International Business at University College Of Kristianstad | Flashcards & Summaries

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Q7 identify the thre legal systems and give examples


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Common law, civil law and theocratic law.


Common law:Common law is a legal system where the laws are based on traditions and customs. Out of the thre laws (civil, theocratic) it is the most flexible as it based on how the country has acted previously and historically. UK and australia


Civil law: laws organized into codes, Exemaple Germany


Theocratic law: is based on religions techings, most coomon islamic law ex Irak/ syria 

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2) What is the difference between direct and Indirect exporter?

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There is two types of exporting. Direct and indirect. Direct exporting is when a firm directly exports to the customer  Indirect exporting is when a firm exports through intermediaries


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Q 2 Identify and explain the different steps of the pyramid of ethical behaviour 

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The pyramid of ethical behaviours consists of three stages, The base stage law and regulation, the middle stage ethical behaviour and the top stage CSR. 


The Base stage: are the "wirtten rules" by law and regulations, which can be from goverment, customer and news media.


The middle stage: personal ethics behaviour that is guided by values, norms, parents, religion, media. This may differ between cultures and social background.


The top stage: is CSR, which is when the organization meets or exceeds the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities

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5) Identify and explain the different modes of entry that a firm can choose when internationalizing. Also explain explan the pros and cons with each modes

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There are several modes of entry a firm can choose when internationalizing.

__________________________________________________________

There are export modes: low risk, high flexibility


Distributor: An independently owned and operated sales organization who takes title to products, keeps them in inventory, provides for delivery and credit, and may service products after the sale.


Agent:  Independent salespeople who represent a number of manufacturers whose products complement one another but are not competitive.

Pros + added value by extra services aviable 

Cons- trade barriers, transportation costs

__________________________________________________________

Then there are intermediate modes: more riskier but more flexible then export modes


1. Licensing: licensor premits a license/patent to use its intellecutuall property in exchange for payment over a time 

+ huge profit potential

+ no kapital invested

+low risks

- no guarantee of entry after license expires

-Licensee may create quality control and marketing problems for licensor


2. Franchising: the firm pays royalty payment to use franchisor trademark and trade name to enter market

+low costs and risk than opening own firm in foreign market

+helps build a global presence

-requires standardization


3. Partnership: agreement among 2 + companies witha common business objective eg pepsi in macdonalds.

+benefical for all companies involved they reach same goal

+network

- difficult for other partnership to compete

-conflicts due to disagreements


4. Joint ventures: ”A collaboration of two or more firms which the partners share assets, risks, and profits over a signific time period” 

+shared knowlege

+ better relationship with local organizations

-Difficulty in maintaining the relationship 

- Disagreements over business decisions

__________________________________________________________

Then there is hiearchi modes: high risk, low flexibility

5. Foreing direct investment (FDI): is when a firm enters foerign markets by establishing its won facilities and factories.

+Bring in capital, economic activity, and employment

+Growth and profit motivations 

- very costly

-geverment intervection

- high need of control

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6) Explain the Network model of internationalization and how it differs from the Uppsala model

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The Network model is when a firm sees the market as a way to build direct and undirect relationships with customers, suppliers, competitors and distributiors. The network is established in different bonds such as personal,legal and economic.


The uppsala model: is when a firm internatinally expands based on psychic distance, which is country diffrences in regards of cultural, education, legal-economic systems. Firms therefore enter new foreign markets with small psychic distance then gradually enter countries with bigger psychic distance which are often located further away geographically. 


The two differs beacuse the network model is more dependet on others and established with personal, legal, economic factors whereas Uppsala model is more independet and establishes on countries based on psychic distance. 

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7) Name and explain oeach of the four control systems a company can use to stay on the track with their implemented strategies

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1. Bureaucratic control: Management make sure that trough rules and procedures lower level emplyoees act according to the strategies and the firms objectives. Ex budget spending 


2. Output control: Management set preformance goals that are objective to e.g profitability, managers judget by their ability to acheive those goals and goeal are established through headquarters and subunits. 


3. Personal control: mostly in smaller firms the management achieves control by personally interact with employees.


4. Cultural control: Employees “buy into” the norms and value systems of the firm and control their own behavior

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8) Define and explain the following in connection to International Business/marketing


8a) Capabilities (in a firm)

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The Bedrock of a firms compatitive advantage is based on the company's capabilities to use its resources to full capability. (technology, human resources) The company's ability to use the reseources is based on core competences (something a compnay is good at) that the competitiors can not imitate. 


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9) Define and explain the following in connection to International Business/marketing

8 b) Vertical differentiation

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(The centralization and decentralization of decision- making responsibilities) located within the organization structure


Centralization: When all decision making are located on top of organizations hierarchy. The top managers makes all decisions regarding the firm.


Decentralization: lower lever management hav responsibilities for standard operations, while the top management focuses on bigger operations to reach the firms objective.

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10) Define and explain the following in connection to International Business/marketing


8c) Tariff rate quotas

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Hybrid of a quota  and a tariff where a lower tariff is applied to imports , goverment sets a quota of how much a product can be imported to the country, and also to make most revenue. 

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11) Define and explain the following in connection to International Business/marketing


8d) Self refrence criterion (SRC)

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SCR is when marketers unconsciously refrence to their individual culture (education, values, culture) to make descision. ( not good for people working with international business and marketing need to have a open mindset where they are open to different cultures for succes. 

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12) Define and explain the following in connection to International Business/marketing


​8e) Common law


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Common law is a legal system where the laws are based on traditions and customs. Out of the thre laws (civil, theocratic) it is the most flexible as it based on how the country has acted previously and historically. 

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Q 3 Explain and give example of the different stages of economic integration


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There are 4 stages of economic integration:  Fre trade are, customs union, common market, Economic union


1. Free trade: Trade barriers are removed between member countries, however, each members maintain trade policy with non member countries- NAFTA


2. Customs union: contrast to the free trade are, except members have common trade policy with non members. ex MERCOSUR


3. Common market: Besides products now also services, factor of production, labor, technology can exchanged freely between members. eg EU countries put many common labor policys


4. Economic Union: similiar to common market but members also aim to common monetary policies, standardized regulations. eg The EU is moving to a economi with on single currency, the Euro.


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Q:

Q7 identify the thre legal systems and give examples


A:

Common law, civil law and theocratic law.


Common law:Common law is a legal system where the laws are based on traditions and customs. Out of the thre laws (civil, theocratic) it is the most flexible as it based on how the country has acted previously and historically. UK and australia


Civil law: laws organized into codes, Exemaple Germany


Theocratic law: is based on religions techings, most coomon islamic law ex Irak/ syria 

Q:

2) What is the difference between direct and Indirect exporter?

A:
There is two types of exporting. Direct and indirect. Direct exporting is when a firm directly exports to the customer  Indirect exporting is when a firm exports through intermediaries


Q:

Q 2 Identify and explain the different steps of the pyramid of ethical behaviour 

A:

The pyramid of ethical behaviours consists of three stages, The base stage law and regulation, the middle stage ethical behaviour and the top stage CSR. 


The Base stage: are the "wirtten rules" by law and regulations, which can be from goverment, customer and news media.


The middle stage: personal ethics behaviour that is guided by values, norms, parents, religion, media. This may differ between cultures and social background.


The top stage: is CSR, which is when the organization meets or exceeds the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities

Q:

5) Identify and explain the different modes of entry that a firm can choose when internationalizing. Also explain explan the pros and cons with each modes

A:

There are several modes of entry a firm can choose when internationalizing.

__________________________________________________________

There are export modes: low risk, high flexibility


Distributor: An independently owned and operated sales organization who takes title to products, keeps them in inventory, provides for delivery and credit, and may service products after the sale.


Agent:  Independent salespeople who represent a number of manufacturers whose products complement one another but are not competitive.

