SGMT 2200 Chapters 1-5 Review

Integration-Responsiveness Framework

a framework of MNE management on how to simultaneously deal with the pressures for both global integration and local responsiveness

Home Replication Strategy

• involves taking products first produced for their domestic market and selling them internationally with only minimal local customization

• tend to centralize product development functions at home, but establish manufacturing and marketing functions in each major region where they do business

• low cost pressures and low pressures for local responsiveness

• advantages

  • leverages home country-based advantages

  • relatively easy to implement

• disadvantages

  • lack of local responsiveness

  • may result in foreign customer alienation

Localization (Multidomestic) Strategy

• a strategy that focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone local (domestic) market worthy of significant attention and adaptation; prominent strategy among European firms

• authority is more decentralized; focus on competition in each market

• high pressure for localization

• advantages

  • maximizes local responsiveness

• disadvantages

  • high costs due to duplication of efforts in multiple countries

  • too much local autonomy

Global Standardization Strategy

• a strategy that focuses on development and distribution of standardized products worldwide in order to reap the maximum benefits from low-cost advantages

• competitive strategy is centralized and controlled largely by corporate office

• emphasizes economies of scale; products are standardized across national markets

• low pressure for local responsiveness, high pressure for cost reduction

• advantages

  • leverages low-cost advantages

• disadvantages

  • lack of local responsiveness

  • too much centralized control

Transnational Strategy

• a strategy that endeavours to be simultaneously cost efficient, locally responsive, and learning-driven around the world; increasingly popular as a strategy

• optimization of tradeoffs associated with efficiency, local adaptation and learning

• difficult to achieve because of simultaneous requirements of efficiency and adaptability

• high pressure for local responsiveness and high pressure for cost reduction

• advantages

  • cost efficient while being locally responsive

  • engages in global learning and diffusion of innovations

• disadvantages

  • organizationally complex

  • difficult to implement

Strategic Fit

• strategy as a link between the firm and its external environment

• for a strategy to be successful, it must be consistent with the firm’s external environment and with its internal environment (goals and values, resources and capabilities and structure and systems)

Center of Excellence

an MNE subsidiary explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by, and/or disseminated to, other subsidiaries

Worldwide (Global) Mandate

a charter to be responsible for one MNE function throughout the world

International Division

• an organizational structure that’s typically set up when firms initially expand abroad

• used when engaging in a home replication strategy

Geographic Area Structure

• an organizational structure that organizes the MNE according to different geographic areas (countries and regions)

• used when engaging in a localization strategy

Global Product Division Structure

• an organizational structure that assigns global responsibilities to each product division

• used when engaging in a global standardization strategy

Global Matrix Structure

• an organizational structure often used to alleviate the disadvantages associated with both geographic area and global product division structures

• used when engaging in a transnational strategy

Implications for Action

• understand and master the external rules of the game governing MNEs and home-country/host-country environments

• understand and be prepared to change the internal rules of the game governing MNE management

• develop learning and innovation capabilities to leverage multinational presence as an asset, i.e. “think global, act local”

International Business (IB)

a business (firm) that engages in international (cross-border) economic activities and/or 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

Reasons to Study Global Business

• enhance employability and advance your career in the global economy

• better prep 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

Group of 20 (G-20)

the group of 19 major countries plus the European Union and AU (since 2023) whose leaders meet on a bi-annual basis to solve global economic problems

Global Mindset

ability to “connect the dots” globally

Expatriate Manager (Expat)

manager who works abroad

International Premium

a significant pay raise when working overseas

Institution-Based View

• suggests that the success and failure of firms are enabled and constrained by institutions

• includes consideration of economic/shareholder view, triple bottom line, and stakeholders

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 non-native status

Emerging Economies

a term that has gradually replaced the term “developing countries” since the 1990s

Emerging Markets

often used interchangeably with “emerging economies”

Base of the Pyramid (BoP)

economies where people make less than $3000 per capita per year

Gross Domestic Product (GDP)

the sum of value added by resident firms, households, and governments operating in an economy

Gross National Income (GNI)

GDP plus income from non-resident sources abroad

Purchasing Power Parity (PPP)

a conversion that determines the equivalent amount of goods and services that different currencies can purchase, i.e. “money goes further in xxx country”

