International Business

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- Major economic driver of globalization
- By mergers and acquisition and the internationalization of production in a range of industries
- Most profound effect = in developing countries

- Internationalization theory: sometimes cheaper to handle operations oneself than to contract another company
- Appropriability theory denying rivals access to resources (capital, patents, trademarks and know-how)
- Freedom to pursue global objectives: when a company has a wholly owned foreign operation, it may more easily have that operation participate in a global strategy

A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Adding no further capacity to the market

Avoiding start-up problems

Easier financing

No desired company is available for acquision

Acquisition will lead to carry-over problems

Acquisition is harder to finance

Main motives for collaborative arrangements:
1) Gain location-specific assets
2) Overcome governmental constraints
3) Diversify geographically
4) Minimize exposure in risky environments

Licensing: A company grants intangible property rights to another company to use in a specified geographic area for a specified period in exchange for royalties

Can be: - exclusive or nonexclusive

Used for patents, trademarks and other intangible property

Example: brand licensing (London cabs in China)

Franchising: It includes providing intangible asset (trademark) and continually infusing necessary assets

Franchisors face a DILEMMA:
-The more standardization the less acceptance in foreign countries
-The more adjustment to the foreign country, the less the franchisor is needed

Management Contracts: Are used primarily when the foreign company can manage better than the owners

TURNKEY OPERATIONS: most commonly performed by Industrial-equipment, construction, and consulting companies

Joint Ventures:

--> involve more than two companies, one of which may own more than 50 percent

-may have various combinations of ownership

--> A consortium involves more than two organizations

Example: Toshiba + IBM + Siemens

Equity alliance: an arrangement in which at least one of the companies takes an ownership position in the other

Example: Ford in Brazil and Airline Industry --> One World Alliance etc.

• The evolution to a different operating mode may:
• --> be a result of experience
• --> necessitate costly termination fees
• --> create organizational tensions

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- The resources they supply
- Their motivation
- Compatibility

is the shared-meaning and beliefs that shape how employees interpret information, make decisions and implement actions
Philosophical view: embedded set of shared normative principles that guides actions and sanctions acceptable behaviors.

- Values and principles of management
- Work climate and atmosphere
- Pattern of how we do things around here
- Traditions
- Ethical standards

1. Ethnocentrism: results when one group places itself at the top of an imagines hierarchy of relevant groups, thereby regarding others as inferior --> little call to adapt into foreign markets --> MNEs tend to staff with executives from home market nationals
2. Polycentricism: is the principle of organizing around different political, social or economic centers. It sees the effectiveness of the business practices of foreign centers as philosophically and practically equivalent to those in the home center. Neither one is superior and MNE adjust HRM policies accordingly. Staffing is withdrawer from local applicants.
   + Using host-country managers boosts local motivation and morale.
   - Still likely costs include gaps with global operations due to of problems of accountability and allegiance
3. Geocentricism: is a world oriented set of attitude and values that regards humanity as a single entity. Hence, it does not heed national boundaries, seeing the blunt division of home- host and third country managers as needless. Rather HRM tasks are in developing the best people for key jobs throughout the organization regardless of their nationality.
   + It seeks the best people for key jobs throughout the organization, regardless of nationality
   - Economic factors, decision making routines and legal contingencies complicate a geocentric framework

Principles and Practices

International business is changing rapidly: according to E & Y there are 3 main drivers:

- Demographic shifts (population growth, urbanization etc)
- Reshaped global power structure ( rise of relation between public and private sector)
- Disruptive innovations

- Reshoring of offshoring
- Discovery and exploitation of shale gas in the US must create a large shift in the energy distribution

the activities that staff the MNE
HRM is more difficult in international companies because
- Environmental differences
- Strategic contingencies
- Organizational challenges

• Threat of new entrants
  • Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents  the abnormal profit rate will trend towards zero (perfect competition).
• Threat of substitute products or services
  • The existence of products outside of the realm of the common product boundaries increases the probability of customers to switch to alternatives.
• Bargaining power of customers (buyers)
  • The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives.
• Bargaining power of suppliers
  • The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
• Intensity of competitive rivalry
  • For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

• The Industry Organasation paradigm
• Great by choice

Emphasizes industry structure in the belief that it directly influences a company’s profitability. It begins by presuming that markets demonstrate perfect competition.
Unattractive industry: where perfect competition drives down overall profitability

Are bright executives who exploit market imperfection to outperform rivals such as ZARA.
Strategy: helps managers assess the companies present situation, identify the direction it should go and determine how it will get there
Value: is the measure of a firm’s capability of selling what it makes for more than the costs incurred to make it

a strategy that aims to be the low cost producer in an industry for a given level of quality --> standardized products

are industries marked by continuous streams of branded product innovations. They opt for differentiation, creating value by generating customer insights, developing innovative products, designing high-profile marketing programs and moving products to market quickly.

is the set of linked activities the company performs to design, produce, market, distribute and support product

1. Primary activities: that design, make, sell and deliver the product.
2. Support activities: that implements primary activities

Primary Activities:

• Product Design
• Operations
• Outbound Logistics
• Marketing
• Service

Support Activities

• Maerials & Equipments
• Firm Infrastructure
• Human Resources
• Systems & Solutions

Distributing value activities around the world is --> configuration
Linking value activities --> coordination

Concentration: performing all value-chain activities in one part of the world
Dispersed: performing different value-chain activities in different locations

--> Companies want to exploit LOCATION ECONOMIES

- Business environment
- Innovation context
- Resource costs
- Logistics
- Digitization
- Scale economies

Costs vary among countries due to wage rates, worker productivity, resource availability and fiscal and monetary policies
The demography of labor influences location economics and thus configuration choices
Digitization: influences location economics by creating new sources of competencies
Economies of Scale: a firm doubles its output yet its total cost less than double due to efficiency gains

Specifies how value activities transact with each other

-Operational obstacles
-Core competency
-Subsidiary networks

A core competency can emerge from various activities including:
-Product development
-Employee productivity
-Manufacturing expertise
-Marketing imagination
-Executive leadership

the process of combining differentiated parts into a standardized whole

the process of disaggregating a standardized whole into differentiated parts (consumer divergence)

-Difficult to acquire
-Difficult to save
-Scarcity

relates the global and local pressures that influence an MNE’s strategy

The IR grid helps managers map strategy given prevailing pressures for standardization and adaptation in their particular industry

• An international strategy transfers core competencies to foreign markets where local rivals lack an alternative and industry conditions impose low pressures for global integration and national responsiveness.
• A multidomestic strategy emphasizes responsiveness to the unique circumstances that prevail in a country's market.
• A global strategy drives performance by making standardised products that are marketed with minimum adaptation to local conditions
• A transnational strategy simuiltaneously leverages core competencies worldwide, reduces costs by exploiting location economics, and adapts, subject to efficiency standards, to local conditions.
• The company implementing a transnational strategy aims not to work harder or work smarter than competitors but rather work differently based on diffusing the lessons it has learned and the knowledge it has earned throughout its worldwide operations.