TIB

International Trade vs. International Investment

X comprises exporting (selling domestic goods/services abroad) and importing (buying foreign goods/services), whereas Y involves cross-border capital flows divided into foreign direct investment (FDI with managerial/strategic control) and portfolio investment (holding shares/stocks solely for risk diversification and financial return without control).

Multinational Company (MNC / MNE)

Any firm that directly controls and coordinates operations or business activities/affiliates in more than one country, regardless of firm size.

Foreign Direct Investment (FDI) vs. Foreign Portfolio Investment

X involves cross-border capital investments giving the firm ownership alongside strategic and managerial control over foreign operations, while Y involves purchasing foreign financial products without operational control.

Liability of Foreignness (LOF)

The additional costs and competitive disadvantages that a foreign MNE subunit incurs when operating in an unfamiliar host market that local competitors in that market do not face.

Four Sources of Liability of Foreignness (Zaheer, 1995)

-Spatial distance costs (travel, transport, time-zone coordination);

-Firm-specific costs from unfamiliarity and lack of local roots; -Host-country environment costs (lack of legitimacy, economic nationalism);

-Home-country environment restrictions (e.g., tech export limits).

Measurement of LOF in Financial Services (Zaheer, 1995)

Measured empirically as the difference between the average profits per trader of all local trading rooms and a specific foreign trading room's profit per trader in the same host city.

Horizontal MNEs vs. Vertical/Networked MNEs LOF Vulnerability

Simple market-seeking horizontal MNEs (replicating units local-for-local) face the highest LOF, whereas vertical MNEs (integrated value-adding stages) and networked MNEs (differentiated subunit roles) experience lower LOF.

Psychic Distance

The sum of factors preventing or hindering the flow of information between the home country and a foreign target market, including differences in language, culture, education, business practices, and industrial development.

Uppsala Internationalization Model Core Mechanism

A behavioral process model where market knowledge acquired through foreign operations iteratively reduces managers' perceived uncertainty and risk, enabling incrementally higher resource commitments to that foreign market.

Uppsala Establishment Chain

An incremental sequence of market commitment steps within a country: (1) No regular export activities, (2) Exporting via independent representatives/agents, (3) Establishing a foreign sales subsidiary, and (4) Establishing a local production/manufacturing subsidiary.

Exceptions to Incremental Steps in Uppsala Model

Firms make large foreign commitments if they possess massive resources, if host market conditions are stable/homogeneous, or if the firm already has extensive experience in similar foreign markets.

2009 Uppsala Business Network Model

An updated framework shifting the unit of analysis from individual countries to business relationships and networks; internationalization is defined as improving network position, and the primary barrier shifts from liability of foreignness to liability of outsidership.

International New Venture (INV) / Born Global Firm

A business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.

Eclectic Paradigm / OLI Framework (Dunning)

An integrative framework establishing that a firm will engage in foreign direct investment (FDI) only when it simultaneously satisfies Ownership (O), Location (L), and Internalization (I) advantages.

Asset Advantages (Oa) vs. Transactional Advantages (Ot)

X derive from unique tangible or intangible firm-specific assets (proprietary technology, brand reputation), whereas Y derive from the firm's ability to coordinate a geographically dispersed network of foreign affiliates.

Location (L) Advantages

Country-specific advantages (CSAs) and immobile endowments in a foreign destination—such as natural resources, market size, low labor costs, infrastructure, and institutional stability—that favor foreign value-adding activities over domestic production.

Internalization (I) Advantages

Net benefits gained by organizing value-adding transactions within the firm's internal hierarchy (intra-firm trade) rather than through arm's-length market contracts, overcoming market failure, contract incompleteness, asset specificity, and tacit knowledge leakage.

Decision Logic of OLI Framework

No Ownership advantage -> Do not internationalize; Has Ownership but no Location advantage -> Export; Has Ownership + Location but no Internalization advantage -> Licensing/Franchising; Has Ownership + Location + Internalization advantages -> FDI / Wholly Owned Subsidiary.

Transaction Cost Economics (TCE) Entry Mode Rule

Transactions characterized by high asset specificity and relatively low uncertainty should be internalized via equity modes (subsidiaries), whereas transactions with low asset specificity should be transacted through market mechanisms like licensing or franchising.

Resource-Based View (RBV)

A framework positing that sustainable competitive advantage stems from controlling valuable, rare, inimitable, and organized (VRIO) firm-specific advantages (FSAs), which must be recombined with host country-specific advantages (CSAs).

