Exam 1 IMS3310.pdf

International Business Hubert Zydorek Chapter 1 8/26/2024 Hubert Zydorek 1 Global business is also about local business HSBC (one of the largest and most global banks) calls itself: The world’s local bank LESSON: Think global, act local...

International Business Hubert Zydorek Chapter 1 8/26/2024 Hubert Zydorek 1 Global business is also about local business HSBC (one of the largest and most global banks) calls itself: The world’s local bank LESSON: Think global, act local Source: Issued by HSBC Holdings, plc 8/26/2024 Hubert Zydorek 2  1-1 International Business and Global Business International business (IB): (1) A business (firm) that engages in international (cross-border) economic activities and/or (2) the action of doing business abroad Multinational enterprise (MNE): A firm that engages in foreign direct investment (FDI) Foreign direct investment (FDI): Investment in, controlling, and managing value-added activities in other countries Global business: Business around the globe – Includes both (1) international (cross-border) business activities covered by traditional IB books and (2) domestic business activities  Table 1.1 Why Study Global Business? Reasons to Study Global Business Enhance your employability and advance your career in the global economy Better preparation for possible expatriate assignments abroad Stronger competence in interacting with foreign suppliers, partners, and competitors, and in working for foreign-owned employers in your own country Ernst & Young sees “overseas experience as an advantage… Their clients are demanding more of us these days. They want diversity of thought and diversity of values” Dan Black – Campus Recruiting Nicholas Platt, president emeritus of the Asia Society, explained, “To tackle the challenges of globalisation will require a serious commitment to making international knowledge and skills a policy priority”  1-2 Why Study Global Business? Global mindset: Ability to “connect the dots” globally Expatriate manager (expat): A manager who works abroad International premium: A significant pay raise when working overseas  1-3 A Unified Framework 1 Fundamental Question: What determines the success and failure of firms around the globe? Core Perspectives: 1. An Institution-Based View—Suggests that the success and failure of firms are enabled and constrained by institutions – Triple bottom line: Economic, social, and environmental performance – Stakeholder: Any group or individual who can affect or is affected by the achievement of a firm’s objectives “Rules of the game” Doing business around the globe requires intimate knowledge about both formal rules (such as laws) and informal rules (such as values) that govern competition in various countries.  1-3 A Unified Framework Fundamental Question: What determines the success and failure of firms around the globe? Core Perspectives: 2. A Resource-Based View—Focuses on a firm’s internal resources and capabilities - Liability of foreignness: The inherent disadvantage that foreign firms experience in host countries because of their nonnative status Today, many of us take it for granted that the best-selling car in the United States rotates between the Toyota RAV4 and the Honda CR-V, that Coca-Cola is the number-one soft drink in Mexico, and that Microsoft Word is the world’s most popular word processing software. We really shouldn’t. Why? Because it is not natural for foreign firms to dominate nonnative markets. 1-4 Globalization and Semiglobalization (1 of 4) Global business is not limited to firms competing in developed economies. Globalization: The close integration of countries and peoples of the world (capital, people, goods/services, technology) Three major views conceptualize globalization as: – A new force sweeping through the world in recent times – A long-run historical evolution since the dawn of human history – A pendulum that swings from one extreme to another from time to time 1-4 Globalization and Semiglobalization (2 of 4) Emerging economies: A term that has gradually replaced the term “developing countries” since the 1990s Emerging markets: A term that is often used interchangeably with “emerging economies” Base of the pyramid (BoP): Economies where people make less than $2,000 per capita per year This approach identifies the following countries in the emerging market group, in alphabetical order: Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Iran, Malaysia, Mexico, the Philippines, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey, and the United Arab Emirates. Two countries were excluded: Nigeria because of its classification as a low-income country (eligible for IMF Poverty Reduction and Growth Trust financing) during the sample period considered (2010–20) and Qatar because of its population of less than 5 million. https://www.imf.org/external/pubs/ft/fandd/2021/06/the-future-of-emerging-markets-duttagupta- and-pazarbasioglu.htm 1-4 Globalization and Semiglobalization (3 of 4) BRIC: Brazil, Russia, India, and China BRICS: Brazil, Russia, India, China, and South Africa Reverse innovation (or frugal innovation): An innovation that is adopted first in emerging economies and is then diffused Depositphotos enhanced by CogWorld around the world Forbes Risk management: The identification and assessment of risks and the preparation to minimize the impact of high-risk, unfortunate events Black swan event: An