Pros + added value by extra services aviable 

Cons- trade barriers, transportation costs

__________________________________________________________

Then there are intermediate modes: more riskier but more flexible then export modes


1. Licensing: licensor premits a license/patent to use its intellecutuall property in exchange for payment over a time 

+ huge profit potential

+ no kapital invested

+low risks

- no guarantee of entry after license expires

-Licensee may create quality control and marketing problems for licensor


2. Franchising: the firm pays royalty payment to use franchisor trademark and trade name to enter market

+low costs and risk than opening own firm in foreign market

+helps build a global presence

-requires standardization


3. Partnership: agreement among 2 + companies witha common business objective eg pepsi in macdonalds.

+benefical for all companies involved they reach same goal

+network

- difficult for other partnership to compete

-conflicts due to disagreements


4. Joint ventures: ”A collaboration of two or more firms which the partners share assets, risks, and profits over a signific time period” 

+shared knowlege

+ better relationship with local organizations

-Difficulty in maintaining the relationship 

- Disagreements over business decisions

__________________________________________________________

Then there is hiearchi modes: high risk, low flexibility

5. Foreing direct investment (FDI): is when a firm enters foerign markets by establishing its won facilities and factories.

+Bring in capital, economic activity, and employment

+Growth and profit motivations 

- very costly

-geverment intervection

- high need of control

Q:

6) Explain the Network model of internationalization and how it differs from the Uppsala model

A:

The Network model is when a firm sees the market as a way to build direct and undirect relationships with customers, suppliers, competitors and distributiors. The network is established in different bonds such as personal,legal and economic.


The uppsala model: is when a firm internatinally expands based on psychic distance, which is country diffrences in regards of cultural, education, legal-economic systems. Firms therefore enter new foreign markets with small psychic distance then gradually enter countries with bigger psychic distance which are often located further away geographically. 


The two differs beacuse the network model is more dependet on others and established with personal, legal, economic factors whereas Uppsala model is more independet and establishes on countries based on psychic distance. 

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Q:

7) Name and explain oeach of the four control systems a company can use to stay on the track with their implemented strategies

A:

1. Bureaucratic control: Management make sure that trough rules and procedures lower level emplyoees act according to the strategies and the firms objectives. Ex budget spending 


2. Output control: Management set preformance goals that are objective to e.g profitability, managers judget by their ability to acheive those goals and goeal are established through headquarters and subunits. 


3. Personal control: mostly in smaller firms the management achieves control by personally interact with employees.


4. Cultural control: Employees “buy into” the norms and value systems of the firm and control their own behavior

Q:

8) Define and explain the following in connection to International Business/marketing


8a) Capabilities (in a firm)

A:

The Bedrock of a firms compatitive advantage is based on the company's capabilities to use its resources to full capability. (technology, human resources) The company's ability to use the reseources is based on core competences (something a compnay is good at) that the competitiors can not imitate. 


Q:

9) Define and explain the following in connection to International Business/marketing

8 b) Vertical differentiation

A:

(The centralization and decentralization of decision- making responsibilities) located within the organization structure


Centralization: When all decision making are located on top of organizations hierarchy. The top managers makes all decisions regarding the firm.


Decentralization: lower lever management hav responsibilities for standard operations, while the top management focuses on bigger operations to reach the firms objective.

Q:

10) Define and explain the following in connection to International Business/marketing


8c) Tariff rate quotas

A:

Hybrid of a quota  and a tariff where a lower tariff is applied to imports , goverment sets a quota of how much a product can be imported to the country, and also to make most revenue. 

Q:

11) Define and explain the following in connection to International Business/marketing


8d) Self refrence criterion (SRC)

A:

SCR is when marketers unconsciously refrence to their individual culture (education, values, culture) to make descision. ( not good for people working with international business and marketing need to have a open mindset where they are open to different cultures for succes. 

Q:

12) Define and explain the following in connection to International Business/marketing


​8e) Common law


A:

Common law is a legal system where the laws are based on traditions and customs. Out of the thre laws (civil, theocratic) it is the most flexible as it based on how the country has acted previously and historically. 

Q:

Q 3 Explain and give example of the different stages of economic integration


A:

There are 4 stages of economic integration:  Fre trade are, customs union, common market, Economic union


1. Free trade: Trade barriers are removed between member countries, however, each members maintain trade policy with non member countries- NAFTA


2. Customs union: contrast to the free trade are, except members have common trade policy with non members. ex MERCOSUR


3. Common market: Besides products now also services, factor of production, labor, technology can exchanged freely between members. eg EU countries put many common labor policys


4. Economic Union: similiar to common market but members also aim to common monetary policies, standardized regulations. eg The EU is moving to a economi with on single currency, the Euro.


International business

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Eine der International business Zusammenfassungen auf StudySmarter | University College of Kristianstad

International Marketing=  the process of planning and conducting transactions across national borders to create exchanges that satisfy the objectives of individuals and organizations


Middle-Income Developing Countries = Developing nations that can borrow sizable sums from commercial banks


NICs= Newly Industrialized Countries (Mexico,India, China, Thailand, Brazil, Malaysia…)

Major Oil Exporting Countries = OPEC Organization of Petroleum Exporting Countries, countries whose econmies are based on petroleum.


Less Developed Countries: Per capita income less than $1025 or they cannot borrow money on the open market.


The International Monetary Fund (IMF)= Offers gold and constituent currencies available to members for currency stabilization. •Borrow money to countries in trouble • Fight poverty borrow with low interest


World Bank= it provides economic assistance for the reconstruction of war-torn and, more recently, loans to developing countries


World Bank-tasks=

Build capacity: Strengthening governments and educating government officials. • Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts. • Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures. • Combating corruption: Support for countries' efforts at eradicating corruption. • Research, Consultancy and Training



The Four Risks of International Business 

Who Participates in International Business?

Multinational enterprise/corporation (MNE/MNC) : A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries; e.g., Caterpillar, Samsung, Unilever, Vodafone, Disney. 

 Small and medium-sized enterprise (SME): Typically a company with 250 (500 in US) or fewer employees. Over 90% of all firms in most countries are SMEs. SMEs increasingly engage in international business.

 • Born global firm: A young, entrepreneurial SME that undertakes substantial international business at or near the time of its founding.

Non-governmental organizations: Many of these nonprofit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research.


Why do Firms Participate in IB? =

  • To seek opportunities for growth through market diversification (E.g., Harley-Davidson, Sony, Whirlpool.) 
  • To earn higher margins and profits • Often, foreign markets are more profitable. 
  •  To gain new ideas about products, services, and business methods 
  • To better serve key customers that have relocated abroad • E.g., when Toyota launched its operations in Britain, many of its suppliers followed suit. 
  • To be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products 
  • To gain access to lower-cost or better-value factors of production • E.g., Sony does much of its manufacturing in China.
  • To develop economies of scale in sourcing, production, marketing, and RD
  • To confront international competitors more effectively or to thwart the growth of competition in the home market


The Drivers of Market Globalization 

• Worldwide reduction of barriers to trade and investment 

• Market liberalization and adoption of free markets 

• Industrialization, economic development, and modernization • Integration of world financial markets 

• Advances in technology


ICT=Information and Communication Technology


Chapter 2 National Differences in Political, Economic, and Legal Systems


Political Economy= Political, economic, and legal systems of a country are interdependent • They influence each other

Political systems: 1. Collectivism vs. individualism 2. Democratic vs. totalitarian



Collectivism and Individualism 

Collectivism: The needs of society as a whole are generally viewed as being more important than individual freedoms 

Socialism: Socialists believe in public ownership of the means of production for the common good of society.


one difference is their view of Privatization is the sale of state-owned enterprises to private investors.



