Samenvatting I.I Midterm-2 PDF

Chapter 1 (pp. 3-25) Important terms: Multinational Enterprises (MNEs): Firms that engage in foreign direct investment Foreign Direct Investment (FDI): Directly investing in, controlling, and managing value-added activities in other countries Emerging Economies/Markets: Ec...

Chapter 1 (pp. 3-25) Important terms: Multinational Enterprises (MNEs): Firms that engage in foreign direct investment Foreign Direct Investment (FDI): Directly investing in, controlling, and managing value-added activities in other countries Emerging Economies/Markets: Economies that recently established institutional frameworks facilitating international trade and investment, typically with low- or middle-level incomes and above-average economic growth Gross Domestic Product (GDP): The most common measure of an economy's economic power Triple bottom line: A measure of a company's performance that includes social, environmental, and financial aspects Institutions: Formal and informal rules that govern business activities in a given environment Liability of outsidership: The inherent disadvantage that outsiders experience in a new environment due to lack of familiarity with local contexts and networks Formal rules: Laws and regulations governing businesses at multiple levels (e.g., EU directives, national laws, local regulations) Informal rules: Cultural norms, values, and unwritten social expectations that influence business practices Globalization: A process leading to greater interdependence and mutual awareness among economic, political, and social units in the world Industry 4.0: Disruptions of operations and supply chains through advances in digital technologies Risk management: The identification and assessment of risks and actions taken to minimize the impact of rare, unfortunate events Emerging markets/economies: Developing countries that have joined the global economy, often experiencing rapid growth and industrialization Reverse innovation: multinationals tapping into local knowledge in a less developed country to advance their global products. Offshoring: The practice of moving business operations or jobs to a different country, often to reduce costs Ethnocentric perspective: A view of the world through the lens of one's own culture, believing in its superiority Not-invented-here syndrome: The tendency to distrust new ideas coming from outside of one's own organization or community Global mindset: A cognitive ability to connect one's own activities to what is happening around the world  Cosmopolitans: People who embrace cultural diversity and the opportunities that globalization brings Framework: "What determines the success and failure of firms around the globe?" Institution-based view: A perspective that considers how formal and informal institutions influence business strategies and performance ○ Focuses on formal and informal "rules of the game" ○ Suggests that success and failure are enabled and constrained by different rules in each country Resource-based view: A perspective that focuses on a firm's internal resources and capabilities as sources of competitive advantage ○ Focuses on a firm's internal resources and capabilities ○ Explains how some firms succeed in challenging environments Liability of outsidership: Disadvantage faced by foreign firms due to lack of familiarity with local contexts and networks Increases with differences in origins, lack of experience, and distance from nearest prior affiliate Key actors in IB: MNEs (e.g., Adidas) Domestic firms competing/collaborating with foreign-owned firms Key points: Benefits of globalization: cheaper products, more consumer choices, increased travel and career opportunities Criticisms: loss of control, inequality, job insecurity, environmental concerns Debates on the consequences of globalization for societies and the natural environment Complexity of issues related to inequality, job displacement, and environmental impact Role of MNEs in both contributing to and potentially addressing these issues Societal impact: Rising inequality within nations Job displacement and insecurity Debate on causes of declining labor share (automation vs. international trade) Environmental impact: Shifting of pollution to developing countries Increased emissions from transportation Role of MNEs in transferring environmental best practices Chapter 2 pp. 31-53 (“In Focus” optional) Important terms: Transaction Costs: Costs associated with organizing market transactions, which can be reduced by creating firms. Opportunistic Behavior: Self-serving actions, such as misleading or cheating, that violate mutual trust in transactions. Institutional Transition: Comprehensive changes to the formal and informal rules governing organizations, often seen in emerging economies. First-past-the-post: A system where the candidate with the most votes in each constituency wins, often favoring larger parties. Direct Democracy: A system where citizens vote directly on laws or policies. Indirect Democracy: A system where citizens elect representatives who make decisions on their behalf. Federal System: A political system where regional or state governments have significant power, often sharing responsibilities with the national government. Non-market strategy: Political and social activities aimed at influencing the rules set in a country to benefit a company. Market Economy: An economy governed mostly by supply and demand with minimal government intervention. Command Economy: An economy controlled and planned by the government, with little reliance on market forces. Liberal Market Economy (LME): A system where market forces predominate, labor markets are flexible, and companies raise capital through stock markets. Coordinated Market Economy (CME): A system where businesses, governments, and unions coordinate actions, with more labor protection and different mechanisms for financing companies. Civil Law: A legal system based on codified laws, where judges refer to written statutes. Common Law: A legal system based on precedents and judicial decisions, where courts play a key role in shaping the law. Legal Certainty: The clarity and accessibility of laws, ensuring individuals and businesses know the rules that apply to them. Intellectual Property Rights (IPR): Legal protections for creations of the mind, ensuring inventors, authors, and businesses