unpredictable event that is beyond what is normally expected and that has severe consequences 1-4 Globalization and Semiglobalization (4 of 4) Semiglobalization: A perspective that suggests that barriers to market integration at borders are high, but not high enough to insulate countries from each other completely  1-5 Global Business and Globalization at a Crossroads (1 of 2) Gross domestic product (GDP): The sum of value added by resident firms, households, and governments operating in an economy Purchasing power parity (PPP): A conversion that determines the equivalent amount of goods and services that different currencies can purchase Gross national product (GNP): GDP plus income from nonresident sources abroad Gross national income (GNI): GDP plus income from nonresident sources abroad; GNI is a term used by the World Bank and other international organizations to supersede the term GNP Note: While GDP, GNP, and now GNI are often used as yardsticks of economic development, differences in cost of living make such a direct comparison less meaningful. A dollar of spending in Thailand can buy a lot more than in Japan. Therefore, conversion based on purchasing power parity (PPP) is often necessary. The PPP between two countries is the rate at which the currency of one country needs to be converted into that of a second country to ensure that a given amount of the first country’s currency will purchase the same basket of goods and services in the second country.  Global Integration, Semi-globalization, National Isolation https://web.northeastern.edu/ruthaguilera/wp-content/uploads/2017/02/37.-Kim- Aguilera-2015-GSJ.pdf https://creativeclass.com/rfcgdb/articles/other-2005-The%20World%20is%20Spiky.pdf 8/26/2024 Hubert Zydorek 28  1-6 Debates and Extensions Debate 1: Globalization vs. Deglobalization Deglobalization - The process of weakening economic interdependence among countries “The world is a global marketplace. You could choose to participate less, but other countries are still going to trade with each other. And the math says that over time trade is good for the United States—in terms of total GDP growth, in terms of saving people money, in terms of people living the life they want to live." D. McMillon, 2017, We need people to lean into the future (p. 99), HBR March: 94–100.  1-6 Debates and Extensions Debate 3: Just-in-Time vs. Just-in-Case Global value chain (GVC): A chain of geographically dispersed and coordinated activities involved in the production of a good or service and its supply and distribution activities Organizational slack: A cushion of resources that allow an organization to adapt successfully to pressures Resilience: Capacity to recover quickly from difficulties  International Business Hubert Zydorek Chapter 2 Formal Institutions: Politics, Laws, and Economics 8/26/2024 Hubert Zydorek 1  2-1 Understanding Institutions (1 of 2) Institutional transition: Fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect firms as players Institution-based view: A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions Institution: Formal and informal rules of the game Institutional framework: Formal and informal institutions that govern individual and firm behavior Table 2.1 Dimensions of Institutions Degree of Formality Examples Supportive Pillars Formal institutions Laws Regulatory (coercive) Regulations Rules Informal institutions Norms Normative Cultures Cognitive Ethics  2-1 Understanding Institutions (2 of 2) Formal institution: Institution represented by laws, regulations, and rules – Regulatory pillar: The coercive power of governments Informal institution: Institution represented by cultures, ethics, and norms – Normative pillar: The mechanism through which norms influence individual and firm behavior Norms: Values, beliefs, and actions of relevant players that influence the focal individuals and firms – Cognitive pillar: The internalized (or taken-for-granted) values and beliefs that guide individual and firm behavior  Key Role While institutions do many things, their key role is to reduce uncertainty. By signaling which conduct is or is not legitimate, institutions constrain the range of acceptable actions. Uncertainty can be potentially devastating 8/26/2024 Hubert Zydorek 10  2-2 What Do Institutions Do? Economic uncertainty such as failure to carry out contractual obligations may result in economic losses Transaction cost: The cost associated with economic transactions or, more broadly, the cost of doing business Opportunism: The act of self-interest seeking with guile – Examples include misleading, cheating, and confusing other parties in transactions that will increase transaction costs Transition economy: Label for a subset of emerging economies, particularly those moving from central planning to market competition (such as China, Poland, Russia, and Vietnam) Nobel laureate Oliver Williamson refers to frictions in mechanical systems: “Do the gears mesh, are the parts lubricated, is there needless slippage or other loss of energy?” He goes on to suggest that transaction costs can be regarded as “the economic counterpart of frictions: Do the parties to exchange operate harmoniously, or are there frequent misunderstandings and conflicts?  