Individualism: An individual should have freedom in his or her economic and political pursuits 

• The interests of the individual should take precedence over the interests of the state 

• Two tenets • Guarantee of individual freedom and self-expression 

• Welfare of society best served by letting people pursue their own economic self-interest


Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism, with exceptions 


Democracy: refers to a political system in which government is by the people, exercised either directly or through elected representatives. 

Totalitarianism: is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties.


Market Economy 

• All productive activities are privately owned 

• Production is determined by supply and demand

 • Government encourages vigorous free and fair competition


Command Economy 

• Government plans the good and services, quantity and price, then allocates them for “the good of society” 

• All businesses are state owned 

• Historically found in communist economies 

• No incentive for individuals to look for better ways to serve needs


Mixed Economy 

• Some sectors are privately owned, some are government owned 

• Once common in developed world, less so now 

• Government may aid troubled firms

Sweden, GB, France was considered as Mixed Economy until 1980s


Different Legal Systems 

• Common Law • Tradition, precedent, custom • More flexible than other systems 

• Civil Law • Laws organized into codes • Less adversarial 

• Theocratic Law • Based on religious teachings • Most common is Islamic law


Common law • Contracts are very detailed with all contingencies spelled out • More expensive and can be adversarial. 

• Civil law • Contracts tend to be much shorter and less specific


Property Rights and Corruption. Property is a resource that an individual or business owns • Land, buildings, equipment, capital, mineral rights, businesses, intellectual property • Most countries protect property rights


The Protection of Intellectual Property: Patent • Copyrights • Trademarks • World Intellectual Property Organization • Paris Convention for the Protection of Industrial Property


Chapter 3 National Differences in Economic Development

Gross national income (GNI) measures the total annual income received by residents of a nation

• GNI does not consider differences in the cost of living

Need to adjust GNI figures using purchasing power parity (PPP)

GNI and PPP data are static and do not consider economic growth rates


Innovation and Entrepreneurship: Are the Engines of Growth Innovation • Includes new products, new processes, new organizations, new management practices, and new strategies 

Entrepreneurs: First to commercialize innovative products and processes • Provides much of the dynamism in an economy


Innovation and Entrepreneurship Require a Market Economy • Little incentive to develop new innovations in planned economies because the state owns all means of production and therefore, the gains • Strong relationship between economic freedom and economic growth


Innovation and Entrepreneurship Require Strong Property Rights • Without strong property rights, individuals and businesses risk having innovations and potential profits stolen • Economist Hernando de Soto claims that inadequate property protection in many developing nations limits economic growth


The Required Political System • Democratic regimes are probably more conducive to long-term economic growth • Property rights are only secure in well-functioning, mature democracies • Totalitarian states are detrimental to progress • They limit freedom • They suppress human developm


Economic growth leads to establishment of democratic regimes

If China adopts a free market system, belief is that the country will have • Greater individual freedoms • Democracy


The shift toward a market-based system involves • Deregulation • Privatization • A legal system to safeguard property rights


Deregulation: Deregulation in command economies • Removing price controls • Abolishing laws regulating the establishment and operation of private enterprise • Relaxing or removing restrictions on direct investment by foreign enterprises • Deregulation in mixed economies involved the same initiatives as in command economies


Privatization: A way to stimulate economic efficiency • Started in Great Britain in early 1980s • In many nations economic activity is still in the hands of state-owned enterprises • Selling state-owned enterprises not enough to guarantee economic growth • For privatization to work it must be paired with a general deregulation and opening of the economy


Legal Systems: A well-functioning market economy requires laws • Need to protect property rights • Mechanisms for contract enforcement • Adoption of a legal system requires time to function well


Chapter 5 Ethics, Corporate Social Responsibility, and Sustainability

Ethics: Accepted principles of right or wrong that govern • The conduct of a person • The members of a profession • The actions of an organization


Business ethics-are the accepted principles of right or wrong governing the conduct of businesspeople. 


Ethical strategy-refers to a strategy, or course of action, that does not violate a company’s business ethics


Ethics are moral principles and values that govern the behavior of people, firms, and governments. 

Corruption is the abuse of power to achieve illegitimate personal gain. • More than 30 percent of MNEs believe corruption is a major or severe concern in their global activities. 

Bribery is common and can take the form of grease payments, small inducements intended to expedite decisions and transactions or gain favors.


Ethical behavior is simply the right thing to do. It is often prescribed within laws and regulations. • Ethical behavior is demanded by customers, governments, and the news media. 

Unethical firms risk attracting unwanted attention. • Ethical behavior is good business, leading to enhanced corporate image and selling prospects. Firms with strong reputations have an advantage when hiring and motivating employees, partnering, and dealing with foreign governments.


• Ethical standards vary from country to country. 

Relativism: is the belief that ethical truths are not absolute but, rather, differ from group to group. This perspective is summarized by the phrase, “When in Rome, do as the Romans do.” 

Normativism: is the belief that ethical behavioral standards are universal and that firms and individuals should seek to uphold them consistently around the world.


Why do managers behave unethically? 

• Six determinants of ethical behavior 

• Personal ethics 

• Decision-making processes 

• Organizational culture 

• Unrealistic performance goals 

• Leadership

 • Societal culture


Personal Ethics: Formation of ethics is guided by our parents, our schools, our religion, and the media 

Expatriate managers may face pressure to violate their personal ethics because they are away from their ordinary social context and culture 

Parent company may pressure managers to meet unrealistic goals that can only be fulfilled by acting unethically


Decision-Making Processes 

• Businesspeople may act unethically when they fail to ask “Is this decision or action ethical?” 

• Problems arise in processes that do not incorporate ethical considerations into business decision making 

• Need to better understand how individuals make decisions that are ethical or unethical in an organizational environment


Organizational Culture: 

Culture in some organizations does not encourage people to think through ethical consequences of decisions Unrealistic Performance Goals 

• Pressure from parent company to meet unrealistic performance goals by cutting corners or acting unethically


Leadership • Helps to establish the culture of an organization and set the examples that others follow • Employees often take their cue from business leaders Societal Culture • Cultures that emphasize individualism and uncertainty avoidance are more likely to stress ethical behavior than cultures where masculinity and power distance are emphasized

• Corporate social responsibility: Manner of operating a business that meets or exceeds the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities 


Examples of core CSR values include:

• Avoiding human rights abuses 

• Upholding the right to join or form labor unions 

• Eliminating compulsory and child labor 

• Avoiding workplace discrimination 

• Protecting the natural environment 

• Guarding against corruption, and undertaking philanthropic efforts

"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

LECTURE 3 KAPP 4

Culture ”The collective mental programming of the people in an environment. Culture is not a characteristic of individuals; it encompasses a number of people who were conditioned by the same education and life experience.”



Low-context culture: Messages are explicit and specific; words carry most of the communication power.

 High-context culture: Less information is contained in the verbal part of a message. More information resides in the context of communication, including the background, associations, and basic values of the communicators.

Individuals perceive and interpret the world along 4 dimensions:-

Individualism: Individualism is the degree to which individuals in a society are integrated into groups. 

◆Individualistic culture: US, Europe Collective culture: Japan, Asian countries 

◆Differences in incentive mechanism: team vs. individual oriented


◆ Power distance (PDI): is the extent to which the less powerful members of a society accept power to be distributed unequally  High PDI cultures: Hong Kong, France, Mexico, India Low PDI cultures: Germany, Austria, Holland, Scandinavia 

◆ The higher the PDI, the lower the level of trust. 

◆ Companies in high PDI cultures prefer sole ownership of subsidiaries to joint venture in order to gain more control.


◆ Masculinity: men are expected to be assertive, competitive, and concerned with material success, and women fulfill the role of nurturer and are concerned with issues such as the welfare of children. 

◆ Femininity: men and women overlap, with neither gender exhibiting overly ambitious or competitive behavior. 