can control and benefit from their work. Institutions Defined by Douglass North as "humanly devised constraints that structure human interaction." -> reduce uncertainty: Importance of Reducing Uncertainty: Political Uncertainty: Risks like expropriation can render long-term planning obsolete. Economic Uncertainty: Factors such as volatile exchange rates or inflation make it hard to predict returns on investments. Behavioral Uncertainty: Unreliable partners can cause losses, reducing trust in contractual agreements. Institutional Framework: Comprised of formal and informal institutions that govern behavior. Formal Institutions: These include laws, regulations, and official rules established by governments or supranational bodies like the EU. Informal Institutions: Cultural norms, ethics, and societal values that influence behavior without being codified in law. These are slower to change and can create pressures for businesses to act beyond legal requirements. Transaction Costs Economics: Developed by Ronald Coase and Oliver Williamson, this theory argues that organizing transactions in markets incurs costs, leading firms to organize in more efficient ways to reduce these costs. Three Pillars of Institutions (W. Richard Scott): 1. Cognitive Pillar: Internalized assumptions guiding behavior unconsciously. 2. Normative Pillar: Norms, values, and beliefs of others influencing behaviors, e.g., during the COVID-19 pandemic. 3. Regulatory Pillar: Coercive power of governments through laws and regulations. Opportunistic Behavior: Defined as self-interest seeking with guile (e.g., cheating, misleading). Institutional frameworks help mitigate opportunistic behavior by setting explicit rules and consequences (e.g., arbitration or legal action). Trust-building within groups or punishments for cheaters also reduce opportunistic behavior. Institutional Transition: Defined as ‘fundamental and comprehensive change in the formal and informal rules of the game that affect organizations." Emerging economies often undergo institutional transitions, which may happen gradually or through radical change. China vs. Russia: ○ China followed a gradualist approach to reforms, initiating localized economic changes. ○ Russia pursued radical ‘big bang’ reforms in the 1990s to create private ownership. ○ By most measures, China's gradual reforms have outperformed Russia’s radical approach since the late 1990s. Two core propositions: 1. Firms operate within institutional constraints: Managers and firms make rational decisions based on the formal and informal rules that govern the environment. 2. Combination of formal and informal institutions: Formal and informal institutions work together to shape firm behavior, but when formal constraints are unclear or weak, informal constraints take on a larger role. This chapter focuses on the formal aspects of institutions, particularly the three key spheres that shape a country's national framework: 1. Political Systems: The structure of government and political processes. 2. Economic Systems: How resources and wealth are distributed and managed. 3. Legal Systems: The body of laws and regulations that govern behavior. Political System: Refers to the rules governing how a country is run politically. Businesses interact indirectly with political systems, but these systems influence business regulations and are a major source of risk. Types of Political Systems: 1. Democracy: ○ Governments derive legitimacy from citizen elections. ○ Varies in how votes are translated into policies, laws, and government actions. ○ Example: Turkey's Justice and Development Party (AKP) winning elections and leading to Recep Tayyip Erdoğan becoming president. 2. Autocracy: ○ Power is concentrated in the hands of a single authority or small group, with limited citizen participation in governance. ○ Many countries have mixed systems with elements of both democracy and autocracy. Variations in Democracies: Proportional Representation vs. First-past-the-post: ○ Proportional Representation: Common in Europe, where seats are allocated based on vote share (e.g., Germany, Denmark). ○ First-past-the-post: Common in Anglo-Saxon countries (e.g., UK, USA), favoring stronger parties and giving less influence to smaller parties. Direct vs. Indirect Elections: ○ Indirect: Voters elect representatives who then elect the government (e.g., most European countries). ○ Direct: Citizens directly elect a president with executive power (e.g., USA, France). Representative vs. Direct Democracy:  ○ Representative Democracy: Citizens elect representatives to make decisions (e.g., most countries). ○ Direct Democracy: Citizens vote directly on laws (e.g., Switzerland, some US states), but this can cause legal inconsistencies. Centralization of Power: ○ Power distribution varies between national, regional, and local governments. ○ Federal Systems (e.g., USA, Germany, Australia): State-level governments hold significant power and may approve federal laws. Authoritarianism: A political system where power is concentrated in the hands of one person or a small elite. Individual freedoms are limited, and authority must be followed. Example: Soviet Union during the communist era. Motivations: National objectives like economic growth, nationalism, or external threats. Impact on International Business: ○ Rules and Influence: Political systems determine who creates business regulations and which interest groups (e.g., farmers, industries) can influence political representatives. ○ Lobbying and Corruption: Businesses may try to influence the legislative process through legal means like lobbying or, in some cases, illegal corruption. ○ Political Risk: Political instability and frequent regulatory changes in authoritarian regimes can increase business risks, making these countries less attractive for foreign investment, especially in sectors like finance and IT. Varieties of Capitalism: Liberal Market Economies (LME): Rely on market forces and minimal government intervention. Companies are largely financed through stock markets, and labor markets are flexible, with less job protection. ○ Examples: USA, UK, Canada. Coordinated Market Economies (CME): Economic actors such as businesses, governments, and unions collaborate closely. These systems offer more employee protections and rely less on stock market financing. ○ Examples: Germany, France, Italy. ○ Features: Vocational training systems like apprenticeships involve close cooperation between businesses and the state. Hybrid Systems: Countries like those in Scandinavia blend features of both LME and CME, combining strong welfare systems with flexible labor markets and competitive industries.  