2-3 An Institution-Based View of Global Business Bounded rationality: The necessity of making rational decisions in the absence of complete information Nonmarket (political) strategy: A strategy that centers on leveraging political and social relationships Institutional work: Purposive action aimed at creating, maintaining, and disrupting institutions  2-4 Political Systems (1 of 2) Political system: The rules of the game on how a country is governed politically – Democracy: A political system in which citizens elect representatives to govern the country on their behalf. A fundamental aspect of democracy that is relevant to global business is an individual’s right to freedom of expression and organization. – Totalitarianism (dictatorship): A political system in which one person or party exercises absolute political control over the population Communist totalitarianism centers on a communist party – former Soviet Union until the late 1980s. It is still practiced in China, Cuba, Laos, North Korea, and Vietnam. Right-wing totalitarianism is characterized by its intense hatred against communism – In postwar decades, Argentina, Brazil, Chile, Indonesia, South Africa, South Korea, and Taiwan practiced right-wing totalitarianism. Most of these countries have recently become democracies. Theocratic totalitarianism refers to the monopolization of political power in the hands of one religious party or group – Afghanistan, Iran, and Saudi Arabia are leading examples. Tribal totalitarianism refers to one tribe or ethnic group monopolizing political power and oppressing other tribes or ethnic groups – Rwanda’s bloodbath in the 1990s was due to some of the most brutal practices of tribal totalitarianism  Authoritarianism: A political system in which political plurality is undermined and concentrated government power is imposed – In some authoritarian countries, democracy may be nominally maintained, but political opposition is often suppressed. Hungary, Poland, and Russia, which practiced communist dictatorship during the Cold War, experienced genuine democracy with competitive elections after the Cold War. – They have more recently turned toward an authoritarian direction. Each has become an illiberal democracy, which can be contrasted with a more traditional term: liberal democracy. – Other examples include countries such as the Philippines and Turkey, which were never ruled under communist dictatorship. They have also recently become more authoritarian. 8/26/2024 Hubert Zydorek 27  2-4 Political Systems (2 of 2) Political risk: Risk associated with political changes that may negatively impact domestic and foreign firms Geopolitics: International political relations  2-5 Legal Systems (1 of 2) Legal system: The rules of the game on how a country’s laws are enacted and enforced Civil law: A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments Common law: A legal tradition that is shaped by precedents and traditions from previous judicial decisions Theocratic law: A legal system based on religious teachings  Customary Law “Customary laws and protocols are central to the very identity of many indigenous peoples and local communities. These laws and protocols concern many aspects of their life. They can define rights and responsibilities of members of indigenous peoples and local communities on important aspects of their life, culture and world view: customary law can relate to use of and access to natural resources, rights and obligations relating to land, inheritance and property, conduct of spiritual life, maintenance of cultural heritage and knowledge systems, and many other matters.” https://www.wipo.int/export/sites/www/tk/en/resources/pdf/overv iew_customary_law.pdf 2024-08-26 36  2-5 Legal Systems (2 of 2) Property right: The legal right to use an economic property (resource) and to derive income and benefits from it Intellectual property (IP): Intangible property that is the result of intellectual activity – Intellectual property rights (IPR): Right associated with the ownership of intellectual property Patent: Exclusive legal right of inventors of new products or processes to derive income from such inventions Copyright: Exclusive legal right of authors and publishers to disseminate their work Trademark: Exclusive legal right of firms to use specific names, brands, and designs to differentiate their products from others Piracy: Unauthorized use of intellectual property  2-6 Economic Systems Economic system: Rules of the game on how a country is governed economically – Market economy: An economy that is characterized by the “invisible hand” of market forces – Command economy: An economy that is characterized by government ownership and control of factors of production – Mixed economy: An economy that has elements of both a market economy and a command economy  Table 2.4 Private Ownership versus State Ownership (1 of 2) State-owned enterprise (SOE): A firm owned and controlled by the state (government) Key Component Private Ownership State Ownership Objective of the firm Maximize profits for private owners Optimal balance for a “fair” deal for all who are capitalists (and maximize stakeholders. Maximizing profits is not shareholder value for public the sole objective of the firm. shareholders if the firm is publicly Protecting jobs and minimizing social listed). unrest are legitimate goals. Establishment of the firm Entry is determined by entrepreneurs, Entry is determined by government owners, and investors. officials and bureaucrats. Financing of the firm Financing is from private sources (and Financing is from state sources (such as public shareholders if the firm is direct subsidiaries or banks owned or publicly listed). controlled by governments). Some hybrid SOEs are publicly listed.  