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Samenvatting Managing International Business Organizations Game International Business
Samenvatting Managing International Business Organizations Game International Business
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lOMoARcPSD|14840171Managing international business organizations -
IB
Topic 1. Internationalization and entry mode choices
1. Gradual Internationalization vs born global/ International new ventures.
- Swedish firms enter foreign markets through foreign agents, when sales grow they
replace agents with their own organization branch/sales office. These firms follow a
gradual int. Process in accordance with the Uppsala model. Based on the assumption
that int. It often began in foreign markets in closer proximity to the home market.
- Some firms were meant to do global business rather than int. Gradually, known as
“born global firms”. → BG firm is one that internationalized on avg. within three
years of founding and generates 25% of total sales from foreign countries.
- Internationalization has been an ideal strategy through various entry modes: Joint
ventures, exporting, strategic alliances. Some firms int. To gain access to primary
resources while others follow their customers and tap potential markets, or to have
access to new knowledge.
- 2 Questions: Do they follow gradual int or a quick int pattern? & Why do
some firms follow gradual processes while others follow an early and
accelerated process.
- Knowledge intensive industries tend to internationalize early and rapidly (BG)
- Well established firms with previous domestic focus suddenly embraced rapid and
dedicated internationalization, with the process of globalization gaining momentum.
BG firms are becoming dominant and the phenomenon continues todevelop. Growth
facilitated by technological, transportation and communication advances (shrinking
physical and cultural distance and facilitating human capitalmobility)
- Founder experience linked to entry mode between traditional exporters and
born global firms.
- BG and Uppsala main difference → speed of internationalization (has to do
with geographic pattern of entry, mode of entry and pattern of commitment)
- Gradual internationalization: Uppsala model
1. Definition: According to uppsala theory, firms will follow an
internationalization approach in which they would gradually enter foreign
markets outside the primary market as it overcomes the physical and
cultural distance.
2. Industries: Traditional manufacturing industries, labor intensive
industries, small scale industries
3. Firms: Automobile firms such as VOLVO and toyota, family firms such as
LEGO, electric domestic manufactures, banks (swedbank
4. Root of uncertainty is the condition of being an outsider where the firm
feels it is just passing through instead of establishing a stable position.
5. Firms try to overcome psychic distance gradually (Sandvik)
6. Developing countries: Internationalizing firms leverage their late entry into
markets by adopting partnership strategies with top performing firms.
Scalability of the product coupled with presence in a small domestic
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market have a positive effect on the probability of a start
upinternationalizing from its inception.
7. Risk perception may prevent firms from internationalizing.
8. As borderless business increases firms have greater pressure to
internationalize in order to maintain competitive position.
9. Gradually int. Firms account for roughly 50% of small firms, and 15% of
small firms pursue the BG pattern. Learning orientation and network
contacts foster traditional and born global models of internationalization.
- Born global/ International new ventures (INVs)
1. Definition: The BG firm is a firm that internationalizes on an average within three
years of founding and generates at least 25% of total sales from abroad, there are
elements such as the uniqueness of products or services that influence the BG
process
2. Industries: Technology intensive industries, knowledge industries; although
thereare some examples in other industries: Metal fabrication, furniture, processed
food, consumer products
3. Firms: Firms that use new generation technologies and platforms such as
Amazon, ebay, google, facebook, linkedin → firms with unique and innovative
business models such as APPLE
4. Any firm of any size or base of experience or resources can participate actively in
cross border trade.
5. Normally have a nice market strategy to expand early and rapidly, some unique
business models based on innovation.
6. BG firms are more entrepreneurial regarding export behavior.
7. Key difference lies in business mode, INVs/BGs sell niche products and services to
internationally dispersed customers using low cost info and delivery methods.
Influences by tech and macroeconomic changes such as globalization.
8. Internatinational opportunity identification, institutional bridging and a capacity
and preference for cross cultural collaboration (3 entrepreneurial capabilities
important for successful BG/INV firms)
9. BG firms have way higher turnover and employment switch rates to less or later
internationalizing firms.
2. International market entry mode - a systematic literature review
- Strategic success and failure are principally determined by which entry mode is chosen
and enacted.
- Multiple definitions of entry modes: i) The development of operations in individual
countries ii) an institutional arrangement that makes possible the entry of a companies
products technology, human skills, management or other resources into a foreign country.
iii) A governance structure that allows a firm to exercise control over foreign operations iv)
a way of organizing the business activities in a foreign country v) A structural agreement
that allows a firm to implement its product market strategy in a host
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country either by carrying out only marketing operations, or both production and marketing
operations there by itself or in a partnership with others (contractual modes, JVs, wholly
owned operations)
- External antecedents: National culture, cultural differences, market
attractiveness, environmental uncertainty, legal environment
- Internal antecedents: control, international experience, assets and asset specificity
- Firms that perceive high levels of investment risk due to host country national culture
use joint ventures
- High scores on cultural distance → greenfield investment/joint venture
- Market size of host leads to increase in resource commitments in that country
- Firms expected to use vertical integration to benefit from EOS and secure long
term presence in market
- Uncertain markets → low initial investment
- Uncertainty can be moderated through internationalizing of business activities
- Three distinct types of entry mode (Hill et al.) licensing/franchising, joint venture
and wholly owned subsidiary
- Root 1994 → differentiates export, contractual as well as equity modes
- Osland, Taylor and Zou differentiate entry modes according to three characteristics
of resource commitment, level of control and level of technology risk.
- Brother and Hennart (2007) → classified EMs into two categories: contracts and equity.
- Antecedents:
1. Higher the cultural distance, the higher the likelihood to opt for collaborative entry
modes (such as a joint venture).
2. Higher the market attractiveness, the higher the likelihood to opt for higher levels of
control (such as a wholly-owned subsidiary).
3. Higher the uncertainty, higher the likelihood to opt for collaborative entry modes
4. Higher the desire to control or monitor the subsidiary, the higher the likelihood to opt
for higher control.
5. Higher the international experience in similar markets, higher the likelihood to opt for
higher control
6. Higher the desire to safeguard certain assets, higher the likelihood to opt for
higher control
- Theories explaining Entry modes:
1. Transaction cost approach: Two key assumptions, the actors operate and choose
within a bounded rationality and there is potential for actors to behave
opportunistically as well as risk neutrally. Further, four key dimensions of
transactions are taken as being; asset specificity, environmental uncertainty,
behavioral uncertainty and transaction frequency. TC posits that the optimum
organization structure is one that achieves economic efficiency by minimizing the
cost of exchange.
- In the case of unpredictability in the host market environment, TCE
emplies higher level of vertical integration. In strong uncertainty it is
difficult to anticipate all future contingencies for which adaptations
and modifications of a contract with partnering firms would be
required. If
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