Lecture 1 – Motives for internationalization
The impact of technology on society: space, time, relationships. Motives for
internationalization: 1. market seeking = to find customers (e.g., marketing and sales), 2.
efficiency seeking = to find lower costs (e.g., manufacturing), 3. resource seeking (e.g.,
extraction and production), 4. strategic asset seeking (e.g., R&D).
Lecture 2 – Distances, AAA strategies model, international strategies
Hennart, Bartlett and Ghoshal model
Types of distances: 1. Cultural (different languages, religions), 2. Administrative (political
hostility, absence of colonial ties), 3. Geographic (lack of common border or sea access), 4.
Economic (different consumer incomes, costs and qualities of resources), 5. Psychic (factors
preventing firms from understanding a foreign environment, such as language, culture,
political systems, level of education).
Liability of foreignness: the additional costs that multinational enterprises have to face
relative to their indigenous competitors when operating in foreign markets. In international
business, even though there is cultural convergence (common technology, international ideas
etc.), there is also cultural divergence (nationalism, religion, etc.); this is a management
problem that can be solved by becoming an insider (e.g., having local managers and
shareholders).
AAA strategies model: 1. Adaptation (Advertising-to-Sales) = to achieve local relevance
through national focus while exploiting some economies of scale (adapt the product to local
preferences), 2. Aggregation/Replication (R&D-to-Sales) = to achieve scale and scope
economies through international standardization (create the same product for multiple
similar markets), 3. Arbitrage (Labor-to-Sales) = to achieve absolute economies through
international specialization (exploit differences rather than adapting to them or bridging
them: buy low in one market and sell high in another). The AAA Triangle is a strategy map for
managers: e.g., the percentage of sales spent on advertising indicates how important
adaptation is likely to be for the company. Scale economies refer to the relationship between
volume of production per unit of time and average cost of production, and they are driven by
fixed costs; the higher the fixed costs, the higher the volume of output for which costs are the
lowest (the minimum efficient scale).
Arbitrage strategies: discover and exploit international differences in culture, administrative
infrastructure and factor costs. Replication strategies: increase plant and firm-level scale
economies, decrease factors that hinder globalization (e.g., communication and
transportation costs). Arbitrage benefits from international heterogeneity, while replication
benefits from international homogeneity; therefore, most firms marry them by creating a local
brand and sourcing from lowest cost allocation.
Types of international strategies (Hennart): if both plant-level economies of scale (=need for
configuration) and firm-level economies of scale (=need for coordination of subsidiaries) are
low, then the strategy is Multidomestic; for every other possible combination, it’s Global.
Bartlett and Ghoshal model: indicates the strategic options for businesses wanting to manage
their international operations based on two pressures: local responsiveness and global
integration. If both are low, the option is International; if both are high, Transnational; if local
is low but global is high, Global; and if local is high but global is low, Multi-domestic.
, Lecture 3 – Managing export and import, incoterms
Export and import main players: exporter, importer, carrier, customs-administration offices.
Freight forwarders and export management companies (EMCs) provide companies with
intermediary services so they don’t have to build those capabilities themselves: the first ones
identify the best shipping methods, while the second ones handle the documentation. Such
documents can be the bill of lading (contract between exporter and carrier), commercial or
customs invoice (bill for the goods shipped from exporter to importer), export declaration
(for the customs to verify and control the export), letter of credit (importer promises to pay
some money to exporter when bank receives shipment documents).
Incoterms: 1. EXW – Ex Works: all the costs and risks are for the buyer, 2. FCA – Free Carrier:
costs and risks are for the buyer once the goods are in the transport vehicle, 3. CIP – Carriage
and Insurance Paid to: costs and insurance are for the seller; risks transfer to the buyer in the
transport vehicle, 4. DDP – Delivered Duty Paid: costs and risks are for the seller until delivery,
5. FOB – Free on Board: seller delivers goods at port of shipment, where the costs and risks
transfer to the buyer, 6. CIF – Cost, Insurance and Freight: risks transfer to the buyer at the
port of shipment. The costs are for the seller until the port of destination. Additional insurance
costs during shipment are for the seller.
Lecture 4 – Uppsala model, transaction costs economics, OLI
framework/eclectic paradigm, Verbeke framework, FSAs
Typical internationalization process: license →export via agent or distributor →export through
own sales representatives or sales subsidiary →local packaging and/or assembly →FDI. MNE:
a company headquartered in one country but with operations in one or more countries. MNEs’
existence is explained through the behavioral approach (Uppsala model) and the economic
approach (transaction costs economics, OLI framework, Verbeke framework).
Uppsala internationalization model: 4 stages of entering an international market (the
establishment chain): 1. Weak exporting activity, 2. Permanent exporting activity through
representatives, 3. Establishment of sales divisions abroad, 4. Production abroad. In each step
the psychic distance increases, that’s why you have to start from countries closer to your own
in terms of psychic distance.
Transaction costs economics (TCE): markets and firms represent alternative ways of
coordinating production. Transaction costs (using market = buying) include search and
information: finding supplier, checking price, quality, delays, bargaining and decision:
negotiation, drafting contract, policing and enforcing: legal, audit.
Three forms of transaction governance and the conditions when they’re likely to occur: 1.
Market: autonomous parties’ exchanges are governed by prices in supply-demand balance, 2.
Hierarchy: (formal organization) transactions among parties occur under a unified owner, who
settles disputes by administrative command, 3. Hybrid: long-term contractual relations that
preserve parties’ autonomy but provide added transaction-specific safeguards as compared
with the market. Transaction parties can never write completely detailed agreements
(incomplete contracting).
Transactors’ abilities and motives involve: bounded rationality: utility-maximizing, intendedly
rational transactors are constrained by cognitive limits on their capacities to process
information efficiently, opportunism: self-interest can induce strategic behavior by