Institution-Based View (IBV)

A perspective defining institutions as the formal (laws, regulations) and informal (norms, values, cognitive assumptions) "rules of the game" that reduce uncertainty and constrain firm behavior across international contexts.

Iceberg Model of Informal Institutions

A 3-level model structuring informal national environments: (1) Visible artefacts and behaviors above the surface; (2) Values and social norms just below the surface; and (3) Deep, unconscious basic assumptions at the bottom.

Porter's Diamond Model Determinants

Four primary national determinants of industry competitiveness: (1) Factor conditions, (2) Demand conditions, (3) Related and supporting industries, and (4) Firm strategy, structure, and rivalry (supplemented by Chance and Government).

Global Value Chain "Smiling Curve" (Mudambi, 2008)

A value-chain concept showing that the highest value-added activities occur at the ends of the value chain (pre-production R&D/design and post-production marketing/branding), while standardized middle assembly activities yield the lowest value added.

Non-Equity vs. Equity Entry Modes Trade-Off

X (exports, contractual/licensing agreements) require lower capital commitment and carry lower risk but offer less control and lower profit margins; Y (joint ventures, wholly-owned subsidiaries) require higher investment and commitment but provide superior managerial control and internalization benefits.

What is a Global Value Chain (GVC) Lead Firm? \

An MNE that orchestrates and exerts primary strategic influence over an international network of trade in tasks across borders without necessarily owning all entities in the chain [1-3].

How does Internalization Theory explain MNE scope? \

Posits that firms internalize imperfect external markets up to the point where the costs of further internalization equal or exceed the benefits (Buckley & Casson, 1976) [4, 5].

What is the core tension in the Global Integration–Local Responsiveness (I-R) Framework? \

The structural tension between unifying global production/obligations for efficiency and adapting activities to diverse local host-country contexts and stakeholder demands [6-8].

What is the AMC Model of GVC Externalities (Buckley & Liesch, 2024)? \

A framework (Awareness, Motivation, Capability) explaining under what conditions a GVC lead firm will adapt its value chain to address negative externalities [9-11].

What drives the 'Awareness' dimension in the AMC Model? \

GVC integration, determined by leader attention, geographical/institutional distance from the externality, information-gathering ability, and internal transmission ease [9, 12, 13].

What drives the 'Motivation to Act' dimension in the AMC Model? \

GVC accountability, determined by local responsiveness, stakeholder pressure, authority responsiveness, executive commitment, reputational risk, and sunk costs [9, 13, 14].

What drives the 'Capability to Change' dimension in the AMC Model? \

GVC leadership, determined by firm-specific resources, personnel intensity, subsidiary-specific resources, and headquarters-subsidiary mandates [9, 13, 15].

What is the mechanism of Penrose's 'Interstices' in GVC evolution? \

New member firms enter GVCs by filling gaps (interstices) left unaddressed by incumbent lead firms' excess resources, driving chain restructuring and social cost reduction [16].

How do Low-AMC vs. High-AMC Lead Firms differ in handling externalities? \

Low-AMC lead firms adopt an inertial/defensive position requiring government regulation, whereas High-AMC lead firms proactively adapt GVCs or recruit new members to internalize social costs [17, 18].

How is Sustainable Development defined by the UN? \

Development that meets present needs without compromising future generations' ability to meet their own needs, spanning economic growth, social inclusion, and environmental protection [19, 20].

What is Corporate Social Responsibility (CSR)? \

Voluntary firm actions to integrate social and environmental concerns into business operations and stakeholder interactions beyond legal mandates [21, 22].

What is the Agency Theory argument against CSR? \

Contends that CSR is an agency problem where managers (agents) pursue personal reputational agendas at shareholders' (principals') expense, reducing firm profits and efficiency [21, 23].

What is the Ethical / Stakeholder argument for CSR? \

Argues that firms have a moral obligation to serve a broad range of stakeholders (employees, communities, natural environment) who create and trade value jointly [21].

How does ESG differ fundamentally from CSR? \

Originating from a 2004 financial/investment initiative, X focuses on quantitative measurement and corporate governance for investors, whereas Y stems from normative ethics [24].

What is Greenwashing? \

Misleading communication or selective disclosure that overemphasizes green actions while hiding poor environmental performance ('brown behavior') to misrepresent eco-friendliness [25].

