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International Management articles summary
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Summary of all the articles for the course Internaitonal Management for the Master International Management.
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Why and how motives (still) matter – Benito, 2015 Lecture 1There are four main motives for internationalization or FDI motives:
1. Market-seeking: companies that venture abroad to find customers.
2. Efficiency-seeking: companies that venture abroad to lower their costs of performing
economic activities, and/or that aim at rationalizing their already existing operations in
various locations.
3. Resource-seeking: companies that venture abroad to access resources that are not readily
available at home or that can be obtained at a lower cost abroad.
4. (Strategic) asset seeking: companies that venture abroad to obtain strategic assets (tangible
or intangible), which may be critical to their long-term strategy, but that are not available at
home.
Foreign direct investment (FDI) is the setting up of an organizational unit abroad that is owned by a
company domiciled elsewhere. Alternatives to FDI can be exporting, importing, a licensing contract
or setting up a joint venture. FDI, would be the preferred choice of operating when the joint costs of
performing and governing an activity – or a set of activities – in-house are lower than the equivalent
costs of other options, such as exports, licensing or alliances. Internalization theory argues that the
in-house option is superior only in circumstances where the alternatives either do not provide a
social context among those involved in an activity that is advantageous to its performance (examples
could be work that is non-programmed and that requires a high level of interaction between people),
or entails using proprietary assets and resources (firm-specific advantages) whose value could
exploited by outside parties without due compensation.
The State of Globalization in 2019, and What It Means for Strategists – Ghemawat &
Altman, 2019 Lecture 1
In 2017, the proportions of trade, capital, information, and people flows crossing national borders all
increased significantly, where information showed the most substantial growth over time. The world
ended 2017 more globalized than ever before. In 2018, trade continued growing but at a slower pace
while foreign direct investment (FDI) flows declined. While 2018 brought new obstacles — from tariff
tiffs to blocked acquisitions — the result was a shifting playing field rather than an end to global
business competition.
Market integration is still limited in absolute terms; the foreign operations of multinational firms
around the world generate only about 9% of global output and exports add up to 20-29% of world
GDP.
Aggregation: leveraging scalable assets across countries
Arbitrage: exploiting differences, e.g. in labour costs
Adaptation: adjusting to differences
The globalization of markets – Levitt, 1984 Lecture 2
A powerful force drives the world toward a converging commonality, and that force is technology.
The result is a new commercial reality - the emergence of global markets for standardized consumer
products on a previously unimagined scale. Corporations geared to this new reality benefit from
enormous economies of scale in production, distribution, marketing and management. Different
cultural preferences, national tastes and standards, and business institutions are vestiges of the past.
The multinational and the global corporation are not the same thing. The multinational corporation
operates in a number of countries, and adjusts its products and practices in each - at high relative
costs. The global corporation operates with resolute constancy – at low relative cost - as if the entire
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, world (or major regions of it) were a single entity; it sells the same things in the same way
everywhere. The world's needs and desires have been irrevocably homogenized. This makes the
multinational corporation obsolete and the global corporation absolute.
We have to keep in mind that this article contains a good deal of exaggeration.
Preferences are constantly shaped and reshaped. Two vectors shape the world - technology and
globalization. The first helps determine human preferences; the second, economic realities.
Regardless of how much preferences evolve and diverge, they also gradually converge and form
markets where economies of scale lead to reduction of costs and prices. The global company will
systematically push these vectors toward their own convergence, offering everyone simultaneously
high-quality, more or less standardized products at optimally low prices, thereby achieving for itself
vastly expanded markets and profits. Companies that do not adapt to the new global realities will
become victims of those that do.
Distance Still Matters – Ghemawat, 2004 Lecture 2
The attractiveness of a foreign country can be assessed using the four CAGE distances: cultural,
administrative / political, geographic, and economic. The more two countries differ across these
dimensions, the riskier the target foreign market. By contrast, similarities along these dimensions
suggest great potential.