2-7 Debates and Extensions Moral hazard: Recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions State capitalism: A capitalist, market-based system with substantial state ownership Hybrid organization: An organization that incorporates elements from different institutional logics  International Business Hubert Zydorek Chapter 3 Informal Institutions: Cultures, Ethics, and Norms 8/26/2024 Hubert Zydorek 1  What Is Culture and Why Is It Important? Culture The sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations. Edgar Schein Model Artifacts, Values, Assumptions https://mitsloan.mit.edu/faculty/directory/edgar-h-schein Culture: Among hundreds of definitions of culture available, we will use the definition proposed by the world’s foremost cross- cultural expert, Geert Hofstede, a Dutch professor. He defines culture as “The collective programming of the mind that distinguishes the members of one group or category of people from another” 3-6  3-1 Culture (1 of 5) Informal institutions: Institution represented by cultures, ethics, and norms Ethnocentrism: A self-centered mentality by a group of people who perceive their own culture, ethics, and norms as natural, rational, and morally right  3-1 Culture (2 of 5) Language Lingua franca: A global business language English-speaking countries contribute the largest share of global output. Countries sharing a common language will find it easier to do business with each other. Recent globalization has called for the use of one common language.  3-1 Culture (3 of 5) Religion Religion is a major manifestation of Religion Practitioners culture. Christianity 1.7 billion Approximately 85% of the world’s Islam 1.6 billion population reportedly possesses Hinduism 1 billion some religious belief. Buddhism 500 million Knowledge about religions is crucial, even for non-religious managers. – WHY?  3-1 Culture (4 of 5) Social Structure Social structure: The way a society broadly organizes its members Social stratification: The hierarchical arrangement of individuals into social categories (strata) such as classes, castes, and divisions within a society – China, India Social mobility: The degree to which members from a lower social category can rise to a higher status  3-1 Culture (5 of 5) Education Education is an important component of culture. Education can be used to maintain social stratification or to break down social barriers. – In an effort to limit access, Cambridge and Oxford Universities, until recently, guaranteed a certain percentage of entry positions for graduates from prestigious private schools (such as Eton). – Here is a quiz: Which is the most selective university in the world? The answer is the Indian Institute of Management (IIM). Every year, its seven campuses accept only 1,500 students out of approximately 300,000 applicants—a 0.5% acceptance ratio! Such limited access to higher education opportunities fosters social stratification. – In Britain, the number of universities expanded from 46 to 84 in the 1990s and then to 115 in the 2000s, resulting in significantly broader access to higher education by more members of the society.  3-2 Cultural Differences (1 of 2) There are three ways to understand cultural differences:  Figure 3.1 High-Context versus Low- Context Cultures Context: The underlying background upon which social interaction takes place Low-context culture: A culture in which communication is usually taken at face value without much reliance on unspoken context High-context culture: A culture in which communication relies a lot on the underlying unspoken context, which is as important as the words used  Table 3.2 Cultural Clusters Cluster: Countries that share similar cultures Civilization: The highest cultural grouping of people and the broadest level of cultural identity people have Ronen and Shenkar Clusters GLOBE Clusters Huntington Civilizations Anglo Anglo Western (1) Arab Middle East Islamic Eastern Europe Eastern Europe Slavic-Orthodox Far East Confucian Asia Confucian (Sinic) Germanic Germanic Europe Western (2) Latin America Latin America Latin American Latin Europe Latin Europe Western (3) Near East Southern Asia Hindu Nordic Nordic Europe Western (4) Sub-Saharan Africa Sub-Saharan Africa African Independents: Brazil, India, Israel, Japan Japanese  3-2 Cultural Differences (2 of 2) Power distance: The extent to which less powerful members within a culture expect and accept that power is distributed unequally Individualism: The idea that an individual’s identity is fundamentally their own Collectivism: The idea that an individual’s identity is fundamentally tied to the identity of their collective group Masculinity: A relatively strong form of societal-level gender role differentiation whereby men tend to have occupations that reward assertiveness and women tend to work in caring professions Femininity: A relatively weak form of societal-level gender role differentiation whereby more women occupy positions that reward assertiveness and more men work in caring professions Uncertainty avoidance: The extent to which members in a culture accept or avoid ambiguous situations and uncertainty Long-term orientation: Dimension of how much emphasis is placed on perseverance and savings