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IS Lecture Summary (Grade: 8,0)
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Summary of the lecture and readings of the course. Course grade: 8,0
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Week 1: Theoretical Foundations of International StrategyWeek 2: Where Do MNEs Invest? Location choice
Week 3: How Do MNEs Invest Abroad? Entry mode choice
Week 4: When Do MNEs Invest Abroad? FMAs, LMAs
Week 5: How Do MNEs Manage Foreign Subsidiaries? Subsidiary networks, integration-responsiveness,
knowledge
Week 6: Multinationality and Performance Firm performance social performance
Theme 1:
Globalisation
What is globalization?
Globalization as a process -> more than just internationalisation (extension of economic activities across
borders -> increase in trade and foreign investment, it also involves elements such as functional
integration. (integration of economic activities and regulations across countries) examples: IMF,
Globalization can also be absorbed in terms of cultures, technologies and political dimensions
How to measure globalisation?
To compare economic activities from now and before: compare total output (GDP) with aggregated
exports of all countries.
The debate around globalisation
MNEs are the heart of the global economy. MNEs come increasingly interconnected
Perspectives differ if harm or good but are equal that it exists.
The three debates:
1. Is globalisation real? Hyperglobalists vs. Sceptics
Hyperglobalists view
„Today’s global economy is genuinely borderless. Information, capital, innovation flow all over the
world at top speed, enabled by technology…“.
Global products, Standardisation, homogenous tastes (the world is flat- Friedman) (example we can
eat same hamburger)
Scpetic view
i. Hirst & Thompson: In certain respects, world economy less globalised than at the turn of
19th/20th century e.g. in terms of labour migration, free trade, gold standard.
ii. Enduring variation in national business systems (=Lots of countries are very different in terms of
national business systems)
e.g. Germany has liberalized its finance and labour market. But other areas such as company
coordination, skills and employment relations have not been so remarkable changed.
iii. Most trade and FDI within each of the ‚Triads‘ -> Regionalization
2. Is globalisation dead? End of globalisation?
Protests such as TTIP or CETA, nationalists, and Brexit
3. Is globalisation good for…
… Democracy: MNEs have power over elected officials (e.g. they threaten to move abroad/ offshore
production)
… Environment: Global warming, sustainability
… Instability: -> Stiglitz: Globalisation and its discontents
… Culture: Homogenization
… Equality: globalisation benefits may not be equally distributed
,How does globalisation affect business?
Changes in trends
- Return of the states? More regulation?
- Future of trade deals?
- Consequences of rise of nationalism? Populist backlash? More „Brexit“ cases?
- Underestimate cultural differences? Overestimate ability to negotiate cultural differences?
MNE activities across the globe
How to organize international activities?
• How do MNEs organize their Global Value Chains (GVCs)?
• How do MNEs make strategic decisions about GVC activities?
Example: KLM, Boeing 787 has single components produced all over the world, internationally diversed
MNE’s GVCs: Why so complex?
The complexity of MNEs’ GVCs arises from geographic and organizational dispersion of business activities.
More specific, activities related to a specific global value chain are not only distributed within the MNEs
network (between subsidiaries), but also across suppliers, customers, research institutions of universities.
GVCs: innovation systems and production networks
Logistics, production and distributions focus mainly on assets like machinery or distributions channels,
Sales, Design, Marketing need more value-added activities, highly depended on intangible assets.
,How and where to spread business activities across the GVC
The key decision’s driver
Transactional cost theory of MNE strategic management
1. Firm- specific advantages (FSAs)
represent unique capabilities, build up on product or process technology, marketing or distribution
skills.
Capabilities include know- how, unique assets, transaction advantages, corporate culture, brand
power, and innovation capabilities
Example: IKEA furniture
2. Country- specific advantages (CSAs)
Resources and competencies available in a specific country. E.g. Access to natural resources,
growing market, supportive taxes system
Example: The Saudi Arabian Oil Industry
3. Internalization advantages (IAs)
relative benefit associated with internalize (keeping activities within the firm boundaries). Originate
from market failure.
Example: amazon & whole foods:
How do FSAs, CSAs and IAs interact?
These 3 are related to each other and can’t be seen in isolation.
1. FSAs are not solely developed in the home country and may be transferred within the MNE
network
2. CSAs (also in a specific host country) can contribute to the development of new FSAs
3. IAs depend on a company’s transactional FSAs to operate foreign subsidiaries.
Example: Company with two subsidiaries
Non-location bound FSAs: can be transferred within the MNE network
Example Unilever: Brand portfolio
Location-bound FSAs: specific to a location, can’t be transferred, only have a value in certain country
, Example Unilever: Local product development
Formulating international strategies
How to formulate a business strategy
• How to organize international activities?
• How to leverage differences between countries?
Question is not how to become MNE, but how to formulate a strategy?
Michael Porter’s view
- Structure of an industry as well as the forces within a specific industry determine the stategic
choice of the companies. Companies that want to be successful and earn profits have to gain a
sustainable competitive advantage.
- Porter poses a key distinction between multi-domestic and global industries. A strategy has to be
adapted based on the industry operating.
Mutli-domestic: Allianz
Global: Apple
Porter’s value chain: suggests that primary activities and supportive activities have to be organized
superior to other companies in order to have a competitive advantage
“A firm that competes internationally must decide how to spread the activities in the value chain among
countries” (Porter, 1986)
He suggests two different dimensions that need to be considered in order to design and define the optimal
strategy
1. Configuration (concentrated vs dispersed) of business activities in order to determine the
geography of activities
2. Coordination (market vs. internalization) of business activities -> governance of activities
In order to make the right decision the characteristics of the industry (structure and competition) needs to
be taken into consideration.
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