Example: Denmark’s cooperative agricultural industry, which is competitive internationally while advocating for free trade. Economic System: Refers to the set of rules governing how a country’s economy operates. Types: Pure Market Economy vs. Command Economy. Pure Market Economy: Based on Adam Smith’s concept of the ‘invisible hand,’ where market forces (supply and demand) govern the economy without government intervention (laissez-faire). Example: 19th-century UK and USA. Command Economy: Government controls all production, pricing, and distribution of goods, with no reliance on market forces. Example: Soviet Union under communism. Civil Law: Definition: Based on written statutes and codes, influenced by Roman law and the French Code Civil of 1804. Characteristics: Comprehensive legal codes guide judges. Less need for detailed contracts since many legal aspects are predefined. Provides clarity and legal certainty, as laws are codified and accessible. Common Law: Definition: Evolved from English law, shaped by both statutes and judicial precedents (case law). Legal Foundation: Courts play a central role in defining the law, with decisions based on previous cases. Characteristics: ○ Greater reliance on court decisions and precedents. ○ Contracts are often long and detailed, as courts focus on the exact wording of agreements. ○ Freedom for businesses to set their own rules, which may favor stronger parties in negotiations. ○ Examples: United States, United Kingdom, Canada. Key Differences Between Civil Law and Common Law: Civil Law: Judges refer to comprehensive legal codes for guidance, and laws are clearly defined. Common Law: Courts rely on precedents from previous cases, and legal proceedings are often more confrontational. Legal Costs: In common law systems like the USA, each party bears its own legal costs, making litigation expensive. Business Impact: Civil Law: Businesses benefit from predefined rules and less need for detailed contracts. Legal certainty is higher. Common Law: Contracts are more detailed, and businesses enjoy more freedom but must navigate complex negotiations. Property Rights: Definition: The legal rights to use, derive income from, and transfer ownership of property (resources). These include both tangible assets (e.g., land, buildings) and intellectual property (e.g., inventions, brands). Intellectual Property Rights (IPR): These protect intangible assets and include: ○ Patents ○ Copyrights ○ trademarks Corporate Governance Definition: Corporate governance refers to the rules and mechanisms by which shareholders and other stakeholders control corporate decision-makers (typically managers). It outlines the distribution of rights and responsibilities among participants in a corporation—such as the board of directors, managers, shareholders, and other stakeholders—and determines how decisions are made. Importance: Effective corporate governance ensures that managers act in the best interest of the company rather than their personal interests. Without it, investors would be hesitant to invest in businesses, leading to smaller, less scalable firms.  Key Features of Corporate Governance: ○ Shareholder-Centric Governance (Common Law Countries): In common law countries like the US and UK, corporate governance focuses heavily on protecting shareholders. Managers are incentivized through mechanisms like stock options to act in the shareholders' interests, and hostile takeovers provide a check on management by allowing shareholders to sell their shares. ○ Stakeholder-Centric Governance (Civil Law Countries): In civil law countries (e.g., Germany), corporate governance offers less protection to outside shareholders but more involvement for stakeholders such as banks and employees. For instance, in Germany, banks play a significant role in governance by voting on behalf of shareholders and monitoring firms closely. Employees may also have seats on corporate supervisory boards. Chapter 3 pp. 59-82 (“In Focus” optional) Important terms Artefacts of culture: Visible expressions of culture such as arts, architecture, or postcards Power distance: The extent to which less powerful members of a society accept and expect unequal power distribution Individualism: A perspective where individual identity and achievement are prioritized Collectivism: A perspective where group identity and accomplishments are emphasized In-group: A social group to which a person psychologically identifies as being a member Out-group: A social group with which an individual does not identify Masculinity: Cultural preference for assertiveness, achievement, and material rewards Femininity: Cultural preference for relationships, caring for others, and quality of life Uncertainty avoidance: The degree to which members of a society feel uncomfortable with uncertainty and ambiguity Long-term orientation: Cultural emphasis on perseverance and focus on long-term objectives corporate language: The language used for communications between entities of the same MNE in different countries. lingua franca: The dominance of one language as a global business language. Cultural convergence: hypothesis that cultures are becoming more similar Cultural tightness- looseness: the strength of social norms and the degree of sanctioning within societies Cultural distance: the difference between two cultures along some dimensions of value or subjective affinity Institutional distance: the extent or similarity or dissimilarity between the regulatory, normative and cognitive institutions of two countries ethical relativism A perspective that suggests that all ethical standards are relative. ethical imperialism The absolute belief that ‘there is only one set of Ethics (with the capital E), and we have it’. These dimensions provide insights into how different societies approach power, individuality, gender roles, uncertainty, and time orientation. Hofstede's five dimensions of national culture: 1. Power distance 2. Individualism vs. Collectivism 3. Masculinity vs. Femininity 4. Uncertainty avoidance 