for future betterment https://www.hofstede-insights.com/country-comparison/  Indulgence A tendency toward a relatively weak control over their impulses is called “Indulgence”, whereas a relatively strong control over their urges is called “Restraint”. Cultures can be described as Indulgent or Restrained. “One challenge that confronts humanity, now and in the past, is the degree to which small children are socialized. Without socialization we do not become “human”. This dimension is defined as the extent to which people try to control their desires and impulses, based on the way they were raised. Relatively weak control is called “Indulgence” and relatively strong control is called “Restraint”. Cultures can, therefore, be described as Indulgent or Restrained. With a very low score of 16, Lithuanian culture is one of Restraint. Societies with a low score in this dimension have a tendency to cynicism and pessimism. Also, in contrast to Indulgent societies, Restrained societies do not put much emphasis on leisure time and control the gratification of their desires. People with this orientation have the perception that their actions are Restrained by social norms and feel that indulging themselves is somewhat wrong.” 2024-08-26 24  3-3 Ethics (1 of 2) Ethics: The principles, standards, and norms of conduct that govern individual and firm behavior Code of conduct (code of ethics): A set of guidelines for making ethical decisions Ethical relativism: A perspective that suggests that all ethical standards are relative – “When in Rome, do as the Romans do.” Ethical imperialism: A perspective that suggests that – “there is one set of Ethics (with a capital E) and we have it”  3-3 Ethics (2 of 2) Corruption: The abuse of public power for private benefits, usually in the form of bribery Foreign Corrupt Practices Act (FCPA): A US law enacted in 1977 that bans bribery of foreign officials – The top three biggest FCPA fines fell on Petrobras of Brazil ($1 billion), Siemens of Germany ($800 million), and Alstom of France ($700 million)—all for their alleged corruption behavior outside the United States.* Because any banking transaction in dollars—which might be a bribery payment from Alstom to an official in Egypt—ultimately passes through New York, this gives US authorities extraterritorial jurisdiction over such corruption. Extraterritoriality: The reach of one country’s laws to other countries  3-5 Debates and Extensions (3 of 4) Debate 3: Opportunism versus Individualism/Collectivism Opportunism is a major source of uncertainty. Opportunists are a minority in any population. In-group: Individuals and firms regarded as a part of “us” – Individualists may be more opportunistic when dealing with in-group members. Out-group: Individuals and firms not regarded as a part of “us” – Collectivists may be more opportunistic when dealing with out-group members.  3-5 Debates and Extensions (4 of 4) Debate 4: Cultural Distance versus Institutional Distance Cultural distance: The difference between two cultures along identifiable dimensions (such as individualism) Institutional distance: The extent of similarity or dissimilarity between the regulator, normative, and cognitive institutions of two countries  3-6 Management Savvy Cultural intelligence: An individual’s ability to understand and adjust to new cultures Acquisition of cultural intelligence passes through three phases: (1) awareness, (2) knowledge, and (3) skills – Awareness refers to the recognition of both the pros and cons of your “mental software” and the appreciation of people from other cultures. – Knowledge refers to the ability to identify the symbols, rituals, and taboos in other cultures—also known as cross-cultural literacy. – Skills are based on awareness and knowledge, plus good practice. https://www.youtube.com/watch?v=izeiRjUMau4  International Business Hubert Zydorek Chapter 4 Resources and Capabilities 8/26/2024 Hubert Zydorek 1  4-1 Understanding Resources and Capabilities (1 of 2) SWOT analysis: A tool for determining a firm’s strengths (S), weaknesses (W), opportunities (O), and threats (T) – The institution-based view deals with the external O and T, enabled and constrained by formal and informal rules of the game. – The resource-based view concentrates on the internal S and W to identify and leverage sustainable competitive advantage.  4-1 Understanding Resources and Capabilities (2 of 2) Resource: The tangible and intangible assets a firm uses to choose and implement its strategies Capability: The tangible and intangible assets a firm uses to choose and implement its strategies Tangible resource and capability: Assets that are observable and easily quantified Intangible resource and capability: Assets that are hard to observe and difficult (if not impossible) to quantify  Table 4.1 Examples of Resources and Capabilities Sensing: Abilities to discover opportunities Seizing: Abilities to capture value from opportunities Reconfiguration: Abilities to remain flexible by redesigning business models, realigning assets, and revamping routines Tangible Resources Intangible Resources Dynamic Capabilities Financial Human Sensing Physical Innovation Seizing Technological Reputation Reconfiguring Successful and long-running firms such as BMW, Ford, and IBM have repeatedly gone through cycles of sensing, seizing, and reconfiguration, moving from one business area to another. Why do many initially successful firms such as MySpace, WeWork, and Yahoo end up flaming out? One answer is that they have failed to develop dynamic capabilities centered on sensing, seizing, and reconfiguration.  