◆ High masculinity countries: Japan, Austria,Mexico Low masculinity countries: Spain, Taiwan, Holland, Scandinavian countries  Masculine values: achievement and possessions  Feminine values: helpfulness and social support


Uncertainty avoidance: the extent to which the members of a society are uncomfortable with unclear, ambiguous, or unstructured situations. 

◆ High UA countries: Greece, Portugal, Belgium, Japan, France, Spain Low UA countries: Hong Kong, Sweden, UK, US, Germany ◆ High UA: high brand loyalty, reassurance advertising, warranties, money-back guarantees


the concepts of long-term orientation and short-term orientation address the different ways cultures view time and the importance of the past, present and the future 


Long-term orientation: is when you are focused on the future. You are willing to delay short-term material or social success or even short-term emotional gratification in order to prepare for the future. If you have this cultural perspective, you value persistence, perseverance, saving and being able to adapt. 

Short-term orientation: is when you are focused on the present or past and consider them more important than the future. If you have a short-term orientation, you value tradition, the current social hierarchy and fulfilling your social obligations. You care more about immediate gratification than long- term fulfillment.


Indulgence: stands for a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. (e.g recreation, money spending, consumption, and sex)

Restraint: stands for a society that suppresses gratification of needs and regulates it by means of strict social norms. (Relative stronger constrain of these needs through strict social norms)

Language: Verbal –How words are spoken 

◆Local language capability’s important role in international marketing – Aids in information gathering and evaluation –Provides access to local society –Important to company communications – Allows for interpretation of contexts


Nonverbal Language: Hidden language of cultures – Time flexibility and sensibility –Social acquaintance and rapport –Personal physical space and personal touching –Non-verbal gestures and signaling


Silent language: non-verbal communication

 ◆what actions, signs and symbols communicate 

◆Hall claims that 90% of message in high-context cultures is communicated silently


Values and Attitudes: Values –are shared beliefs or group norms that have been internalized by individuals. 

◆Attitudes –are evaluations of alternatives based on these values.


Manners and Customs: Potential problem areas for marketers arise from an insufficient understanding of: – different ways of thinking. – the necessity of saving face. – knowledge and understanding of the host country. – the decision-making process and personal relations. – the allocation of time for negotiations.


Material Elements: Material culture – Results from technology and is directly related to how a society organizes its economic activity. – Material culture is manifested in ◆Economic infrastructure ◆Social infrastructure ◆Financial infrastructure ◆Marketing infrastructure ◆Cultural convergence – The degree of industrialization can provide a marketing segmentation variable.


Aesthetics: What is or is not acceptable as good taste varies widely in cultures. ◆The symbolism of colors, forms, and music carries different meanings in different cultures.

Education: Assessing the educational level of a culture – formal and informal education – literacy rates – enrollment in secondary or higher education – qualitative aspects of emphasizing science 

◆Education affects – employee training – competition for labor – product characteristics


SOCIAL INSTITUTIONS ”The positions of men and women in society, the family, social classes, group behavior and age groups are interpreted differently within every culture”


Acculturation - the process of adjusting and adapting to a specific culture other than one’s own - is a key sucess factor

The primary obstacle to success in international marketing is a person’s Self-Reference Criterion (SRC) in making decisions, that is, an unconscious reference to one’s own cultural values, experiences, and knowledge as a basis for decisions. The SRC impedes the ability to assess a foreign market in true light !!!


Chapter 6 International Trade Theory

Absolute advantage: Countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries • Both countries benefit from specialization and trade

Comparative Advantage: A country should specialize in the production of those goods that it produces most efficiently and buy the goods that it produces less efficiently from other countries, even if it can produce those goods more efficiently itself 

Opportunity cost make trade

National Competitive Advantage: Porter’s Diamond 


Four broad attributes of a nation shape the environment in which local firms compete 

1. Factor endowments 2. Demand conditions 3. Related and supporting industries 4. Firm strategy, structure, and rivalry


Porter continued • The diamond 

• Firms are most likely to succeed in industries or industry segments where the diamond is most favorable 

• A mutually reinforcing system 

• Two additional variables can influence the national diamond 1. Chance 2. Government


Factor Endowments 

• Basic factors • Natural resources, climate, location, demographics 

• Advanced factors • Communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how 

• Advanced factors are a product of investment by individuals, companies, and governments


Demand Conditions 

• Firms gain competitive advantage if their domestic consumers are sophisticated and demanding 


Related and Supporting Industries 

• The benefits of investments in advanced factors of production by related and supporting industries can spill over into an industry, thereby helping it achieve a strong competitive position internationally


Firm Strategy, Structure, and Rivalry • Different nations are characterized by different management ideologies, which may or may not help them build national competitive advantage • There is a strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry

Chapter 7 Government Policy and International Trade


Governments can use the following tools to influence the international trade flow Tariffs 

• Specific tariffs (Fixed tax per unit) 

• Ad valorem tariffs (i.e import duties, proportion of value) 

• Impact: 

• Increase government revenues 

• Force consumers to pay more for certain imports 

• Are pro-producer and anti-consumer 

• Reduce the overall efficiency of the world economy


Subsidies – Help domestic producers compete against foreign imports and gain export markets • Ex. Agriculture, important industries • Domestic producers gain while consumers typically absorb the costs


Import Quotas and Voluntary Export Restraints • Import quotas 

– Usually enforced by issuing import licenses to a group of individuals or firms 

• Tariff rate quotas – Hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota 

• Voluntary export restraint (VER)

 – Can appease protectionist measures in a country 

• Quota rent – extra profit producers make when supply is artificially limited


Export Tariffs and Bans Export tariff 

• Goal is to discriminate against exporting in order to ensure that there is sufficient supply of a good within a country 

• Ex export tariffs Thailand, India introduced on rice during food crises 2007-2008 

– Export ban • Partially or entirely restricts the export of a good • Ex. Swedish Export of war material to certain


• Local Content Requirements 

• Requirement expressed in physical or value terms 

• Protects domestic producers • Consumers face higher prices 

• Administrative Policies 

• Polices hurt consumers by limiting choice


Learning Objective 7-2 Understand why governments sometimes intervene in international trade. 


Political Arguments for Intervention 

• Protecting jobs and industries 

• Most common political reason for government intervention 

• Critics say unfair competition claims overstated for political reasons 

• Protecting national security 

• Certain industries, like defense-related ones, protected


Retaliating 

• Government uses threat of intervention as bargaining tool to open foreign markets 

• May liberalize trade and result in economic gains 

• Risky strategy – Protecting consumers • 

• Protect consumers from unsafe products Indirect effect is limit or ban of imports

– Furthering foreign policy objectives 

• Government may grant preferential trade terms to a country it wants to build strong relations with 

• Trade policy can be used to punish “rogue states” – Protecting human rights • Government trade policy used to improve human rights policies of trading partners (ex. apartheid)


Chapter 9 Regional Economic Integration

Free trade area: Simplest, most common arrangement. Member countries agree to gradually eliminate formal trade barriers within the bloc, while each member maintains an independent international trade policy with countries outside the bloc. One example is NAFTA.


Customs union: Similar to a free trade area except the members harmonize their trade policies toward nonmember countries, by enacting common tariff and nontariff barriers on imports from nonmember countries. MERCOSUR is an example.


Common market: Like a customs union, except products, services, and factors of production such as capital, labor, and technology can move freely among the member countries. E.g., the EU countries put in place many common labor and economic policies.


Economic union: Like a common market, but members also aim for common fiscal and monetary policies, and standardized commercial regulations. The EU is moving toward an economic union by forming a monetary union with a single currency, the euro.