What are Pinkwashing and Bluewashing? \

X is associating with breast cancer causes while selling risk-increasing products; Y is misrepresenting compliance with UN Global Compact human rights/labor standards [25].

What is a Greenium? \

A price premium that socially or environmentally conscious consumers/investors are willing to pay for products or assets perceived as eco-friendly [25].

What are Emerging Market MNEs (EMNEs)? \

MNEs originating from emerging economies that engage in outward FDI, exercising effective control and value-adding activities across foreign jurisdictions [26, 27].

What is the Springboard Perspective of EMNEs (Luo & Tung, 2007)? \

A strategy where EMNEs use outward FDI as a springboard to acquire strategic assets and compensate for competitive/institutional weaknesses at home [26, 27].

How do EMNE ownership advantages differ from Developed MNEs (Ramamurti, 2012)? \

EMNEs possess unique advantages in deep customer understanding in developing markets, operating in weak institutional environments, ultra-low-cost production, and 'good-enough' product design [27].

How do EMNEs deviate from the traditional Uppsala Model? \

EMNEs often skip gradual stage-by-stage internationalization, exploiting economic/institutional differences via arbitrage across distant markets rather than relying on psychic proximity [28].

What are the key institutional challenges faced by EMNEs? \

Lack of international experience/reputation in advanced economies, weak domestic institutions, weak product/process innovation, and post-acquisition integration hurdles [27, 28].

What are MNE Spillovers in host economies? \

Positive externalities where local firm efficiency or knowledge improves as a result of foreign MNE entry without the foreign MNE fully internalizing the gains [29-31].

What is the difference between Direct and Indirect Spillovers? \

X occur through contractual linkages (suppliers/buyers), whereas Y occur through uncontracted channels like demonstration, competition, and labor mobility [29, 30, 32, 33].

What are the three mechanisms of Indirect MNE Spillovers? \

Demonstration (local firms imitate MNE technology/behavior), Competition (foreign entry forces efficiency/tech search), and Labor Mobility (hiring MNE-trained staff or alumni starting ventures) [29, 30, 32, 33].

How are Direct Linkages classified? \

Vertical linkages (backward with suppliers, forward with buyers/distributors), Horizontal linkages (technology or joint venture partners), and Institutional linkages (governments, universities, research institutes) [13, 33, 34].

What is the definition of Institutions (North, 1991; Scott, 1995)? \

Humanly devised formal constraints (laws, regulations) and informal constraints (norms, values) that structure human interaction and provide social stability [13, 26].

How does Collusion act as a Negative Externality in market competition? \

Explicit or tacit coordination among competitors fixes prices or restricts output, extracting surplus from consumers as an uncompensated social cost [35]

What is the relationship and hierarchy between Data Science, AI, Machine Learning, and Deep Learning?

**Data science** focuses on extracting actionable insights from structured/unstructured data; **Artificial Intelligence (AI)** creates software simulating human intelligence; **Machine Learning (ML)** uses statistical methods to learn patterns without hard-coded rules; **Deep Learning (DL)** is an ML subset using multi-layered **artificial neural networks**.

How does a Support Vector Machine (SVM) construct a classification boundary?

An **SVM** maximizes the margin between data domains using **support vectors** to create an optimal separating **hyperplane**.

What is the difference between Regression Trees and Classification Decision Trees?

X predict continuous numerical outcomes, whereas Y divide the prediction space into vertical/horizontal intersection points to assign discrete categories.

What mechanism drives the learning process in Artificial Neural Networks (ANNs)?

Learning occurs via **backpropagation**, where connection weights between neurons are iteratively adjusted using **gradient descent** on a loss function to minimize prediction errors.

What causes Overfitting in Machine Learning models?

Occurs when high model complexity (too many parameters), insufficient training data, or data noise cause a model to fit training data too precisely, losing its ability to generalize to unseen test data.

What is the purpose of a Train-Test-Validation Split?

Applying sampling to split datasets into **training, testing, and validation sets** finds optimal parameters that balance model complexity with the ability to generalize to new, unseen real-world data.

How can Big Data provide a Sustainable Competitive Advantage under the Resource-Based View (RBV)?

Digital resources and automated systems provide a sustainable competitive advantage when effectively managed as **VRIO resources**: **Valuable**, **Rare**, **Inimitable**, and **Organizationally embedded**.

What is the primary environmental drawback of training large Deep Learning models?

Large ML training requires massive continuous computing power and data center cooling, emitting substantial **carbon dioxide** comparable to the entire lifetimes of multiple automobiles.

