International Management Midterm

BRIC stands for
Brazil, Russia, India, China
BRIC are all
strongest amongst emerging economies
emerging markets
Countries that are currently between developed and developing countriesand are rapidly growing
General Agreement on Tariffs and Trade (GATT)
Tariff negotiations among several nations that reduced the average worldwide tariff on manufactured goods
Regional trade agreements (or free trade areas)
Agreements among nations in a particular region to reduce tariffs and develop similar technical and economic standards
North American Free Trade Agreement (NAFTA)
A multilateral treaty that links the United States, Canada, and Mexico in an economic bloc that allows freer exchange of goods and services
Global and regional trade agreements
(major ones)
*look at exhibit 1.5 page 12-13
The multinational enterprise (MNE)
-Firms with manufacturing enterprises all over the world
-Has been a dominant force of the international economy
Driving forces of Globalization
-Greater integration and interdependency of national economies
-Freer movement of goods, services, capital and knowledge
-Emergence of monetary unions, networks, NGOs, etc.
-Convergence of customer lifestyles, requirements, etc.
Traditional Motivations
-Resource seeking (key suppliers, low cost factors)
-Market seeing
Emerging Motivation
-Scale economies, Ballooning R&D investments, shortening product life cycles
-Scanning and learning
-Competitive positioning
Different mindsets
-International mentality
-Multinational mentality
-Global mentality
-Transnational mentality
Multinational company (MNC)
Any company that engages in business functions beyond its domestic borders
The worldwide trend of cross-border economic integration that allows businesses to expand beyond their domestic boundaries
Global mindset
Mindset that requires managers to think globally but act locally
Global customers
search the world for their supplies without regard for national boundaries
*At present, most are companies making industrial purchases
Hofstede’s Model of National Culture Five Dimensions
Power distance, uncertainty avoidance, individualism, masculinity, long-term orientation
Hofstede’s Model of National Culture
A model mainly based on differences in values and beliefs regarding work goals; clear link between national and business cultures
Power distance
expectations regarding equality among people
Uncertainty avoidance
typical reactions to situations considered different and dangerous
relationship between the individual and the group in society
expectations regarding gender roles
Long-term orientation
basic orientation toward time
Cultural paradoxes
When individual situations seem to contradict cultural prescriptions
Economic Freedom
The absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself
Index of Economic Freedom
-includes 10 indicators ranging from trade and taxation policies, to property rights and regulation, including government intervention in the economy
-Determines the extent of governmental intervention in a country
Economic system
System of beliefs(concerning work,property, and wealth); activities(extraction,production, and distribution);organizations(business firms, labor unions); and relationships (ownership,management) that provide the goods and services consumed by the members of a society
Different types of economic systems
capitalist or market economy, socialist or command economy, mixed economy
capitalist or market economy
System where production is decentralized to private owners who carry out these activities to make profits
socialist or command economy
production resources are owned by the state and production decisions are centrally coordinated
mixed economy
Combines aspects of capitalist and socialist economies
Cultural and economic changes that occur because of how production is organized and distributed in society
Preindustrial society
Characterized by agricultural dominance and shaping of the economic environment
Industrial society
Characterized by the dominance of the secondary or manufacturing sectors
Postindustrial society
Characterized by emphasis on the service sectors
GINI Index
-indicator of the degree of social inequality
-(0=perfect equality, 100=perfect inequality)
Shared set of beliefs, activities, and institutions based on faith in supernatural forces
Foreign direct investment (FDI)
Multinational firm’s ownership, in part or in whole, of an operation in another country
FDI advantages
Ownership, Location, Internalization
OLI model
Benefits of FDI: Ownership, Location, Internalization
Major Risks of FDI
-expose more to policy risks, technology, political risks, regulations, labor laws
Porter’s generic strategies
differentiation strategy and low-cost strategy
Low-cost strategy
Producing productsor services equal to those of competitors at a lower cost
Differentiation strategy
Strategy based on finding ways to provide superior value to customers
Business-level strategies
Strategies for a single-business operation
Corporate-level strategies
How companies choose their mixture of different businesses *also known as multi-business companies
Competitive advantage
-When a company can outmatch its rivals in attracting and maintaining its targeted customers
-occurs when a company’s strategy creates superior value for targeted customers and is difficult or too costly for competitors to copy
Value Creation
Value – Price = Consumer Surplus
Price – Cost = Profit Margin
Value – Cost = Value Created
*”A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy. Value, instead of cost, must be used in analyzing competitive position …”
Value chain
All the activities that a firm uses to design, produce, market, deliver, and support its product *consists of areas where the firm can create value for customers
value chain is divided into primary and support activities
1. processes of creating good or services
2. the organizational mechanisms necessary to support the creative activities
value chain primary activities
involve physical actions of creating, selling, and after-sale service
value chain support activities
include systems for human resources management, organizational design and control, and a firm’s basic technology
upstream activities
early activities in the value chain: R&D and dealing with suppliers
downstream activities
later value chain activities: sales and distribution channels
The resourced-based view
-Companies are different collections of physical and intangible assets and capabilities.
-Internal resources and capabilities provide basic direction for a firm’s strategy.