North American Free Trade Agreement 

– Abolished tariffs on 99% of the goods traded between members 

– Removed barriers on the cross-border flow of services

– Protects intellectual property rights 

– Removes most restrictions on FDI between members 

– Allows each country to apply environmental standards 

– Established two commissions to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored


The Case for NAFTA – Mexico would benefit from 

• Increased jobs as low-cost production moves south and will see more rapid economic growth as a result – U.S. and Canada would benefit from 

• Access to a large and increasingly prosperous market 

• The lower prices for consumers from goods produced in Mexico 

• Low cost labor and ability to be competitive in world markets 

• Increased imports by Mexico


The Case against NAFTA – Jobs would be lost and wage levels would decline in the U.S. and Canada – Pollution would increase due to Mexico's more lax standards – Mexico would lose its sovereignty


NAFTA: The Results – NAFTA’s early impact was subtle, and both advocates and detractors may have been guilty of exaggeration – Overall impact small, but positive 

• The Future of NAFTA – Continually a target of politically-motivated criticism – Donald Trump wants to renegotiate NAFTA

Chapter 10-12 The Foreign Exchange Market International Monetary system Global Capital Market

Foreign Exchange Market: Global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems 

– Rapidly growing – Most important trading centers are London (largest), New York, Zurich, Tokyo, and Singapore

– A market is open 24 hours a day – High-speed computer linkages among trading centers around the globe have effectively created a single market. • Arbitrage – Most transactions involve the dollar.


International Monetary System: Floating exchange rate regime 

• When the foreign exchange market determines the relative value of a currency – Pegged exchange rate 

• The value of the currency is fixed relative to a reference currency, such as the U.S. dollar or EUR (Popular among smaller nations) – Managed float system 

• The value of the currency is determined by market forces, but managed by the government – Fixed exchange rate

Foreign Exchange Market c


Spot exchange rates • Reported on a real-time basis • The amount of foreign currency one U.S. dollar will buy or the value of a dollar for one unit of foreign currency 

Forward exchange rates (Insuring) • Usually quoted for 30 days, 90 days, and 180 days into the future


Chapter 13 The Strategy of International Business


Basic Principles of Strategy

Goal is to maximize the value of the firm for owners and shareholders • Profitability (rate of return) • Profit growth (the percentage increase in net profits over time.)


Value Creation

 Measured by the difference between a firm’s costs of production and the quality that consumers perceive in its products 

• The more value customers place on a firm’s products, the higher the price the firm can charge for those products. 

• Measured by the difference between V (value) and C (cost) • Two strategies: low cost and differentiation


Porter • A firm should be explicit about its choice of strategic emphasis with regard to value creation (differentiation) and low cost. • A firm should configure its internal operations to support that strategic emphasis. • Efficiency frontier • Diminishing returns


To maximize profitability, a firm must: 

1. Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice 

2. Configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position 

3. Make sure that the firm has the right organization structure in place to execute its strategy • The strategy, operations, and organization of the firm must all be consistent with each other if it is to attain a competitive advantage and garner superior profitability


 The Firm as a Value Chain

 • Value creation activities 

• Production 

• Marketing and sales 

• Materials management 

• R&D 

• Human resources 

• Information systems • Infrastructure


The Firm as a Value Chain continued • Primary activities 

• Design, creation, and delivery of the product

 • Marketing, support, and after-sale service 

• R&D is concerned with the design and production processes. 

• Production is concerned with the creation of a good or service. 

• Marketing and sales can increase the perceived value of a product and discover customer needs. 

• Service activity provides after-sale service and support.


The Firm as a Value Chain continued • Support activities 

Provide inputs that allow the primary activities to occur 

• Information systems can alter the efficiency and effectiveness with which a firm manages its other value creation activities. 

• Logistics controls the transmission of physical materials through the value chain. 

• Human resources ensures that the company has the right mix of skilled people and ensures training, motivation, and compensation. 

• Infrastructure includes the organization structure, control systems, and culture of the firm.

Expanding the Market: Leveraging Products and Competencies


Core competence • Bedrock of a firm’s competitive advantage

How do we know SCA when we see it? What is it? When is it considered “sustainable”?

•Valuable - they enable a firm to implement strategies that improve its efficiency and effectiveness. 

•Rare - not available to other competitors. 

•Imperfectly imitable - not easily implemented by others. 

•Non-substitutable - not able to be replaced by some other non-rare resource.


1. The Question of Value: – Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness. 

– Value is dependent on type of strategy: • Low cost strategy: lower costs (Timex) • Increase efficiency (outputs / inputs) Differentiator: add enhancing features (Rolex) – To be valuable, the capability must either 

• – Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer • Increase effectiveness (enable some new capability not previously held) – Opening a new regional campus enables outreach to a new market of students



2. The Question of Rareness: – Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA. – Given the following, which are rare? • A web server • An HKR teacher • A state-of-the-art production plant – None of these are rare!


3. The Question of Imitability/tranferability – Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be “imperfectly imitable”, i.e. impossible to perfectly imitate them. 

– Ways imitation can be avoided: • Unique Historical or Geographical Conditions • Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them) 

– Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place. 

• Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain) – E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the “dynamics”, “culture” and “atmosphere” are not the same.



4. The Question of Substitutability – There must be no equivalent resources that can be exploited to implement the same strategies. 

– Forms of substitutability: • Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results. • Substitution: Very different resources can be substitutes, e.g. – A charismatic leader with a clear vision vs. a strategic planning dept. – A superior marketing strategy for a recognized brand name. – A superior technical support group for an intelligent diagnostic software package


(new 5th criteria) The Question of Exploitation: – Later research qualified this as another critieria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities? – Are systems in place to enable firms to support the execution of a particular strategy?


Choosing a Strategy 1 of 6 The need to customize the product to local conditions may work against the implementation of a global standardization strategy. • Concessions may need to be made to local conditions.


Choosing a Strategy 2 of 6 Four International Strategies • Global standardization • Localization strategy • Transnational strategy • International strategy


Global Standardization Strategy: Goal is to pursue low-cost strategy on global scale • Production, marketing, R&D, and supply chain activities are concentrated in a few favorable locations. • Avoids customization • Makes the most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal


Localization Strategy : Most appropriate when: • There are substantial differences across nations with regard to consumer tastes and preferences • Cost pressures are not too intense • Customization limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.



Transnational Strategy: Makes most sense when demands for local responsiveness are high but cost pressures are moderate or low • Must focus on leveraging subsidiary skills • Places conflicting demands on the company • Differentiating the product to respond to local demands in different geographic markets raises costs, which runs counter to the goal of reducing costs.


International Strategy: For firms with low cost pressures and low pressures for local responsiveness • Involves taking products first produced for their domestic market and selling them internationally with only minimal local customization • Tend to centralize product development functions such as R&D at home, but establish manufacturing and marketing functions in each major country or geographic region in which they do business

Chapter 14 The Organization of International Business

Organizational Architecture 

• Three conditions for superior enterprise profitability 

• Different elements of a firm’s organizational architecture must be internally consistent 

• Organizational architecture must match or fit the strategy of the firm—strategy and architecture must be consistent 

• Strategy and architecture of the firm must not only be consistent with each other but also make sense given the competitive conditions prevailing in the firm’s markets— strategy, architecture, and competitive environment must all be consistent


Organizational structure • The formal division of the organization • The location of decision-making responsibilities • The establishment of integrating mechanisms

Organizational Architecture continued 

 Control Systems-Metrics used to measure performance of subunits • Incentives-Devices used to reward managerial behavior. • Processes-Manner in which decisions are made and work is performed 


• Organizational Culture-Norms and values shared by employees • Organizations are societies of individuals who come together to perform collective tasks • Distinct patterns of culture and subculture • People include employees and strategies to recruit, compensate and retain them



Organizational Structure 1 of 10 Three dimensions 

• Vertical differentiation (The centralization and decentralization of decision- making responsibilities) 

• Horizontal differentiation (The division of the firm into subunits) 

• Integrating mechanisms (Mechanisms for achieving coordination between subunits within an organization.)


