outlines the methods to achieve them.
Four common objectives for establishing foreign subsidiaries:
- Natural resource-seeking focuses on securing access to natural resources in specific locations.
- Market-seeking aims to tap into countries with strong demand for products and services.
- Efficiency-enhancing seeks to optimize value chain activities by identifying the most cost-efficient locations.
- Capability-enhancing seeks to acquire new ideas and technologies to enhance their own technological and managerial capabilities.

CSR and CBA Interrelation in a Global Logistics Firm

Case study: Large Logistics Group (LLG) expanded its global footprint through acquisitions, showcasing the interrelation of corporate social responsibility (CSR) and competitive advantage building (CBA).
LLG's acquisition program aimed to:
- Acquire transportation and storage capabilities globally.
- Internationalize from the Arabian Gulf to other regions.
CSR-CBA connection:
- Global social responsibilities emerge with a global business footprint.
- Acquired IT, supply chain, and transportation capabilities enhance CSR delivery, especially in developed countries.
- LLG's CSR program involves distribution of items, which is facilitated by their global logistics infrastructure.

Organizational Structures in Multinational Enterprises (MNEs)

Corporate headquarters (HQs) serve as the central unit of an MNE, hosting executives and central staff functions.
Four common organizational structures:
- International division structure: Groups all international activities into one unit, typically used for initial expansion.
- Global product structure: Organizes activities around specific product lines, allowing for specialized focus.
- Geographic area structure: Organizes activities based on geographic regions, providing local responsiveness.
- Matrix structure: Combines elements of product, geographic, and functional structures, focusing on collaboration.

The Changing Role of MNE Subsidiaries

Subsidiaries are embedded within the MNE and their local environment, developing unique resources and capabilities.
Local leadership teams are typically more knowledgeable about the host country's environment.
Subsidiaries often gain considerable autonomy within the MNE and can become leaders in specific specializations.

Knowledge Management in Global MNEs

Knowledge management encompasses the structures, processes, and systems that actively develop, leverage, and transfer knowledge.
Types of knowledge:
- Explicit knowledge is readily codifiable and can be written down or transferred digitally.
- Tacit knowledge is non-codifiable and acquired through hands-on practice.
Communities of practice (CoPs) are groups of people who share a common interest in a specific topic, facilitating knowledge sharing.
Knowledge governance refers to the structures and mechanisms that MNEs use to manage knowledge creation, integration, sharing, and utilization.

Challenges and Solutions in Knowledge Management

Knowledge retention: Ensuring knowledge doesn't leak due to employee turnover.
Knowledge sharing: Encouraging willingness to share knowledge within the organization.
Knowledge transmission: Effective communication of knowledge between people and business units.
Knowledge utilization: Encouraging the use of available knowledge by potential recipients.
Solutions:
- Formal rules: Tying bonuses to knowledge exchange, using corporate incentives instead of individual ones, and codifying tacit knowledge.
- Informal mechanisms: Facilitating networks among subsidiaries through joint teamwork, training, and conferences, promoting a strong corporate culture of cooperation.

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Description

This quiz explores the influence of institutional factors on firms' exports and profitability. It examines low trade barriers, high tariffs, and the impact of export credit insurance on small and medium enterprises. Additionally, it delves into how institutional distance affects the internationalization strategies of firms.