-Resources and capabilities are the primary source of profit for the firm. Competitive advantage, and superior performance is based upon competitively distinct set of resources and capabilities.
Porter’s five forces model
A popular technique that can help amultinational firmunderstand the majorforces at work in the industry and the industry’s degree of attractiveness
Porter’s five forces
1. degree of competition in the industry
2. the threat of new entrants
3. bargaining power of buyers, which is the degree to which buyers of the industry’s products can influence competitors within the industry
4. bargaining power of suppliers
5. the threat of substitutes: the extent to which competitors are confronted with alternatives to their products
The deliberate decision to have outsiders or strategic allies perform certain activities in the value chain
Global-local dilemma
Choice between a local-responsiveness or global approach to a multinational’s strategies
Multinational companies face a fundamental strategic dilemma
the global-local dilemma
Solutions to the global-local dilemma
On one hand, there are pressures to respond to the unique needs of the markets in each country or region in which a company does business. When a company chooses this option, it adopts the local-responsiveness solution. On the other hand, there are efficiency pressures that encourage companies to deemphasize local differences and to conduct business similarly throughout the world. Companies that lean in this direction choose the global integration solution
Multi domesticstrategy
A strategy that emphasizes local-responsiveness issues
Transnational strategy
An approach that seeks location advantages and economic efficiency through operating worldwide
Entry-mode strategies
Options multinational companies have for entering foreign markets and countries: including exporting, licensing, strategic alliances, and foreign direct investment
Passive exporting (entry-mode strategy)
Treating and filling overseas orders like domestic orders
Licensing (entry-mode strategy)
Contractual agreement betweena domestic licenser and a foreign licensee. (Licenser usually has avaluable patent, technological know-how, a trademark, or a company name that it provides to the foreign licensee)
Foreign direct investment (entry-mode strategy)
Foreign direct investment (FDI) Multinational firm ‘ sownership, in part orin whole, of anoperation in another country
International strategic alliance (entry-mode strategy)
Agreement between two or more firms from different countries to cooperate in anyvalue chain activityfrom R&D to sales
10 Flatteners (by Friedman)
1. Fall of Berlin Wall
2. Netscape went public: PC -> internet based
3. Workflow Software
4. Uploading or Open-sourcing
5. Outsourcing
6. Offshoring
7. Supply-chaining
8. In-sourcing
9. In-forming
10. The Steroids
Three Waives of Globalization (Friedman)
Globalization 1.0 (1492-1800)
Globalization 2.0 (1800-2000)
Globalization 3.0 (2000-present)
Globalization 1.0 (1492-1800)
shrank from large to medium, globalizing for resources and imperial conquest
Globalization 2.0 (1800-2000)
shrank from medium to small, globalizing for markets and labor
Globalization 3.0 (2000-present)
shrank from small to tiny, flattened the playing field
CAGE Framework
Cultural Distance, Administrative Distance, Geographic, Distance, Economic Distance
Cultural Distance
different languages, different ethnicities, lack of connective ethnic or social networks, different religions, different social norms
Administrative Distance
absence of colonial ties, absence of shared monetary or political association, political hostility, government policies, institutional weakness
Geographic Distance
physical remoteness, lack of a common border, lack of sea or river access, size of country, weak transportation or communication links, differences in climates
Economic Distance
differences in consumer incomes, differences in costs and quality of: natural resources, financial resources, human resources, infrastructure, intermediate inputs, information or knowledge
A self-centered mentality held by a group of people who perceive their own culture, ethics, and norms as natural, rational, and morally right
Culture (Geert Hofstede)
“the collective programming of the mind which distinguishes the members of one group or category of people from another.”
Cluster approach
people and firms are more comfortable doing business with other countries within the same cluster. Having a common language, history, religion, or culture reduces the liability of foreignness when operating abroad.
low-context cultures
such as those in North American or Western Europe, communication usually taken at face value without much reliance on unspoken conditions or assumptions. “No” means “no.”
high-context cultures
such as those in Arab and Asian countries, communication relies heavily upon unspoken conditions or assumptions. “No” does not necessarily mean “no.”
dimension approach
This approach is far more influential than the context or cluster approach for two reasons:
The context approach only represents one dimension.
The cluster approach has relatively little to offer regarding the differences between countries within a single cluster.

There are five dimensions to the dimension approach:
Power distance – the extent to which less powerful members within a country expect and accept that power is distributed equally.
Individualism vs. collectivism – the idea that an individual’s identity is fundamentally his or her own.
Masculinity vs. femininity – sex role differentiations.
Uncertainty avoidance – the extent to which members in a culture accept or avoid ambiguous situations and uncertainty.
Long-term orientation – emphasizes perseverance and savings for future betterment

The principles, standards, and norms of conduct governing individual and firm behavior
Managing Ethics Over Seas
There are two schools of thought on how to manage ethics overseas.
Ethical relativism follows the line of thought “When in Rome, do as the Romans do.” Ethical imperialism refers to the absolute belief that “There is only one set of Ethics, and we have it.” Americans are especially renowned for believing that their ethical values should be applied universally.
Ethics Three Core Principles
Respect for human dignity and basic rights, Respect for local traditions, Respect for institutional context
The abuse of public power for private benefits usually in the form of bribery, in cash or in kind.
VRIO Framework