Vertical Differentiation: 

Centralization and Decentralization 

• Arguments for centralization 

1. Facilitates coordination and integration of operations 

2. Helps ensure that decisions are consistent with organizational objectives

 3. Gives top-level managers the means to bring change 

4. Avoids the duplication of activities that occurs when similar activities are carried on by various subunits



Vertical Differentiation: Centralization and Decentralization continued 

• Arguments for decentralization 

1. Gives top management time to focus on critical issues by delegating more routine issues to lower-level managers 

2. Motivational research favors decentralization 

3. Permits greater flexibility 

4. Can result in better decisions 

5. Can increase control


Vertical Differentiation: Centralization and Decentralization continued 

• Global strategy and centralization 

• Typically centralized: overall firm strategy, major financial expenditures, financial objectives, and legal issues 

• May be decentralized: operating decisions, such as those relating to production, marketing, R&D, and human resource management



Vertical Differentiation: Centralization and Decentralization continued • Global strategy and centralization continued 

• Global standardization strategy • Localization strategy • International strategy • Transnational strategy


Horizontal Differentiation: The Design of Structure • The Structure of Domestic Firms • Functional structure - functions reflecting the firm’s value creation activities (e.g., production, marketing, R&D, sales) • Product divisional structure - each division is responsible for a distinct product line (business area)

Horizontal Differentiation: The Design of Structure continued 

• The international division • Tends to be organized by geography • Typically replicates the structure in the home market • Dual structure can create conflict and coordination problems


Horizontal Differentiation: The Design of Structure continued 

• Worldwide area structure 

• Favored by firms with a low degree of diversification and a domestic structure based on functions 

• Geographic divisions

 • Worldwide product divisional structure 

• Favored by firms that are reasonably diversified and originally had domestic structures based on product divisions 

• Helps overcome coordination problems


Horizontal Differentiation: The Design of Structure continued 

• Global matrix structure • Horizontal differentiation proceeds along two dimensions: product division and geographic area

 • Dual decision making • Often clumsy and bureaucratic

Integrating Mechanisms • Strategy and coordination in the international business • Need for coordination is lowest in firms pursuing a localization strategy, is higher in international companies, higher still in global companies, and highest of all in transnational companies


Types of Control Systems 

• Personal control- Achieving control by personal contact with subordinates • Most widely used in small firms • Structures the relationships between managers at different levels in multinational enterprises 

• Bureaucratic controls- Achieved through a system of rules and procedures that directs the actions of subunits. • Most important bureaucratic controls in subunits within multinational firms are budgets and capital spending rules



Output controls 

• Relatively objective performance metrics such as profitability, productivity, growth, market share, and quality 

Managers judged by their ability to achieve these goals • Goals are normally established through negotiation between subunits and headquarters


Cultural controls 

• Employees “buy into” the norms and value systems of the firm and control their own behavior • Can reduce the need for other control systems • T.ex Mc Donalds Franchisee partners


Incentive Systems • Devices used to reward appropriate employee behavior • Usually closely tied to performance metrics used for output controls 

• The type of incentive varies depending on employees/tasks • Requires significant cooperation between managers in different subunits • Often adjusted to account for national differences in institutions and culture • Can have unintended consequences


Control Systems, Incentives, and Strategy in the International Business 

• Performance ambiguity 

• Tends to occur when there is a high degree of interdependence between subunits within the organization 

• Strategy, interdependence, and ambiguity 

• Localization strategy: performance ambiguity is low 

• International strategy: higher level, integration is necessary 

• Global standardization strategy: higher still, many activities are interdependent • Transnational: Highest level of performance ambiguity, high degree of joint decision making


Implications for control and incentives • Costs defined as amount of time top management devotes to monitoring and evaluating subunits’ performance • Costs are greater when performance ambiguity is greater


Culture is a system of values and norms that are shared among people • Creating and Maintaining Organizational Culture • Founders or leaders have a profound impact • The broader social culture of the nation • The history of the enterprise


Creating and Maintaining Organizational Culture continued 

• Culture is maintained by • Hiring and promotional practices of the organization • Reward strategies • Socialization processes – formal or informal • Communication strategy – corporate mission statements



Organizational Culture and Performance in the International Business 

• Strong cultures • All managers share a consistent set of values and norms that have a clear impact on work performance • Strong doesn’t necessarily mean good • Adaptive cultures • Most managers care deeply about and value customers, stockholders, and employees


Localization (Multidomestic) Strategy • Focus on local responsiveness • Operating decisions are decentralized to functionally self-contained country subsidiaries • Need for coordination or integrating mechanisms is low


International Strategy • Firms attempt to create value by transferring core competencies from home to foreign subsidiaries • Headquarters maintains centralized control over firm’s core competency, other decisions are decentralized • Moderate need for coordination


Global Standardization Strategy • Firms focus on the realization of location and experience curve economies • Headquarters typically maintains ultimate control over most operating decisions • The need for integration is high • Need a strong organizational culture • Incentive systems are typically linked to performance metrics at the corporate level


Transnational Strategy • Focus is on the simultaneous attainment of location and experience curve economies, local responsiveness, and global learning • Some operating decisions are centralized (production, R&D) • Need for coordination is high • Need a strong culture and incentives to promote cooperation



Environment, Strategy, Architecture, and Performance • The firm’s strategy must be consistent with the environment in which the firm operates • The firm’s organizational architecture must be consistent with its strategy


Lecture 6


Explian the internationalizaton -theories -motives -barriers -modes of entry


”Internationalization is a pattern of investments in foreign markets”


”Internationalization is a evolutionary process whereby the firm´s activities increase internationally parallel to its commitment and knowledge”


”Internationalization is the process by which firms both increase their awareness of the direct and indirect influence of international transactions on their future, and establish and conduct transactions with other countries.”


Models of Internationalization 

◆Stage/Process models of internationalization (e.g Uppsala model) 

◆Born Global 

◆TCA model - larger companies

◆The network model




Internationalization Stages 

Exporting - produces all goods and services in the home-country [shipped to customers by the firm (directly) or through independent middlemen (indirectly)]. 


Stage 1 : Uninterested firms -management is not interested in exporting; would not even fill an unsolicited export order.


Stage 2 Partially interested -unsolicited orders or other stimuli continue overtime; management responds but makes no effort to explore the feasibility of export.


Stage 3 Exploratory exporter -management actively explores the feasibility of exporting.


Stage 4 Experimental exporter -the firm exports on an experimental basis to psychologically close countries.


Stage 5  Export Evaluation -the firm is an experienced exporter (to stage 4 countries) and adjusts exports optimally to changing exchange rates, tariffs, etc.


Stage 6 Export Adaptation -management explores the feasibility of exporting to additional countries that psychologically are further away.