Informal Institutions

institution represented by cultures, ethics, and norms

Ethnocentrism

a self-centred mentality by a group of people who perceive their own culture, ethics, and norms as natural, rational, and morally right

Culture

the collective programming of the mind that distinguishes the members of one group or category of people from another

Social Stratification

hierarchical arrangement of individuals into social categories (strata), such as classes, within a society

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

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

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

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

Cultural Intelligence

• an individual’s ability to understand and adjust to new cultures

• acquisition passes through 3 phases…

  • awareness (recognition of both pros and cons of your ‘mental software’ and appreciation of people from other cultures)

  • knowledge (cross-cultural literacy)

  • skills (based on awareness and knowledge, plus good practice)

Institutional Transition

fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect firms as players

Institution-Based View

• leading perspective in global business that suggests the success and failure of firms are enabled and constrained by institutions

• managers and firms rationally pursue their interests and make choices within the formal and informal constraints on a given institutional framework

• while formal and informal institutions combine to govern firm behaviour, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms

Institution

formal and informal rules of the game

Institutional Framework

formal and informal institutions that govern individual and firm behaviour

Formal Institution

institutions represented by laws, regulations, and rules

Regulatory Pillar

coercive power of governments

Informal Institution

institution represented by cultures, ethics, and norms

Normative Pillar

the mechanism through which norms influence individual and firm behaviour

Cognitive Pillar

the internalized values and beliefs that guide individual and firm behaviour

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

• transaction costs can arise from this

Democracy

a political system in which citizens elect representatives to govern the country on their behalf

Totalitarianism (Dictatorship)

a political system in which one person or party exercises absolute political control of the population

Communist Totalitariansim

centres on a communist party

Right-Wing Totalitarianism

characterized by its intense hatred against communism

Theocratic Totalitarianism

refers to the monopolization of political power in the hands of one religious party or group

Authoritarianism

a political system in which political plurality is undermined and concentrated government power is imposed

Civil Law

a legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgements

Common Law

a legal tradition shaped by precedents and traditions from previous judicial decisions

Theocratic Law

legal system based on religious teachings

Market Economy

economy characterized by the “invisible hand” of market forces

Command Economy

economy characterized by government ownership and control of factors of production

Mixed Economy

economy that has elements of both a market economy and a command economy

Resource and 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

Value Chain

a stream of activities from upstream to downstream that add value

Original Equipment Manufacturer (OEM)

manufactures products or components based on another company’s design

Original Design Manufacturer (ODM)

designs and produces a product, which is then sold under a client’s brand name

Original Brand Manufacturer (OBM)

designs, produces, and sells products under its own brand

Benchmarking

examining whether a firm has resources and capabilities to perform a particular activity in a manner superior to competitors

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

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)

Reshoring

moving formerly offshored activities back to the home country of the focal firm

SWOT Analysis

• a tool for determining a firm’s strengths, weaknesses, opportunities, and threats

• institution-based view deals with the external O and T, enabled and constrained by formal and informal rules of the game

• resource-based view concentrates on the internal S and W to identify and leverage sustainable competitive advantage

VRIO Framework

resource-based framework that focuses on the value, rarity, imitability, and organizational aspects of resources and capabilities

Value

• value-adding resources lead to competitive advantage

• non-value-adding capabilities may lead to competitive disadvantage

Rarity

• valuable and rare resources provide competitive advantage

• valuable and common resources lead to competitive parity

Imitability

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

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 competitive advantage

First-Mover Advantage

benefits that accrue to firms that enter the market first that late entrants don’t enjoy

Late-Mover Advantage

• refers to the benefits a company gains by entering a market after pioneers or first movers

• by waiting, late entrants can learn from the mistakes of first movers, improve on existing products, and often enter with lower risk and cost

Foreign Portfolio Investment (FPI)

investment in a portfolio of foreign securities such as stocks and bonds

Sovereign Wealth Funds (SWF)

a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, and other financial instruments

Management Control Right

the right to appoint key managers and establish control mechanisms

Dissemination Risk

risk associated with unauthorized diffusion of firm-specific know-how

Horizontal FDI

a type of FDI in which a firm duplicates its home-country based activities at the same value-chain stage in a host country

Vertical FDI

a type of FDI in which a firm moves upstream at different value-chain stages in a host country

Upstream Vertical FDI

a type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country

Downstream Vertical FDI

a type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country

FDI Inflow

inward FDI moving into a country in a year