5. Long-term orientation Chapter 4 pp. 88-112 (“In Focus” optional) Important terms Goodwill: the value of a firms abilities to develop and leverage its reputation Resource-Based View (RBV): A strategic framework suggesting that a firm is a collection of resources that provide a competitive advantage by outperforming rivals in the market. Value chain A chain of activities vertically related in the production of goods and services Temporary competitive advantage: the ability to outperform rivals for a limited period of time Casual ambiguity: the difficulty of identifying the causal determinants of successful firm performance VRIO framework: presents four interconnected and increasingly difficult hurdles for them to become a source of sustainable competitive advantage Offshoring: Moving activities from a firm's main country of operations to another country Nearshoring: Offshoring activities to nearby countries, often within the same region or continent Reshoring: Bringing previously offshored operations back to the company's home country Offshore outsourcing: Contracting activities to external suppliers in foreign countries Domestic outsourcing: Contracting activities to external suppliers within the home country Captive offshoring: Setting up subsidiaries abroad to perform activities in-house Global Value Chains (GVCs): Geographically dispersed production activities governed by MNEs Just-in-time: A production strategy that reduces in-process inventory and associated costs Supply chain robustness: The ability to supply a product under any circumstances, even during major disasters Original Equipment Manufacturer (OEM): A company that produces parts and equipment that may be marketed by another manufacturer Original Design Manufacturer (ODM): A company that designs and manufactures a product as specified and eventually rebranded by another firm for sale Original Brand Manufacturer (OBM): A company that designs, produces, and sells products under its own brand name Types of Resources: 1. Tangible Assets: ○ Financial Assets: Internal and external capital (e.g., shareholder capital, loans). ○ Physical Assets: Infrastructure, equipment, and inventory (e.g., Amazon’s warehouses). 2. Intangible Assets: ○ Technological Resources: Intellectual property rights, patents, trade secrets, and databases relevant to business success. ○ Reputational Resources: A firm's reputation, often reflected in 'goodwill' on balance sheets but challenging to measure. 3. Human Resources: ○ Skills, talents, and knowledge of employees. ○ Capacity for collaboration and team interaction. ○ Shared values, traditions, and organizational culture affecting performance. Importance of identifying resources: Knowledge of both tangible and intangible assets is essential for evaluating a firm's true value and competitive edge. Capabilities: Firm-specific capabilities to use resources to achieve organizational objectives How can we make an inventory of capabilities? 1. Looking at the value chain a. A chain of activities vertically related in the production of goods and services 2. Focus on what outcome the company delivers particularly well Appraising resources: the VIRO framework → focuses on value creation V- Value creation R- Rarity I - Imitabilty O - Organization “Only value creating and rare aspects can have a temporary competitive advantage” Why is imitation difficult? → Casual ambiguity: the difficulty of identifying the causal determinants of successful firm performance Only if organization is good → sustainable competitive advantage Appropriability: the ability of the firm to appropriate the values for itself. Depends on: 1. The revenues received from customers 2. Expenses paid to suppliers VRIO framework presents four interconnected and increasingly difficult hurdles for them to become a source of sustainable competitive advantage Benchmarking: A tool for comparing resources against peers based on two key questions: 1. Which resources are most important for sustainable competitive advantage in the industry? 2. How do your strengths and weaknesses compare to competitors? Four steps of benchmarking: 1. Choose a benchmark organization 2. Identify relevant resources 3. Assess the importance of resources 4. Assess the relative strengths of identified resources MNEs can extend their resource management through: 1. Outsourcing 2. Offshoring Factors influencing outsourcing and offshoring decisions: Production costs Transportation costs Coordination needs Labor costs Geographic proximity Legal frameworks Innovation impacts Supply chain risks Offshoring: Moving activities from a firm's main country of operations to another country Nearshoring: Offshoring activities to nearby countries, often within the same region or continent Reshoring: Bringing previously offshored operations back to the company's home country Four categories of resource management: 1. Offshore outsourcing 2. Domestic outsourcing 3. Captive offshoring 4. Domestic in-house activity Factors influencing offshoring and outsourcing decisions: Virtual communication technologies Advances in manufacturing technologies (Industry 4.0) National protectionism Covid-19-related concerns  Potential benefits of offshoring and outsourcing: ○ Cost savings for firms ○ Focus on core capabilities ○ Economic development for host countries Challenges and risks: ○ Long-term capability development ○ Coordination between different activities ○ Nurturing potential rivals ○ Loss of control over critical resources Original Equipment Manufacturer (OEM): A company that produces parts and equipment that may be marketed by another manufacturer Original Design Manufacturer (ODM): A company that designs and manufactures a product as specified and eventually rebranded by another firm for sale Original Brand Manufacturer (OBM): A company that designs, produces, and sells products under its own brand name MAYBE CH. 3 Chapter 5 pp. 124-148” thru “Table 5.7” (“In Focus” optional) Important terms: Non-tariff barriers (NTBs): Restrictions on trade other than tariffs, such as quotas, embargoes, or technical regulations Major theories of international trade: 1. Mercantilism ….. = classic trade theories 2. Absolute advantage 3. Comparative advantage 4. Factor endowment theory 5. Product life cycle …..