What is Bounded Rationality in MNE decision-making?

The inherent human constraint where MNE managers suffer from **cognitive limitations** (processing power) and **time constraints**, forcing reliance on simplified mental models/heuristics under incomplete information.

How do Judgment Biases differ from Present State Biases?

X (e.g., availability, representativeness, anchoring) arise from probability assessment under uncertainty; Y (e.g., status quo, confirmation, familiarity) cause managers to disproportionately favor existing states or known options.

How does the Representativeness Heuristic bias foreign market evaluation?

Managers equate similarity with probability, erroneously judging a new foreign market's outcome based on oversimplified visual or structural similarities to a familiar domestic/foreign market.

What is the Causal Effect of Familiarity Bias on location choice?

Managers allocate capital to **familiar institutional contexts** or neighboring countries, even when unfamiliar emerging markets present far higher demand growth and profitability.

What is the Strategic Trade-off between Automation and Augmentation?

X replaces human labor to increase efficiency in low-level repetitive tasks; Y complements human workers in high-level decision tasks, combining computational power with human creativity and emotional intelligence.

How does AI Expand the Boundaries of Human Rationality?

AI reduces **information gaps** by scanning real-time global channels and overcomes **cognitive limitations** by structuring complex, multilingual, unstructured datasets into predictive scenarios.

What is the Classification of Machine Biases in IB decision-making?

**Human-like machine biases** stem from algorithm inputs/goals (**Biased Data**, **Biased Objectives**); **Generic machine biases** stem from human-system integration (**Biased Benefits**, **Biased Interactions**).

What mechanism causes Biased Data in AI models?

Training algorithms on incomplete, historical, or geographically skewed datasets (e.g., favoring well-documented Western markets over data-scarce emerging economies).

What is Biased Objectives / Reward Hacking in AI systems?

When a simplified objective function (e.g., cost minimization) leads an algorithm to take unauthorized shortcuts ("**reward hacking**") or ignore critical unstated boundary conditions like local labor standards or ethics.

What is the "Jagged Technological Frontier" (Biased Benefits)?

The phenomenon where AI productivity gains vary unpredictably across tasks and user skill levels—benefiting inexperienced managers more than senior executives who rely on tacit intuition.

What is Biased Interaction and Algorithm Aversion?

Human decision-makers either exhibit **algorithm aversion** (mistrusting AI recommendations due to status quo bias or past incidental AI errors) or blindly over-rely on algorithmic outputs.

How does AI alter Internationalization Theory (Uppsala Model)?

By enabling real-time risk assessment and virtual scenario simulations, AI reduces reliance on slow **experiential learning**, weakening the impact of **psychic distance** and lowering entry thresholds for inexperienced firms.

How does AI affect Internalization Theory and Transaction Cost Economics (TCE)?

AI lowers contracting/monitoring costs to encourage **market-based entry**; however, highly specific AI-enabled contracts increase **opportunistic risk**, which can conversely trigger **internalization**.

How does AI impact Institutional Theory and Liability of Foreignness (LoF)?

AI accelerates local information absorption to reduce the **familiarity gap** and **LoF** for adopters; conversely, non-conformity with emerging **AI governance regulations** creates a new source of LoF.

How does AI reshape the Knowledge-Based View (KBV) of competitive advantage?

AI transforms knowledge by making it **less context-specific**, allowing MNEs to build superior competitive advantage by pairing context-unspecific AI knowledge with on-the-ground local learning.

What is the Strategic Performance Gap between AI Adopters and Non-Adopters?

**AI adopters** systematically diminish their liability of foreignness and operational friction, while **non-adopters** experience heightened relative liabilities and competitive disadvantage.

How do Formal Data Governance Institutions (e.g., EU GDPR) condition AI efficacy?

Strict data protection frameworks like **GDPR** constrain MNE data processing and AI analytics, creating market entry barriers and reduced responsiveness compared to regions with lax privacy rules.

How do Informal Cultural Institutions affect AI adoption across MNEs?

Societies with high technology acceptance (e.g., South Korea, Japan) rapidly embrace AI decision tools; cultures with high **uncertainty avoidance** (e.g., parts of Europe/Latin America) resist AI integration.

How does New Techno-Nationalism impact MNE Global Strategy?

Political realism and **techno-nationalism** heighten institutional hardship, increase transaction costs, force technological standard-setting, and break down global value chains.