Figure 4.1 The Value Chain Value chain: A stream of activities from upstream to downstream that add value Note: Dotted lines represent firm boundaries.  Figure 4.2 A Two-Stage Decision Model in Value Chain Analysis Benchmarking: Examining whether a firm has resources and capabilities to perform a particular activity in a manner superior to competitors  Figure 4.3 In-House versus Outsource Commoditization: A process of market competition through which unique products that command high prices and high margins gradually lose their ability to do so, thus becoming commodities Note: At present, no clear guidelines exist for Cell 4, where firms either choose to perform activities in-house or outsource.  Figure 4.4 Location, Location, Location Offshoring: Outsourcing to an international or foreign firm Onshoring: Outsourcing to a domestic firm Captive sourcing: Setting up subsidiaries abroad so that the work done is in-house but the location is foreign; Also known as foreign direct investment (FDI) Note: “Captive sourcing” is a new term, which is conceptually identical to “foreign direct investment” (FDI), a term widely used in global business. See Chapter 6 for details.  Table 4.2 The VRIO Framework: Is a Resource or Capability … Valuable? Rare? Costly to Exploited by Competitive Firm Performance Imitate? Organization? Implications No — — No Competitive Below average disadvantage Yes No — Yes Competitive parity Average Yes Yes No Yes Temporary Above average competitive advantage Yes Yes Yes Yes Sustained Persistently above competitive average advantage VRIO framework: A resource-based framework that focuses on the value (V), rarity (R), imitability (I), and organizational (O) aspects of resources and capabilities  4-3 From SWOT to VRIO (1 of 4) Value Value-adding resources lead to competitive advantage. Non-value-adding capabilities may lead to competitive disadvantage.  4-3 From SWOT to VRIO (2 of 4) Rarity Valuable and rare resources provide competitive advantage. Valuable and common resources lead to competitive parity. The Aflac Duck in the United States and Japan (pg.103)  4-3 From SWOT to VRIO (3 of 4) Imitability Imitation is difficult! Valuable and rare resources offer competitive advantage when they are hard for competitors to imitate. Causal ambiguity: The difficulty of identifying the actual cause of a firm’s successful performance One natural question is: “How does Zoom do it?” Usually, a number of resources and capabilities will be nominated, such as an innovative culture, a commitment to customer service, a willingness to change, a strong leadership team, and a multinational presence.  4-3 From SWOT to VRIO (4 of 4) Organization Firms must be properly organized to take full advantage of the resources and capabilities they possess. Complementary asset: The combination of numerous resources and assets that enable a firm to gain a competitive advantage Social complexity: The socially intricate and interdependent ways that firms are typically organized Even valuable, rare, and hard-to-imitate resources and capabilities may not give a firm a sustained competitive advantage if it is not properly organized  Figure 4.6 UK Manufacturing: The Search for Strategic Sweet Spot  4-4 Debates and Extensions (1 of 3) Debate 1: Domestic Resources versus International (Cross-Border) Capabilities Are domestic resources and cross-border capabilities essentially the same? Is international business different from domestic business? Reverse innovation: An innovation that is first adopted in other countries and is then diffused to the home country and the rest of the world IKEA, McDonald’s, 3M and others  4-4 Debates and Extensions (2 of 3) Debate 2: Offshoring versus Not Offshoring Business process outsourcing (BPO): Outsourcing business processes to third-party providers Original equipment manufacturer (OEM): Firm that executes design blueprints provided by other firms and manufactures such products Original design manufacturer (ODM): Firm that both designs and manufactures products Original brand manufacturer (OBM): Firm that designs, manufactures, and markets branded products Reshoring: Moving formerly offshored activities back to the home country of the focal firm Proponents argue that offshoring creates enormous value for firms and economies A McKinsey study reports that for every dollar spent by US firms’ offshoring in India, US firms save 58 cents Critics of offshoring make three points on strategic, economic, and political grounds. Strategically, if “even core functions like engineering, R&D, manufacturing, and marketing can be moved outside,”* and further if innovation can be offshored,* what is left of the firm. Example: Radio Corporation of America (RCA)  4-4 Debates and Extensions (3 of 3) Debate 3: Economies of Scale versus 3D Printing Additive manufacturing (or 3D printing): Manufacturing three-dimensional products from a digital model by using additive processes, where products are created by adding successive layers of material; This contrasts traditional manufacturing, which can be labeled “subtractive” processes centered on removing material by methods such as cutting and drilling Servitization: Smart combination of manufacturing and services