  • THE INTERNATIONALIZATION/ TRANSACTION COST APPROACH

    • licencing/direct equity investment


    • internalization of foreign expansion (e.g.subsidaries) or externalization (collaboration with external partner); by the transaction costs analysis the most efficient option is implemented; internalization theory is the TC theory of MNCs
    • used on larger companies
    • go international based on transaction costs- internal

BORN GLOBALS: 

◆ niche markets 

◆ technology and other advantages 

◆ flexibility of SMEs-born global 

◆ global network 

◆ internet born globals 

◆ Often: ◆ SMEs with fewer than 500 employees 

◆ Rely on cutting edge technology in developing unique product or process innovations 

◆ Usually managed by entrepreneurial visionaries


 – decision maker has a large influence over the type of internationalisation followed

Motives to Internationalize


INTERNAL (Proactive) ”they want to go” 

◆ Profit advantage 

◆ Unique product 

◆ Technological advantages 

◆ Exclusive information 

◆ Tax benefits 

◆ Economies of Scale 

◆ Change agents


EXTERNAL(Reactive) ”they have to go” 

◆ Competitive pressures 

◆ Overproduction 

◆ Declining domestic sales 

◆ Saturated domestic markets 

◆ Proximity to customers and ports 

◆ Outside experts (change agents)


Change Agents in Internationalization Process

Firm Internal 

◆ Enlightened Management 

◆ New management 

◆ Significant internal event


Firm External 

◆ Demand 

◆ Other firms 

◆ Distributors 

◆ Banks 

◆ Chambers of commerce 

◆ Export agents 

◆ Government activities


Barriers to Internationalization 

◆Internal 

◆External 

- General Market risks 

- Commercial risks 

- Political risks


General market risks 

◆ Comparative market distance 

◆ Competition from other firms in foreign market 

◆ Differences in product usage in foreign markets ◆ Language and cultural differences 

◆ Differences in product specifications in foreign markets 

◆ Complexity of the logistics 


Commercial Risks 

◆ Exchange rate fluctuations 

◆ Failure of foreign customers to pay 

◆ Delays and damage in export Shipment and distribution process 


Political Risks 

◆ Foreign government restrictions 

◆ National export policy 

◆ Delays and damage in export Shipment and distribution process 

◆ Complexity of trade documentations


External 

– Cost of raw material 

– Access to external sources of finance 

– Distribution system 

– Proximity to the export market 


Internal 

– Company Size 

– Product 

– Technology 

– Management


What is the difference beteen an agent and a distributor?


Distributor: An independently owned and operated sales organization who takes title to products, keeps them in inventory, provides for delivery and credit, and may service products after the sale.


Distributors make good sense when: 

◆The product is relatively standardized. 

◆The unit value of the product is low 

◆The order size is small. 

◆Gross margin is low. 

◆Customer purchasing effort is low. 

◆Frequent purchases are made by customers. 

◆The market is decentralized and scattered. 

◆Customer requires short lead times for delivery.


Agent: Independent salespeople who represent, on a long-term basis, a number of manufacturers whose products complement one another but are not competitive.


AGENTS make good sense when: 

◆ Customers require personal selling but the market is not large enough to support full-time company sales personnel. 

◆ Gross margins are not large enough to support the cost of full-time company sales personnel, but personal selling is required. 

◆ The manufacturer is moving into new markets and wishes to penetrate those markets quicker by using already established rep contacts in those markets. 

◆ The product is best sold as part of a total package with other manufacturers’ products rather than an individual item. 

◆ The manufacturer is new and does not have full-time sales personnel, but customers require personal selling


Direct Channels Make Good Sense when: 

◆Gross Margins are high 

◆The purchase is of significant importance to the buyer 

◆The product is technically complex 

◆The buyer has the need for both pre- and postsale servive 

◆The order size is large 

◆Product customization is required 

◆The product is subject to rapid technological change


Chapter 15


Licensing 

◆The licensor permits the licensee to use its intellectual property (an intangible) in exchange for a royalty payment. 

◆Advantages of licensing 

– No capital investment, knowledge, or marketing strength 

– Huge profit potential, recovered costs 

– Minimal risk of government intervention 

– A stage in internationalization 

– Preempt market entry before competition – Increasing intellectual property rights protection


Disadvantages of licensing 

– Licensee controls marketing function and licensor does not gain expertise in local market 

– No guarantee of entry after license expires 

– Licensee may become local and international competitor of licensor 

– No extension of license permitted by local government 

– Licensee may create quality control and marketing problems for licensor


Trademark Licensing 

Companies trade on their names and characters as a substantial source of worldwide revenue

Franchising 

• Employed primarily by service firms 

Advantages 

• Firm experiences lower costs and risks than opening a foreign market on its own 

• Helps build a global presence quickly Disadvantages 

• May inhibit the firm’s ability to take profits out of one country to support competitive attacks in another • Quality control


International Franchise Expansion 

Reasons for the growth 

–Market potential 

– Financial gain 

–Saturated domestic markets 

Problems in franchising 

–Needs a high degree of standardization 

–Protection of the total business system from copycat competition 

–Government intervention –Selection and training of franchisees


Governmental Perspective on Franchising Franchising does NOT 

–replace exporting 

–export jobs 

–require large outflow of foreign exchange… the bulk of profit remains in the country.


JOINT VENTURES 

”A collaboration of two or more firms for more than a transitory period in which the partners share assets, risks, and profits” 

◆ Contributions may consist of funds, technology, know-how, sales organizations, or plant and equipment

Joint Ventures 

Advantages 

◆ Pooling of resources 

◆ Better relationships with local organizations 

◆ Knowledge the partner brings of the local market ◆ Minimizing exposure risk of long-term capital 

◆ Maximizing leverage of invested capital 


Disadvantages 

◆ Different levels of control are permitted or required 

◆ Difficulty in maintaining the relationship 

◆ Disagreements over business decisions 

◆ Disagreements over profit accumulation, and distribution (profit repatriation)



Strategic Alliances or Partnerships 

” an informal or formal arrangement between two or more companies with a common business objective, the goals being to e.g. 

– leverage critical capabilities – increase the flow of innovation – improve flexibility in responding to market and technological changes”


FOREIGN DIRECT INVESTMENT 

”Entering a foreign market by developing foreign-based assembly or manufacturing facilities”

Reasons for Foreign Direct Investment 

◆Marketing factors 

–Growth and profit motivations 

–Circumventing government-erected barriers to trade 

–Access to low-cost resources and supply 

–Local customers preference for domestic goods and services 

–Attempts to obtain low-cost resources and ensure their supply


Reasons for FDI 

Derived demand – results when MNC move abroad and encourage their suppliers to follow them, creating chain or pattern of direct investment in a market. 

 Government incentives – Fiscal incentives 

◆tax credits or rebates, deduction for capital expenditures 

Financial incentives 

◆special funding for land or buildings, loans and guarantees, wage subsidies – Nonfinancial incentives 

◆guaranteed purchases, protective tariffs, import quotas, local content requirements, investment in infrastructure


Categories of International Firms 

Resource seekers –are searching for natural and human resources 

Market seekers –are searching for better opportunities to enter or expand within markets. ◆Efficiency seekers –are attempting to obtain the most economic sources of production


Foreign Direct Investors 

Positive perspectives 

– Bring in capital, economic activity, and employment 

– Transfer technology and managerial skills 

– Competition, market choice, and competitiveness are enhanced 

Negative perspectives 

– Drain resources from host countries – Starve smaller capital markets 

– Discourage local technology development 

– Bring in outmoded technology 

– Create new competition for local firms 






Chapter 18 Global Marketing and RD

Mass producing a standardized output: 

• Allows a firm to realize substantial unit cost reductions from experience curve effects and other economies of scale 

However: 

• Ignoring country differences in consumer tastes and preferences can lead to failure There is a link between marketing and R&D 

• Marketing mix – product, price, promotion, and place


Marketing mix may vary according to: 

• Local differences in culture 

• Economic conditions 

• Competitive conditions 

• Product and technical standards 

• Distribution systems 

• Government regulations


Markets are segmented by: 

• Geography 

• Demography (age, sex, income, maritial status, occupation etc) 

• Sociocultural factors (family life cycle, social standing etc) 

• Psychological factors (behavoural)- buying behaviour, usage rate, searched benefit, brand loyalty etc


Issues for marketing managers: 

• Differences between countries in the structure of market segments 

• Existence of segments that transcend national borders 

• Intermarket segment 

• Enhances the ability of an international business to view the global marketplace as a single entity and pursue a global strategy


Cultural Differences 

• Social structure, language, religion, education, others 

• Tastes and preferences are becoming more cosmopolitan.

