International Management
- Understand the determinants of cross national differences in organization and
management of firms
- Recognize and interpret the major differences between business systems
- Understand the cultural and institutional elements that affect the organization and
management of firms
- Recognize the organizational challenges that multinational firms are confronted with
Lecture 1: Introduction
• The role of national borders: They provide powerful markers in the mental
programming of people. Despite intra country diversity and between country
overlap, national borders are very powerful as mental categories for human beings.
• Border crossing firms need to deal with cross national differences and
- Have advantages of foreignness: Arbitrage opportunities; learning (diversity may
boost creativity and innovation), financial arbitrage (exchange rate), price premium
(consumer’s willingness to pay more for foreign product)
- Have liabilities of foreignness: Costs of doing business abroad generates a
competitive disadvantage compared to domestic firms / costs rooted in lack of
familiarity or being discriminated against (e.g. consumer’s pay less for foreign
product)
WHY SHOULD A FIRM INTERNATIONALIZE?
1. Market Expansion: Access to new markets is one of the primary reasons firms
internationalize. When a company's domestic market becomes saturated or
experiences slow growth, it may look to other countries to find new customers and
revenue streams.
2. Diversification: Internationalization can help firms diversify their customer base and
reduce dependence on a single market. This strategy can mitigate risks associated
with economic downturns or changes in consumer preferences in a particular region.
3. Economies of Scale: Expanding to international markets can allow firms to achieve
economies of scale. Larger production volumes and increased sales can lead to lower
production costs per unit, potentially increasing profitability.
4. Competitive Advantage: Internationalization can provide access to resources,
technologies, or expertise that may not be readily available in the domestic market.
This can lead to a competitive advantage and enhanced product or service quality.
5. Risk Reduction: Spreading operations across multiple countries can help mitigate
risks associated with political instability, currency fluctuations, or economic crises in
any one market. This diversification can enhance the company's overall stability.
6. Resource Acquisition: Firms may internationalize to gain access to key resources such
as raw materials, skilled labor, or innovative technologies that are scarce or more
affordable in other countries.
1
, • Paper by Benito: what are the different reasons to internationalize?
1. Market-Seeking:
• Definition: Companies internationalize to access and expand into new
markets. This motive is driven by the desire to increase sales, profits, and
market share in foreign countries.
• Example: Apple Inc. expanded globally to tap into emerging markets like
China and India, aiming to reach a larger customer base and capitalize on the
growing demand for their products.
2. Efficiency-Seeking:
• Definition: This motive involves companies seeking cost advantages through
international operations. It may involve accessing cheaper labor, resources, or
more efficient production processes abroad.
• Example: Many automotive companies, such as Toyota, establish
manufacturing plants in countries with lower labor costs to optimize
production expenses and gain a competitive edge in pricing.
3. Resource-Seeking:
• Definition: Companies internationalize to secure essential resources like raw
materials, technology, or skilled labor that may not be readily available or
affordable in their home country.
• Example: The energy company Shell engages in international exploration and
production activities to access oil and gas reserves globally, ensuring a stable
supply of crucial resources for its operations.
4. Strategic Asset-Seeking:
• Definition: This motive involves companies seeking strategic assets, which
could include acquiring intellectual property, technology, or unique
capabilities that enhance their competitive advantage.
• Example: When Microsoft acquired GitHub, a platform for software
development and version control, it aimed to gain strategic assets in the
software development ecosystem, reinforcing its position as a leader in the
technology industry.
HOW TO CONCEPTUALIZE DIFFERENCES?
- The multidimensional concept of distance: geographic, cultural, administrative,
economic, psychic
• Explain and clarify the 5 dimensions of distance according to Gemawhat
Certainly! The five dimensions you mentioned—geographic, cultural, administrative,
economic, and psychic—are aspects of distance between countries that can impact
international business and cross-cultural interactions. Let's explore each dimension:
1. Geographic Distance:
• Definition: This dimension refers to the physical space or distance between
two countries. It involves factors such as the size of the countries, their
proximity, time zones, climate, and any geographical barriers.
2
, • Impact: Geographic distance can influence transportation costs,
communication efficiency, and the ease of travel. For example, neighboring
countries may have lower transportation costs and more frequent
interactions compared to countries that are geographically distant.
2. Cultural Distance:
• Definition: Cultural distance involves differences in language, religion, values,
customs, and social norms between two countries. It reflects the degree of
dissimilarity in cultural aspects.
• Impact: Understanding and bridging cultural differences is crucial for
successful international business. It affects communication styles, negotiation
approaches, and consumer preferences. Cultural sensitivity and adaptation
are key considerations in marketing and business operations.
3. Administrative Distance:
• Definition: Administrative distance relates to differences in government and
political systems, legal frameworks, and regulatory environments between
two countries.
• Impact: Divergent administrative structures can create challenges in legal
compliance, regulatory requirements, and business operations.
Understanding and navigating administrative differences are essential for
international businesses to operate within the legal frameworks of foreign
countries.
4. Economic Distance:
• Definition: Economic distance involves variations in economic development,
wealth, income levels, and business practices between countries.
• Impact: Economic differences affect market potential, pricing strategies, and
consumer purchasing power. Companies need to adapt their business models
to accommodate economic disparities and assess the financial viability of
entering specific markets.
5. Psychic Distance:
• Definition: Psychic distance is a broader concept encompassing the perceived
differences in overall mindset and attitudes between two countries. It
includes factors such as communication styles, trust, and the understanding
of each other's business practices.
• Impact: Managing psychic distance is crucial for effective communication,
relationship building, and business negotiations. Bridging the psychological
gap helps in establishing trust and positive business interactions between
individuals or organizations from different cultural backgrounds.
Understanding and managing these dimensions are essential for international business
success. Companies often conduct thorough assessments of these dimensions when
entering new markets to develop appropriate strategies and overcome potential challenges.
3
, • Cost of foreigness: the dumb foreigner syndrome: management, politics, marketing
and communication. Business takes place within societal rules. These rules
determine how the game is played and who wins and loses. Rules can be explicit
(laws) or implicit (customs). Rules both affect and are affected by business. This is
true both at home and abroad, but foreigners are at a disadvantage because they do
not know, cannot impact, and often cannot accept.
ARE COUNTRIES CONVERGING?
• Create a table of factors leading to Convergence/ Divergence
Factors Convergence Divergence
- Trade agreements: EU Schengen,
- Trade barriers
NAFTA, etc
Economic Integration
- Common currency: founding of
- Protectionist policies
European Union in 1993
- Globalization of media - Cultural protectionism
Cultural
Homogenization
- Cross-cultural exchanges - Nationalistic movements
4