What is the difference between Market Coupling and Technological Coupling under Geopolitical Exposure?

X MNEs (high market dependence) face severe revenue loss upon exit; Y MNEs (high technology dependence) face immense sunk costs and structural difficulty when forced to decouple.

How do Digital Service MNEs differ from traditional MNEs?

Digital MNEs leverage digital infrastructure to deliver direct digital services or multi-sided platform exchanges without relying on heavy **location-bound physical assets**.

What is the distinction between Direct and Indirect Network Externalities?

X occur when user value increases with the total number of interacting users; Y arise when a growing user base attracts complementors providing goods/services.

How do Network Externalities determine Firm-Specific Advantages (FSAs)?

Platforms develop **location-bound or non-location-bound FSAs** based on whether direct and indirect network externalities operate within a single country or cross borders globally.

Why is Netflix classified as a Three-Sided Platform Exception?

Netflix acts as a **3-sided platform** (connecting consumers, content creators, and advertisers), but differs from pure marketplace platforms (e.g., Airbnb) because complementors do not list items directly, and Netflix funds/creates its own content.

**Geopolitical-Geoeconomic Dealignment**

A major global shift where geopolitical and geoeconomic alliances split, causing the world economy to fragment into two main inward-looking political-economic groupings centered around the US and China.

**Extractive Superpower vs. Dependency Superpower**

Classification where the US operates as an 'extractive' superpower using political, diplomatic, and military tools to extract resources from allies and rivals alike, whereas China operates as a 'dependency' superpower using exports, critical material monopolies (e.g., rare earths), and credit/FDI to build economic dependence.

**Vertical Reintegration**

Organizational strategy where MNEs in strategic/uncertain sectors (e.g., BYD owning lithium mines, chips, and EV plants; OpenAI integrating power and infrastructure) abandon fragmented global value chains to regain control over IP and hedge against geopolitical shocks.

**Systemic Lock-In Rent Mechanism**

Economic mechanism driving vertical reintegration where controlling interconnected stages of a value chain (e.g., EV software and batteries) generates non-separable monopoly rents and locks in customers.

**Infinite Distance Hypothesis**

Theoretical insight stating that while traditional distance metrics (CAGE) are continuous, crossing political bloc boundaries in strategic sectors increases institutional distance near infinitely, creating rigid barriers to trade and FDI.

**Non-Aligned (NA) Country Arbitrage**

Strategic mechanism allowing non-aligned economies (e.g., EU, India) with large domestic markets to play competing hegemonic blocs against each other to extract favorable trade terms, subsidies, and scale.

**Unique Asset Leverage Exception**

Exception to hegemonic pressure where an MNE in a non-aligned nation holds exclusive control over a critical bottleneck technology (e.g., ASML's extreme UV lithography), preventing either superpower from easily coercing it.

**Core-Periphery Spatial Shift**

Spatial reorganization where MNEs relocate strategic high-tech stages to the home core of their bloc while moving non-strategic production steps to the bloc periphery or non-aligned states.

**Policy Uncertainty Asset Stranding**

Causal relationship where frequent reversals in government regulations (e.g., green energy policy shifts under Trump) destroy business strategy, leading to hundreds of billions in semi-stranded assets (e.g., \$1tn in EV/auto assets and Ørsted's abandoned wind park).

**Institutional Triality Framework**

Three-way interactive governance framework shaping international business, consisting of supranational institutions, national institutions, and MNEs.

**CAGE Distance Framework**

Ghemawat's framework categorizing cross-border barriers into four distinct dimensions: Cultural, Administrative, Geographic, and Economic distance.

**Nine Dimensions of Institutional Distance**

Berry et al. (2010) taxonomy expanding cross-national distance into Economic, Financial, Political, Administrative, Cultural, Demographic, Knowledge, Connectedness, and Geographic dimensions.

**Information Distance Measure**

Aggregate, holistic measure of institutional distance created by Lindner & Puck (2024) applying machine learning and information theory to financial markets to quantify the information required to understand an economy.

**Balassa Integration Hierarchy**

Five Balassa-based stages of regional economic integration: Free Trade Area (USMCA), Customs Union (MERCOSUR), Common Market (EU), Economic Union (Eurozone), and Total Economic Integration.

**Preferential vs. Regional Trade Agreements**

Classification where Preferential Trade Agreements (PTAs) are unilateral concessions from developed to developing states, whereas Regional Trade Agreements (RTAs) are reciprocal agreements between two or more parties.