chapter 5

The process by which firms expand their operations across national borders

Internationalization

The disadvantages firms face when operating in a foreign country

Liability of Foreignness

A theory explaining international expansion based on ownership, location, and internalization advantages

OLI (Eclectic) Theory

Firm-specific advantages such as technology or brand that give competitive advantage

Ownership Advantage (O)

Country-specific advantages such as resources or labor costs

Location Advantage (L)

Advantages gained by controlling operations internally rather than outsourcing

Internalization Advantage (I)

A theory that firms expand internationally in gradual stages

Uppsala Model

Firms that internationalize rapidly from inception

Born Global Firms

Companies from developing countries expanding internationally

Emerging Market Multinationals

A framework combining industry, firm, and institutional perspectives

Strategy Tripod

Analyzing competition within an industry to determine profitability

Industry-Based View

Evaluating firm resources and capabilities for advantage

Resource-Based View

Considering rules, norms, and institutions affecting strategy

Institution-Based View

The disadvantages of operating abroad due to unfamiliarity and distance

Foreign Market Disadvantage

The process of entering and exiting foreign markets strategically

Market Entry and Exit

When governments take control of foreign-owned assets

Expropriation

The forced takeover of a company’s operations by a government

Nationalization

Political risk affecting foreign business operations

Political Risk

The risk of sudden changes in government policies or actions

Institutional Risk

A company’s ability to manage uncertainty in foreign markets

Global Risk Management

A situation where a firm must leave a foreign market due to external pressures

Market Exit Strategy

Losses incurred due to foreign government intervention

Foreign Investment Loss

A framework analyzing cultural, administrative, geographic, and economic distance

CAGE Framework

Challenges firms face due to distance between home and host countries

Distance Effects

A firm operating across multiple countries

Multinational Enterprise (MNE)

The additional costs firms face when operating in foreign markets

Liability of Foreignness (LOF)

The lack of knowledge about local markets and rules in foreign countries

Unfamiliarity Hazard

Costs related to distance such as transportation and coordination

Spatial Distance Costs

Disadvantages faced due to being a foreign firm in a host country

Foreign Firm Discrimination

Restrictions imposed by a firm’s home country affecting operations abroad

Home Country Constraints

Firm-specific advantages that help overcome foreign market disadvantages

Firm-Specific Advantages (FSAs)

Unique strengths such as brand, technology, or skills that give firms advantage

Ownership Advantages

Benefits from operating in a specific country such as resources or markets

Location Advantages

Advantages gained by internal control rather than using external markets

Internalization Advantages

A theory explaining FDI based on ownership, location, and internalization advantages

OLI Theory

An investment made to gain lasting interest and control in a foreign business

Foreign Direct Investment (FDI)

Expanding internationally in small, gradual steps over time

Uppsala (Stages) Model

The idea that firms expand first to similar and nearby countries

Psychic Distance

Learning and gaining experience gradually in foreign markets

Incremental Internationalization

Firms that expand internationally rapidly from the beginning

Born Global Firms

Companies from developing countries expanding internationally

Emerging Market Multinationals (EMNEs)

Firms using international expansion to acquire resources and compete globally

Springboard Strategy

Seeking new customers and markets abroad

Market-Seeking FDI

Seeking natural resources or raw materials abroad

Resource-Seeking FDI

Seeking knowledge, technology, or innovation abroad

Innovation-Seeking FDI

Seeking cost efficiencies such as cheaper labor

Efficiency-Seeking FDI

Seeking strategic assets to improve competitiveness

Strategic Asset-Seeking FDI

The challenges firms face due to cultural, economic, and political differences

International Business Challenges

A strategy where firms gradually increase commitment in foreign markets

Incremental Expansion Strategy

The uncertainty managers face due to lack of international experience

Managerial Uncertainty

A firm that operates and controls activities in multiple countries

Multinational Enterprise (MNE)