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Summary International Business Strategy - Deel 1 - MBA international relations KU Leuven €5,99
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Summary International Business Strategy - Deel 1 - MBA international relations KU Leuven

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KU Leuven - Handelswetenschappen - MBA International Relations - International Business and Strategy. Volledige samenvatting lesnotities International Business And Strategy (IBS). Schooljaar: 2016/2017. Prof: A. Sels Geslaagd met samenvatting

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  • 27 november 2017
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  • 2016/2017
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Chapter 1: globalising business
What determines the success and failure of firms around
the globe
 Institution-based view: formal and informal rules of the game
 Resource based view: firm-specific resources and capabilities

Institution based view
Doing business around the globe requires knowledge about formal and informal rules of doing business
indifferent countries

 Formal rules like requirements to treat domestic and foreign firms as equals
 Informal rules about culture, norms and values

This view shed light on what is behind the firms their performance around the globe

Resource based view
Focuses on a firm’s internal resources and capabilities

LOF = Liability of foreigness = the more a firms origins differ from the host environment, the less the
firm has experience within the host country

What is globalization?
A process leading to greater interdependence and mutual awareness among economic, political and
social units in the world and among actors in general

Explain the concept of international business and global
business
 IB = a business that engages in international economic activities and the action of doing business
abroad
 GB = business around the global including both international activities and domestic business
activities

Liability of outsidership
 Distant origins
 Lack of local experience
 Lack of nearby experience

 lack of familiarity, network and legitimacy in the local context

 liability of outsidership
The Liability of Outsidership describes difficulties related with the entrance to a new foreign market
where the firm does not have any position in business­relevant networks

,Chapter 2: economic, political and
legal systems
Formal institutions
Are normally the government

Laws, regulations, rules

Informal institutions
Behaviours are morally right or wrong, and what is important and not within a society

Norms, cultures, ethics

What do institutions do?
The key role is to reduce uncertainty

 Uncertainty increases transaction costs
 Institutional framework can reduce the potential for opportunistic behaviour by establishing
rules

They are not static and evolve over time

Two propositions
1. Managers and firms rationally pursue their interest and make choices within the formal and
informal constraints in a given institutional framework
2. Although formal and informal institutions combine to govern firm behaviour, in situations where
formal constraints are unclear or fail, informal constraints will play a larger role in reducing
uncertainty and providing constancy to managers and firms

Political systems
Refers to rules of the game on how a country is governed politically

Political risk is the risk when political changes may negatively impact domestic and foreign firms

 Democracy: citizens elect representatives to govern the country
 Totalitarianism = dictatorship: one person exercises political control over the population

Economic systems
Rules of the game how a country is governed economically

 Market economy: invisible hand of market forces
 Command economy: commanding height in economy (factors are state owned and controlled)

Legal systems
Rules of game how a country’s law are enacted and enforced

 Civil law: statutes and codes to form legal judgement
 Common law: precedents and traditions from previous judicial decision
 Case law: rules that are created by precedents of cases in court

Intellectual property rights
 Patents: legal rights awarded by government to inventors of new technological ideas, which are
given exclusive rights to derive income from these inventions
 Copyrights: legal rights of authors and publishers to publish their work

,  Trademarks: legal rights of firms to use specific names, brands and design to differentiate their
products

In practice
 Entering a new country, do your homework by developing an understanding of the formal
institutions governing firm behaviour
 Changes in formal institutions can be anticipated by engaging in processes in economic, political
and legal systems
 When doing business in countries with strong propensity for informal relational exchanges, insist
on formalize the contract right away may backfire

Most developed economies are supported by strong and effective formal institutions

Most underdeveloped economies are held back by weak, ineffective formal institutions

, Chapter 3: culture, religion and
language
Informal institutions come from information and are part of culture. They tell individuals what behaviour
is right and proper, and what is unacceptable

 Cultures have nog clearly defined origin but this has evolved over time
 Ethnocentrism: within a society, we find our own culture as natural, rational and morally right

Culture can be seen as the collective programming of the mind which distinguished the members of one
group or category of people from another

3 ways to systematically understand cultural differences
1. Cultural context
 Low context culture:
communication is taken at face value without much reliance on unspoken context. Yes means
yes. What you say is what you get and what you mean
North America & Western Europe
 High context culture:
communication relies a lot on the underlying unspoken context, which is as important as the
words used. Yes does not necessarily mean yes, I agree, it might be: yes, I hear you
Arab & Asian countries

2. Cultural clusters
The cluster approach groups countries that share similar cultures together as one cluster

Civilization = the highest cultural grouping of people and the broadest level of cultural identity people
have  firms are more comfortable doing business with other countries in the same cluster. There is a
common history, religion and no liability of outsidership

3. Cultural dimensions
Hofstede’s 5 dimensions

 Individualism
 Masculinity – femininity
 Uncertainty voidance (Germany/japan/Korea do not like uncertainty and have lots of rules)
 Long-term orientation
 Power distance

How to calculate cultural distance: Kogut & Singh
US = the home country
J = country that you compare with the US




There is a lot of critique on this index:

 Illusion of symmetry: it assumes that the cultural distance between country A and B is similar to
the distance between country B and A
 Illusion of stability: it is measured at a single point in time and assumed constant over time
 Illusion of linearity: only one measure to explain location of MNE, entry mode and success of
foreign activities
 Illusion of causality: it should not be studied in isolation but with geographic distance
 Illusion of discordance: assumption that all distance between home and host country is equally

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