= modern trade theories 6. Strategic trade 7. National competitive advantage Theory of mercantilism: The belief that a nation's wealth is measured by its holdings of gold and silver, and that exports should be maximized while imports minimized Free trade: The idea that market forces should determine trade patterns with minimal government intervention Absolute advantage: The ability of a nation to produce a good or service more efficiently than other nations Comparative advantage: The ability of a nation to produce a good or service at a lower opportunity cost than other nations Opportunity cost: The value of the next-best alternative when making an economic decision Specialization: The concentration of resources on producing goods or services in which a ation has a comparative advantage Resource endowments: The extent to which different countries possess various resources or factors of production Factor endowment theory (Heckscher–Ohlin theory): The idea that nations tend to export goods whose production requires resources that are locally abundant Origins of absolute and comparative advantages: Productivity differences Resource endowments Key concepts in factor endowment theory: Locally abundant factors Evolution of factor endowments over time Application to both manufacturing and services Implications of factor endowment theory: 1. Not all individuals in a nation benefit equally from trade 2. Changes in factor endowments can shift trade patterns Product life cycle theory: A dynamic theory that explains how trade patterns change over time as products move through different stages of development Strategic trade theory: A theory suggesting that government intervention in certain industries can enhance their international success First-mover advantages: Benefits enjoyed by companies that are first to enter a market or introduce a new product Chapter 7 pp. 192-202: (up through “Investor Psychology”) (“In Focus” optional) Purchasing power parity (PPP): in the long run, baskets of goods would cost the same in all currencies. Relative PPP hypothesis changes in exchange rates will be proportional to differences in inflation rates Interest rate parity: the interest rate in two currencies should be the same after accounting for spot and forward in exchange rates. Spot market rate the exchange rate for immediate payment Forward transaction: a currency exchange transaction in which participants buy and sell currencies now for future delivery (90-180 days after the transaction) - You commit to delivering the currency at that time at that price Balance of payments (Bop): a country’s international transaction statement, including merchandise trade, service trade and capital movement Current account (of the BoP): exports and imports of goods and services (can be in deficit) Capital and financial account (of the BoP): sales and purchases of financial assets. - Deficit → paid more in transfers overseas than received. a country experiencing a current account surplus will see its currency appreciate; conversely, a country experiencing a current account deficit will see its currency depreciate Bandwagon effect: the result of investors moving as a herd in the same direction at the same time. Capital flight: a large number of individuals and companies exchange domestic currencies for a foreign currency. Gold standard: value of currencies in terms of gold Bretton woods system: a system in which all currencies were pegged at a fixed rate to the US dollar Bretton Woods: two institutions created to secure the stability of his system. International monetary fund International organization providing monetary cooperation and temp. Financial assistance to countries with balance of payment problems. The world bank: a multilateral bank designed to help developing countries. Chapter 7 pp. 205-209: “Managing Exchange Rate Risk thru “Financial Management Responses (“In Focus” optional) Exchange rate/ currency risk the risk of financial losses because of unexpected changes in exchange rates: 1. Strategically structuring their business in such a way that revenues are in the same currencies as expenses 2. By using financial market instruments to manage risk exposure Strategic hedging: organizing activities in such a way that currencies of revenues and expenditures match Currency risk diversification: reducing overall risk exposure by working with a number of different currencies. Currency hedging: a transaction that protects traders and investors from exposure to the fluctuations of the spot rate Forward discount: a condition under which the forward rate of one currency relative to another currency is higher than the spot rate Forward premium: the forward rate of one currency relative to another currency is lower than the spot rate Currency swap: a currency exchange transaction between two firms in which one currency is converted into another in time. With an agreement to revert it back to the original currency at a specific time in the future. How can companies manage exchange rate risks?: 1. Spot transactions 2. Forward transactions 3. swaps Offer rate: the price offered to sell a currency Bid rate: the price offered to buy a currency Spread: the difference between the offered price and and bid price. Chapter 10 284-307 Responsible business: businesses acting both efficiently and ethically, meeting and exceeding legal requirements, and considering their impact on people and the environment. Sustainability: meeting the needs of the present without compromising the ability of future generations to meet their own needs around the world. UN sustainable development goals: 17 goals Primary stakeholders: shareholders, managers, employees, suppliers, customers Secondary stakeholders: “those who influence or affect the cooperation” Why stakeholders matter: 1. Instrumental view treating stakeholders well may indirectly help the financial performance of the form in the longer run Firms engage in corporate social responsibility → firms engagement with social en environmental issues in their communities. 2. Normative view: firms ought to be self motivated to do it right because they have societal obligations. 