Globalization (Peng Chapters 1, 5, 6, 11) !!

Institution-Based View

Success depends on the way the external environment or system is set up (rules of the game)

Two types: Formal Institutions & Informal Institutions

Resource-Based View

Focuses on internal resources

What is Globalization?

The increasing interconnectedness and integration of countries around the world through trade, technology, culture, and communication. It's like the world becoming one big, connected marketplace!

Pendulum view of globalization

Globalization moves like a pendulum - sometimes the world gets more connected, sometimes countries pull back and focus inward!

A new force view on globalization

-       a new force sweeping through the world in recent times

Historical view of globalization

-       a long-run historical evolution since the dawn of human history

What is FDI?

Foreign Direct Investment

The action of Investing, controlling, and managing financing activities in other countries

Horizontal FDI —> (=)

"Same Business, Different Countries!"

When a firm copies its existing operations in a different country

• Same product/service in multiple countries 🔄

• Market-seeking strategy 🎯

• Replicating what they already do

Vertical FDI ⬆

“Different Parts, Different Places!"

When a firm makes complementary items in different countries

• Different stages of production in different places 🔗

• Efficiency-seeking strategy 💰

• Supply chain spread across countries 🌐

What is the OLI advantage?

OLI = The Triple Crown of FDI 🏆🏆🏆
Companies need all three advantages to justify foreign direct investment!

A firm will invest abroad when it has all three advantages:

1. Ownership

2. Location

3. Internalization

What it is (internalization): Benefits from keeping operations within the firm vs. outsourcing

Radical View of FDI

FDI is a hostile takeover strategy implemented by large corporations

Free Market View

Core Belief: FDI is mutually beneficial 🤝

Pragmatic view of FDI

FDI has both pros and cons, but some have more benefits than others

• Core Belief: FDI should be selectively managed 🎯

Carrier (HVAC company) decided to close its manufacturing plant in Ohio and move it to Mexico.

Host vs. Home Country 🌍

• Home Country: U.S. 🇺🇸 (where Carrier originally operated)

• Host Country: Mexico 🇲🇽 (where Carrier is moving to)

Carrier (HVAC company) decided to close its manufacturing plant in Ohio and move it to Mexico.

Costs and Benefits to HOME Country (U.S.)

COSTS 📉

• Job loss in Ohio manufacturing 👨‍💼❌

• Reduced tax revenue for local/state government 💰📉

• Economic impact on local community (suppliers, restaurants, etc.) 🏪📉

• Brain drain if skilled workers leave the area 🧠➡

BENEFITS 📈

• Increased efficiency and cost savings for Carrier ✅

• Lower product prices for U.S. consumers 💰⬇

• Higher corporate profits → More dividends for U.S. shareholders 📊

• Capital freed up for other investments 💼

Carrier (HVAC company) decided to close its manufacturing plant in Ohio and move it to Mexico. Costs and Benefits to HOST Country (Mexico) 🇲🇽

BENEFITS 📈

• Increase in job opportunities for Mexican workers ✅

• Technology transfer and skill development 🔧

• Foreign currency flowing into Mexico 💰

• Economic development in the region 🏗

COSTS 📉

• Potential exploitation of workers (lower wages) 💸

• Environmental concerns if standards are lower 🌱

• Dependency on foreign company decisions 🔗

• Risk of plant closure if company moves again ⚠

What is dumping?

Sell below cost abroad 💸

Raise prices after eliminating competition 📈

What are anti-dumping duties?

Special tariffs imposed by the importing country to protect domestic industries from unfair dumping practices.

What is collusion, and what characteristics of a market make collusion difficult?

Definition: agreements between firms to reduce competition

Prisoner’s dilemma: If I snitch, then I may be found guilty

How do resources and capabilities influence the competitive dynamics of a business? (Give an example)

A firm’s ability to adjust rapidly to challenges can add value and become a key resource

1.   What is resource similarity and how does this impact competitive dynamics? (Give an example)

Microsoft and Apple started off as large competitors when they only sold computers, but now their products have differentiated enough to where Microsoft has become the industry standard

what is an MNE

Multi-National Enterprise

Defender Strategy

Focuses on local assets in areas in which MNEs are weak.

Extender Strategy

Focuses on leveraging homegrown competencies abroad

Dodger Strategy

Focuses on cooperating through joint ventures with MNEs and sell-offs to MNEs.

Contender Strategy

Focuses on engaging in rapid learning and then expanding overseas.