The CAGE distance framework
Cultural distance Administrative distance Geographic distance Economic distance
Different languages Absence of colonial ties Physical remoteness Differences in consumer
distancecreating Attributes
Different ethnicities; Absence of shared Lack of a common incomes
lack of connective monetary or political border Differences in costs and
ethnic or social association Lack of sea or river quality of: natural
networks Political hostility access resources, financial
Different religions Government policies Size of country resources, human
Different social norms Institutional weakness Weak transportation resources, infrastructure,
or communication intermediate inputs,
links information or knowledge
Differences in climate
Foods Government involvement Fragile or perishable Industries where labour
distanceaffected by or products Industries
Product features vary is high in industries that products (glass, fruit) and other cost
in terms of: size, are: producers of staple Local supervision and differences are salient
standards, and goods (electricity), large operational (garments)
packaging employers (farming), vital requirements are high Sectors where economies
Products that carry to national security (services) of scale are important
country-specific (telecommunications), Products with low (mobile phones)
quality associations exploiters of natural value-to-weight ratio Sectors where nature of
(wine) resources (oil, mining) (cement) demand varies with
Products with high income level (cars)
linguistic content (TV)
Psychic distance – Johanson & Vahlne, 2016 Lecture 2
Psychic distance is the subjectively perceived distance to a given country and can be defined as the
sum of factors preventing flows of information between markets. Psychic distance is a behavioural
concept capturing the uncertainty of decision makers due to lack of knowledge about foreign
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, markets. This uncertainty is a consequence of overall social and economic factors in the foreign
markets and of the experience of the decision makers. It has been used with success to explain firms’
market selection and entry, but is less useful for explaining management in foreign markets.
The following factors all have some impact on the psychic distance to the target country: cultural
distance, geographical distance, common language, political rivalry, differences in economic
development, economic development of target country, relative governance quality of target country
and gross domestic product of target country.
Managing Differences – Ghemawat, 2007 Lecture 2
The main goal of any global strategy must be to manage the large differences that arise at borders,
whether those borders are defined geographically or otherwise. A framework for approaching global
integration is the AAA triangle. The three A’s stand for the three distinct types of global strategy:
adaptation, aggregation, and arbitrage.
Adaptation seeks to boost revenues and market share by maximizing a firm’s local relevance.
Proxied by marketing expenses.
Aggregation attempts to deliver economies of scale by creating regional or sometimes global
operations; it involves standardizing the product or service offering and grouping together
the development and production processes. Proxied by R&D spending.
Arbitrage is the exploitation of differences between national or regional markets, often by
locating separate parts of the supply chain in different places. Proxied by labour expenses.
Most companies will emphasize different A’s at different points in their evolution as global
enterprises, and some will run through all three. Most border-crossing enterprises will draw from all
three A’s to some extent, but trying to excel at All three A’s presents overwhelming complexity.
Some firms have successfully managed the tensions in balancing two A’s. The key is to deploy
integrative structures and systems.
Managing Export and Import Lecture 3
There are several main players involved in export and import transactions:
The exporter, who is the person or entity sending or transporting the goods out of the
country.
The importer, who is the person or entity buying or transporting goods from another country
into the importer’s home country.
The carrier, which is the entity handling the physical transportation of the goods.
The customs-administration offices from both the home country and the foreign country.
Intermediaries, such as freight forwarders and export management companies (EMC), provide
companies with expert services so that the firms don’t have to build those capabilities in-house.
Freight forwarders specialize in identifying the best shipping methods, understanding trade
regulations, and arranging to have exported goods clear customs. EMCs handle the necessary
documentation, find buyers for the export, and take title of the goods for direct export.
Essential documents for importing and exporting include:
The bill of lading, which is the contract between the exporter and the carrier;
A commercial or customs invoice, which is the bill for the goods shipped from the exporter
to the importer or buyer;
The export declaration, which the customs office uses to verify and control the export;
The letter of credit, which is the legal document in which the importer promises to pay a
specified amount of money to the exporter when the bank receives proper documentation
about the shipment.
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