3. Shared value creation: focusing CSR on activities that in the long run are expected to create value for both the firm and the broader community. Done in three ways 1. Firms can look for unmet social needs in the community and design new products or business models to serve this community while earning profits on the products they provide 2. Firms can modify their business practices to increase benefits for external stakeholders. (changes in the sourcing practices, train suppliers to reduce pollution)  3. Initiatives can be launched that create value for a local community but indirectly create value for the company. Greenwashing: talking about social or environmental initiatives without addressing fundamental concerns. MNE’s have incentives to engage in institutional arbitrage (the practice of locating activities wherever the costs are lowest) by shifting pollution intensive production to pollution havens (countries with lower environmental standards) in developing countries. To attract FDI countries may enter race to the bottom (countries competing for FDI by lowering environmental standards). MNEs have four economic reasons for high economic standards: 1. MNEs are more closely monitored by stakeholders in their home and host countries. → MNEs green image can no longer be enhanced by moving dirty activities out of sight. 2. MNEs may gain scale advantages from implementing common standards across operations in different countries → easier to manage if everyone follows the same standards 3. Firms exposed to higher environmental regulations may become early movers into new technologies or new business models → long term competitive advantages. Code of conduct/ standards of engagement/ code of ethics: written policies and standards for corporate conduct and ethics Health, safety and environment (HSE): a common term to cover the areas for which companies have mandatory standards LMEs (liberal market economies) - Firms are considered an economic enterprise that exist to serve the shareholders’ interests. - Milton Friedman → “the social responsibility of business is to increase its profits” CMEs (coordinated market economies)  - - In recent years, the institutional context for CSER has changed in two ways: 1. CSER has moved up the corporate agenda around the world and 2. there has been some convergence between CMEs and LMEs Second, why are LMEs and CMEs converging? On the one hand, LMEs have introduced more regulation on a number of issues, such as the environment and corporate governance. On the other hand, firms in CMEs realized that playing by the rules may not be enough when operating across borders 1. How far does MNEs’ responsibility extend in global value chains? 2. Is CSER good for the stakeholders that are the object of this policy? 3. How important are hypernorms versus local norms? Is CSER good for society? - CSER is mainly making up for damage caused by the same MNEs earlier. - responsible business goes beyond CSER and should be independent of profit considerations - Codes of conduct alone have negligible effect on labour practices. - Helping suppliers through knowledge transfer helps. - Collaborative relationships with suppliers that share productivity gains help even more. - The origin of unsatisfactory labour standards are often in the manufacturers’ own business models, especially just-in-time delivery, minimization of inventories, short life cycles and last-minute design changes – combined with stiff penalties on suppliers failing to deliver. Local norms vs hypernorms: Hypernorms: norms considered valid anywhere in the world 1. Respect for human dignity 2. Universally agreed basic rights 3. Good citizenship in the host society Tricky for MNEs to pursue Defensive strategy: focusses on regulatory compliance with little top management commitment to CSER causes Many at least pursue an accommodative strategy: some support from top managers who may increasingly view CSER as a worthwhile endeavour. Proactive strategy: endeavours to do more than is required in CSER x Chapter 11 (329-334) Capabilities are based on experimental knowledge → learned by engagin in the particular activity and context. → path dependency in irms Internationalization models: 1. Uppsala model of internationalization a. A model of internationalization processes focussing on learning processes 2. Network internationalization model a. Focuses on the international growth of business networks 3. Stages model of internationalization a. Depicts internationalization as a slow stage-by-stage process an SME must go through International new venture (born-global): start up company internationalizes early and jumps over stages of the traditional modes. → competitve advantage 1. Building an entrepreneurial team with international experience 2. Cooperating with internationally active firms 3. Learning from others 4. Acquiring resources abroad. Key differentiator for rapidly internationalizing firms: 1. International experience 2. Firms may partner with foreign investors 3. Firms not only learn from their own experiences but also from observing others. a. Mimetic behavior The ability of internationally inexperienced firms to engage in international business is shaped by: 1. The institutional environment of the home country 2. The institutional distance between the home country and the host country Chapter 12 (346-362) Foreign subsidiary: an operation abroad set up by foreign direct investment MNEs must design an Entry strategy: a plan that specifies the objectives of an entry and how to achieve them Four objectives for establishing subsidaries abroad and to engage in FDI: 1. Investors interested in natural resource seeking aim to access particular resources → where do we find these resources, how can we secure access? 2. Market seeking investors aim to sell their products or services to new customers → what are out future customers, what do we have to reach them? 3. Efficiency enhancing investors aim to reduce their overall costs of production → how can we lower the costs of our operations to deliver products and services? 