Key Concepts in International Business Strategies and Organization

Multinational Enterprise (MNE)

A company that deploys resources and capabilities in the procurement, production, and distribution of goods/services in at least two countries.

Foreign Direct Investment (FDI)

A firm's investments in value chain activities abroad.

Liability of Foreignness

Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distance.

Agency Theory

A theory that views the firm as a "nexus of legal contracts" to address the conflict of interest between principals (shareholders) and agents (managers).

Adverse Selection

A situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives (e.g., hiring a CEO who lacks the skills they claimed).

Moral Hazard

When one party is incentivized to take undue risks because the costs of those risks are borne by another party (e.g., a CEO taking huge risks because they are shielded from loss).

Shared Value Creation

A model proposing that managers focus on both shareholder value creation AND value creation for society to expand the total pool of economic/social value.

CEO/Chair Duality

A situation where the CEO also serves as the chair of the board of directors; creates potential conflicts of interest

CAGE Distance Framework

A decision tool based on Cultural, Administrative, Geographic, and Economic distance between a home and host country.

International Strategy

Sells the same products/services in both domestic and foreign markets (Low cost pressure, low local responsiveness).

Multidomestic Strategy

Attempts to maximize local responsiveness, hoping that local consumers will perceive them as a domestic company (High local responsiveness, low cost pressure).

Global-Standardization

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor (High cost pressure, low local responsiveness).

Transnational Strategy

Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position).

Specialization

The degree to which a task is divided into separate jobs (i.e., the division of labor).

Formalization

The extent to which employee behavior is steered by explicit and codified rules and procedures.

Centralization

The degree to which decision-making is concentrated at the top of the organization.

Span of Control

The number of employees who report directly to a manager.

Mechanistic Organization

Characterized by high specialization, high formalization, and a tall hierarchy (best for cost-leadership).

Organic Organization

Characterized by low specialization, low formalization, and a flat hierarchy (best for differentiation/innovation).

Multidivisional (M-Form)

Structure consisting of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Input Controls

Mechanisms that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures (SOPs).

Output Controls

Mechanisms that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results to individual employees/SBUs.

Examples of international

Rolex, Harley Davidson, Starbucks

Examples of Multidomestic

Kit kat

Examples of Global Standardization

Iphone

Examples of Transnational

Pizza hut, Cleaning companies

International position

Low; Low

Transnational position

High; High

Global Standarization position

Low; High (top left)

Multidomestic position

High; low (Bottom Right)

What is legal is always ethical

False

Examples of a unicorn company

uber, spacex, snapchat, openai, shein

What is a unicorn company

A private firm valued over 1 Billion

Advantages of going public

limited liabilities for investors

translation of ownership

legal personality of organizations

separation of legal control and management