 

Economic Development

• Consumer behavior is influenced by the level of economic development of a country. 

• Consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. 

• Consumers in the most advanced countries are willing to pay more for products that have additional features and attributes customized to their tastes and preferences.


Product and Technical Standards

• Regional trade agreements may influence certain regional markets to become more globalized. 

• Differing government-mandated product standards can often result in companies ruling out mass production and marketing of a fully global and standardized product. 

• Differences in technical standards also constrain the globalization of markets.

Typical Distribution System 

• Channel with a wholesale distributor and a retailer • Firm may also sell directly to the consumer, to the retailer, or to the wholesaler 

• Firm may sell to an import agent who then deals with the wholesale distributor, the retailer, or the consumer


Barriers to International Communication

• Cultural barriers 

• Make it difficult to communicate messages 

• Need to develop cross-cultural literacy 

• Use local input in developing the marketing message

Source and country of origin effects 

Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender. (compare with influencer marketing) 

Country of origin effects 

• Consumer may use country of origin as a cue when evaluating a product 

• Use promotional messages that stress the positive performance attributes of the product 

• Not always negative


Noise levels 

• High in highly developed countries 

• Lower in developing countries because there are fewer firms competing for attention


Push strategy emphasizes personal selling. 

• Costly 

Pull strategy depends more on mass media advertising. 

Choice is determined by: 

• Consumer sophistication • Channel length • Media availability


Product Type and Consumer Sophistication 

• Consumer goods usually use pull strategy, except in nations with poor literacy rates. 

• Industrial products or complex products favor a push strategy.


Media Availability 

•A pull strategy relies on access to advertising media. 

• In developed countries, advertising is focused. 

• In developing countries, there are fewer forms of mass media. 

• Use of pull strategy is limited • Media availability may be limited by law.


The Push-Pull Mix 

Push strategies 

• For industrial products or complex new products • When distribution channels are short 

• When few print or electronic media are available 


Pull strategies 

• For consumer goods 

• When distribution channels are long 

• When sufficient print and electronic media are available to carry the marketing message

Global Advertising

Communication Strategy


For standardized advertising 

• Economic advantages 

• Shortage of creative talent 

• Global brand names 

Against standardized advertising 

• Cultural differences • Advertising regulations


Price Discrimination

Charging what the market will bear 

• Helps maximize profits 

• National markets must be kept separate. 

• Price elasticity of demand 

• Elasticity is greater in countries with low income levels and where there is more competition. 

• Inelastic demand


Pricing Strategy 

Strategic Pricing


Predatory pricing

• Use aggressive pricing to drive out weaker competitors and then raise prices and operate in a monopoly position 

• Requires the firms to have a profitable position in another market to subsidize the aggressive pricing process 

Multipoint pricing strategy refers to the fact that a firm’s pricing strategy in one market may have an impact on its rivals’ pricing strategy in another market.

Experience curve pricing 

aggressive pricing designed to increase volume and help the firm realize experience curve economies.

 • Price low worldwide in attempt to build global sales volume as rapidly as possible, even at a loss • Take profits later after moving down the experience curve


Regulatory Influences on Prices

Antidumping regulations 

• Ambiguity in definition of dumping 

• Set a floor under export prices and limit firms’ ability to pursue strategic pricing

Competition policy 

• Designed to promote competition and to restrict monopoly practices 

• Can be used to limit the prices a firm can charge in a given country

International Market Research

Defining the Research Objectives

• Defining the research problem 

• Setting objectives for the international market research


Determining the Data Sources

• Primary data • Secondary data


Assessing Costs and Benefits

• Primary data is more costly. • Survey development and sampling frame issues

Analyzing and Interpreting the Research 

• Requires statistical and cultural knowledge 

• Sometimes Software for quantitative analysis is necessary 

• Understanding of values, beliefs, norms, and artifacts of the respondent 

Reporting the Research Findings • May include information on customers, competitors, countries, the industry, and the environment


Chapter 19 Global Human Resource Management

Human Resource Management

• Human resource strategy 

• Staffing 

• Expatriate managers 

• training 

• Compensation


HRM 

• Strong link with profitability 

• Has a critical impact on the people, culture, incentive, and control system elements of the firm’s organizational architecture 

• Tends to be weak in multinational organizations

Staffing Policy • Selecting individuals who have the skills required to do particular jobs 

• Tool for developing and promoting the desired corporate culture of the firm

Types of Staffing Policies


Ethnocentric 

• All key management positions are filled by parent-country nationals. 

Companies use this policy because: 

• A firm may believe the host country lacks qualified individuals to fill senior management positions. 

• A firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. 

• A firm may believe that the best way to transfer core competencies is to transfer parent-country nationals who have knowledge of that competency to the foreign operation.

• Limits advancement opportunities for host-country nationals 

• Results in resentment, lower productivity, and increased turnover in that group 

• Can lead to cultural myopia (failure to understand host-country cultural differences that require different approaches to marketing and management)


Polycentric

• Requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters 

• Firm is less likely to have cultural myopia 

• May be less expensive than an ethnocentric approach 

• Host-country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiary 

• Gap between host-country managers and parent-country managers 

• Can result in inertia within the firm


Geocentric

• Makes the best use of its human resources 

• Builds a cadre of international executives who feel at home working in a number of cultures 

• Firms may be better able to create value from the pursuit of experience curve and location economies and from the multidirectional transfer of core competencies than firms pursuing other staffing policies 

• Many countries want foreign subsidiaries to employ their citizens. 

• Can be expensive to implement


Expatriate Managers

• Used by ethnocentric and geocentric staffing policies 

• Inpatriates 

• A subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer

Expatriate failure rates (40% of all assignments fail) 

• Results in premature return from a foreign posting and high resignation rates

 • High costs 


• Reasons for failure (Tung): 

1. Inability of spouse to adjust 

2. Manager’s inability to adjust 

3. Other family problems 

4. Manager’s personal or emotional maturity 

5. Inability to cope with larger overseas responsibilities

Expatriate selection 

Four dimensions that predict success (Mendenhall and Oddou): 

• Self-orientation: the expatriate’s self-esteem, self- confidence, and mental well-being 

• Others-orientation: relationship development and willingness to communicate with locals 

• Perceptual ability- ability to understand why people of other countries behave the way they do. Do you remember Self Reference Criterion (SRC) from my culture class? 

• Cultural toughness- ability to adjust even when host culture is unfamiliar and uncomfortable.


Global Mindset

• Fundamental attribute of a global manager 

• Can deal with high levels of complexity and ambiguity, and are open to the world

Training versus Development

• Training gives expatriate managers skills for the foreign posting. 

• Development is intended to develop the manager’s skills over his or her career with the firm.


Training for Expatriate Managers

Cultural training 

• Seeks to foster an appreciation for the host country’s culture, history, politics, economy, religion, and social and business practices 

• Familiarization trip to the host country to ease culture shock 

Language training 

• Exclusive reliance on English diminishes an expatriate manager’s ability to interact with host-country nationals.

Practical training 

• Aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country • Support network of friends


Expatriate Pay 

• Balance sheet approach 

• Includes base salary, a foreign service premium, allowances of various types, tax differentials, and benefits 

• Attempts to provide expatriates with the same standard of living in their host countries as they enjoy at home plus a financial inducement

Expatriate Pay

• Base salary 

• Same range as the base salary for a similar position in the home country 

• Normally paid in either the home-country currency or in the local currency 

 Foreign service premium 

• Extra pay the expatriate receives for working outside his or her country of origin

Expatriate Pay

• Allowances • Hardship • Housing • Cost of living • Education


Taxation

• May have to pay income tax to both the home- and host- country governments


Benefits

• Same level of medical and pension benefits abroad that they received at home

International business

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