4. Capability enhancing investors aim to access new ideas and technologies that hekp them to upgrade their own technological capabilities → where are the latest technologies and ideas that we can connect to our existing systems? Where to enter? Location specific advantages: advantages that can be exploited by those present at a location Global cities: cities with interconnectedness and abundance of advanced producer services When to enter? Modes of entry: Non equity modes: a mode of entry that does not involve owning equity in a local firm. - Reflect smaller commitments to overseas markets Equity modes: a mode of entry that involves taking full equity ownership in a local firm - Preferred with tangible assets Wholly owned subsidiary (WOS): a subsidiary located in a foreign country that is entirely owned by by the parent multinational. - Advantage: it provides full control and ability to integrate the operation tightly with the parent firm Can be etablisshed two ways: 1. Greenfield project 2. Full acquisiton “A firm that merely exports/ imports with no FDI is usually not regarded as an MNE Greenfield investments: building factories and offices from scratch Acquisition: the transfer of the control of operations and management from one firm to another, the former becoming a unit of the latter Partial acquisitions: acquisitions of an equity stake in another firm 1. If a seller is unwilling to sell the business in full 2. If the previous owners are still needed to run the operation Joint ventures and acquisitions are strategic alliances - Collaboration between independent firms using equity modes, non-equity contractual agreements or both Chapter 15 428-450 MNEs face tension between 1. Integrating their operations globally or regionally 2. Adapting in each host country to be locally responsive Tensions between global and local aspects in organizing MNEs - MNEs face a fundamental tension between global integration and local responsiveness - The integration responsiveness framework provides a tool to analyze multinational strategy Two strategies: 1. Global integration: foucesses on synergies between operations at different locations 2. Local responsiveness: strategies that deliver locally adapted products in each market The skill of designinging adaption strategy is therefore to deliver locally adapted products while making the most of the resources of the global organization. Pankaj Ghemawa proposes four levels of adaptaion Integration responsiveness framework: on how to simultaneously deal with global integration and local responsiveness 1. Home replication a. Emphasizes international replication of a homecountry 2. Localization a. Focuses on a number of foreign countries, each of which is regarded as a local market worthy of significant attention and adaptation 3. Global standards a. Relies on the development and distribution of standardized products worldwide to reap the maximum benefits from low cost advantages 4. Transnational strategy a. Aims to be simultaneously cost efficient, locally responsive and learning diven around the world Four organizational structures 1. International division structure a. Bundling all international activities into one unit 2. Geographic area structure a. Organizes the MNE according to different countries and regions 3. Global product division structure a. Assigns global responsibilities to each product division 4. Global matrix structure a. Two set lines of authority, typically a regional line and a product line Worldwide mandate: a charter to be responsible for one MNE function throughout the world Subsidary initiatives: proactive and deliberate pursuit of new opportunities by a subsidiary to expand its scope of responsibility Knowledge management: the structures, processes and systems that actively develop, leverage and transfer knowledge. - Explicit knowledge: (codifiable) can be written down and transferred with little loss of its richness - Tacit knowledge: non codifiable → transfer needs hands on practice - Manuals can be transferred across subsidiaries abroad - Organizational knowledge: knowledge held in an organization that goes beyond the knowledge of the individual members Boundary spanners: individuals with strong networks across business units and frequently communicating with their network. Reverse knowledge transfer: knowledge created in a subsidiary being transferred from the subsidiary to a parent organization. Knowledge creation → community of practice: group of people doing similar or related work and sharing knowledge about their practices of work - Operate as virtual communities of practice: interacting via the internet - - - Knowledge governance: the structures and mechanisms MNEs use to facilitate the creation, integration, sharing and utilization of knowledge kabosorptive capacity: the ability to recognize the value of new information, assimilated and apply it Solution: 1. Tying boneses to measurable knowledge outflows and inflows 2. Using high powered, corporate unit based incentives 3. Codifying tacit knowledge Institutions influence business organizations 1. Home country 2. Host country Challenges associated with learning, innovation and knowledge management What determines the success and failure of multinational strategy structure and leaning? 3 implications for managers 1. Appreciate external rules influencing the critical trade off between global integration and local responsiveness a. Local rules may require localization of product design 2. Managers need to understand and be prepared to change the internal rules of the game governing MNE management. a. Different strategies and structures call for different internal rules of the game  3. Managers need to actively develop learning and innovation capabilities to leverage multinational presence a. “Act local, think global” not linly engage in local CoPs to access local knowledge but with internal CoPs within the MNE to share such knowledge Chapter 17 485-504 Marketing: efforts to create, develop and defend markets that satisfy the needs and wants of individual and business customers Understanding consumers around the world → consumer research: aiming to explain and predict the behavior of consumers 1. Survey based research 2. Experimental adaptation 3. Anthropological studies Big data analytics: research methods exploring very large scale datasets The statistics and graphs generated in traditional marketing reports are insufficient → ethnography: research method exploring cultural phenomena through participant observation Marketing mix 1. Product 2. Price 3. Promotion 4. place Market segmentation: way to identify consumers who differ from others in purchasing behavior Multi-tier branding: portfolio of different brands targeted at different consumer segment - Premium - Midmarket - Niche markets Country of origin images: associations of a brand with the culture of a particular country - “US way of life” Linguistic challenges for marketers: - Japanese fashion chain Uniqlo was very aware that in German the name would be pronounced ‘uni-klo’ and be associated with university toilets. Place → when to enter which market 1. Market potential 2. Costs 3. Strategic motives 4. Distribution channels a. Set of business units and intermediaries that facilitates the movement of goods to consumers Micheal porter: - Inbound logistics: purchasing and the coordination of intermediaries on the supply side - outbound logistics: sales and coordination of intermediaries on the customer side - Intra logistics: the effective movement of goods within a factory. - Agility - Ability to react quickly to unexpected shifts in supply and demand - Adaptability - Ability to change supply chain configurations in response to long term changes - Alignment - Alignment of interests of various players Third party logistics (3pl): a neutral intermediary in the supply chain that provides logistics Informal rules do not lead to official sanctions, but they can undermine the effectiveness of market strategies Supply chains not only create interdependencies between firms but they themselves can become a channel for the diffusion of practices and norms How resources affect marketing and supply chain management…. - Do these activities add value? - Managers need to assess the rarity of marketing and supply chain capabilities  - With valuable and rare capabilities, managers need to assess how likely it is for rivals to imitate - Managers need to ask if the firm is organizationally ready to accrue the benefits of improved marketing - B2C marketing - B2B marketing - Supplier can become involved with the innovation teams of the brand manufacterer - Relationship marketing: a focus to establish maintain and enhance relationships with customers - Suppliers van try to build an ingredients brand - Creating a brand identity for a component of a product - Lobbying of regulatory authorities with the aim of infl Video 1: key concepts - Liability of outsidership: information deficit that puts you at a disadvantage - -> to offset → have a competitive advantage - A strong brand - Proprietary technology - Experienced management - Government support MNE: a firm that owns income generating assets (Subsidiaries) in multiple foreign countries How MNE’s come about: - A firm invests in ownership of subsidiaries in a foreign country - Involves a transfer of capital across borders, and often “intra-firm trade” - Is a controlling investments - distinct from portfolio investments Other entry modes - Exporting - Licensing - Franchising Video 2: Theory in IB - Transaction cost theory: the lowest cost option - Internationalization theory: the option the manager feels the most comfortable with Video 3: The institution based view Institutional theory: the rules that govern human behavior - Incentive structures for behavior to reduce chaos, create organization - Institutions thus reduce uncertainty and opportunism keeping transaction costs low - Assumes we are rational, i.e predictably - Institutions are supported by both formal and informal mechanisms The license to operate - Conformity to societal expectations, rules, norms, conventions Different countries, different rules - Distance - Formal (“institutional distance”) - Informal (“cultural distance”) - Formal: conceptualized as differences in the quality of the regulatory environment - Informal: conceptualized as differences in the “collective programming of the mind” Distance has negative effects on - likelihood/ amount/ depth of investment - Willingness to partner… increased the need to partner Video 5: the resource based view - Looks at why some firms perform better than others, when the context is the same for all Resources: things you posses Capabilities: things you do with the resources (activities, processes) Value: resources and capabilities must add value if they are to lead to competitive advantage Rarity: only if few have it can it provide some temporary competitive advantage Inimitability: source of competitive advantage only if competitors have a difficult time imitating them Organization: how can a firm be organized to develop and leverage the full potential of its resources and caapabilities Video 6: value chain analysis Value chain approaches: - To diagnose resources & capabilities - To understand how value is created or lost in terms of the activities undertaken The value chain describes the activities within and around an organization which together create a product or service - For each product line, what are the resource & capabilities involved - Value chains can be made for every single product or service a firm makes What to make and what to buy: - Comes down to Adam Smith’s idea of specialization and exchange - Depends on commoditization and scale 1. Commoditization - The point at which an activity becomes standardized so that the need to keep it propriety no longer exists - It is no longer a source of didderentiation - Specialization in commoditized activities creates potential for economies of scale 1. Economies of scale - Economies of scale mean per-unit cost falls as volume increases - This happens when fixed costs are high in relation to variable costs Video 7: international trade Why do countries trade? - Adam smith, Wealth of Nations - Individual producers in a country - Argued that specialization increases productivity and exchange allows for benefits of specialization - David Ricardo, the Principles of Political Economy and Taxation  - Countries should produce what the’re best at - Simple proof based on analysis of wine and cloth trade between England and Portugal Autarky: no trade, sub optimal use of resources - Factor Abundance: whichever production factor a country has more of (cap/ labour) - Factor intensity: how much of a production factor is used to make a good (phones/ jeans) - opportunity costs: costs of one good in terms of the other - Absolute advantage: being the absolute best in the world at something, better than all trade partners → dave Ricardo - comparative advantage: what youre best at, compared to whatever else you might make or do Video 8: exchange rates - A strengthening currency helps: - Importers (and consumers of imported goods) - Domestic firms with offshore outsourcing - Foreign debt holders - A weakening currency helps: - Domestic, import competing industries - Exporters - MNEs repatriating income from abroad