International management summary
Lecture 1: Why do firms want to become international?
Why internationalize?
It provides new customers.
It can lead to cost savings when resources are cheaper in a different country or labor is
cheaper in a different country.
o Some choose to locate activities abroad to take advantage of lower costs.
o Some source inputs, components, and services from foreign suppliers, because they
are cheaper, more readily available, or of higher quality than those from domestic
suppliers.
o The East of Europe is much cheaper in terms of labour costs compared to the West.
However, the labour costs gaps are closing up.
It can create a larger access to resources.
o To improve (or even secure) the availability of important resources for the type of
business that companies are in.
Some acquire knowledge assets such as patents, reputation assets such as brands, or perhaps
even other companies to quickly obtain competitive advantages that would have taken them a
long time and many resources and involve considerable risk to develop themselves.
o Germany and Switzerland are examples of countries that provide the most respected
“Made in” labels.
The impact of technology on society
Space: activities are not tied to a place anymore.
Time: tasks are fragmented, consisting of several tasks.
Relationships: tasks are interconnected. Participants are scattered (at various locations) and
interactivity at a distance.
Benito, G. R. (2015). Why and how motives (still) matter. The Multinational Business Review.
Purpose – The article provides a discussion of the relevance of motives for companies’
internationalization.
Design/methodology/approach – Conceptual discussion building on established. classifications of
motives of internationalization, which distinguish between market-seeking, efficiency-seeking,
resource-seeking and strategic asset-seeking motives.
Findings – The analysis demonstrates that important issues in companies’ internationalization differ
systematically across different types of motives, which implicates that motives remain relevant when
analyzing various aspects of the internationalization of the firm. Motives are also useful elements for
theory building in international business.
Research limitations/implications – The analysis is purely conceptual and is not further substantiated
by empirical evidence.
Practical implications – The classification of motives is a useful tool for companies to analyze their
strategic alternatives and actions, especially with regard to performance measurement.
Social implications – A clear classification of the various motives for companies’ foreign activities is
essential for formulation of sound policies about attraction/stimulation and regulation of companies’
inbound and outbound internationalization.
A company’s internationalization – what it involves, how it unfolds, and how it is organized and
managed – is inextricably linked to the motives underlying it. Motives seemingly define the essential
nature of internationalization. Hence, here I argue that motives remain (key) elements of international
business theory as they help organizing our understanding of firms’ internationalization. Specifically,
I argue that (i) they remain useful as a basis for identifying important location and internalization
factors; (ii) that they characteristically relate to different sectors and industries; (iii) that they typically
,involve different types of (value) activities; and (iv) that they have fundamental implications for how
to assess performance.
There are 4 motives to go abroad:
Motives for internationalization
Market-seeking: venturing abroad to find customers.
o Beneficial when there is a large population which lives in a concentrated densely
populated areas and which have high purchasing power.
Efficiency-seeking: venturing abroad to lower costs of performing economic activities, and/or
rationalizing existing operations in various locations.
o Beneficial when there is a well-developed infrastructure, availability of human
resources and resources at low cost.
Resource-seeking: venturing abroad to access resources that are not readily available at home
or that can be obtained at a lower cost abroad.
o Distance/proximity is also important for companies that sell to other companies and
not end consumers, because closeness is crucial in B2B relationships.
Strategic asset-seeking: venturing abroad to obtain strategic assets (tangible or intangible),
which may be critical to their long-term strategy, but that are not available at home.
o Look for factors such as the existence of vibrant clusters, a high level of
development, urban centers, etc. The crucial point is that strategic asset seeking is
forwardlooking. It is about developing new resources and capabilities that can
generate future streams of revenue, not exploiting already existing ones.
Each of these motives determine where a company should go and how they should internationalize.
One important aspect of the internationalization process of firms is hence that it becomes more
complex as it develops over time. Another aspect of internationalization is that it sometimes begins
with inward activities, like purchases of machinery, the procurement of raw materials and semi-
finished goods, and the sourcing of knowledge and technology (e.g. through licensing) which provide
future opportunities for outwardly oriented internationalization (Welch and Luostarinen, 1993). The
movement is then one from resource-seeking initially to market-seeking and other types of
internationalization later on, but the various motives often occur in parallel.
How to internationalize?
Companies can carry out their businesses in a variety of ways, ranging from performing activities in-
house, via collaborating with others, to engaging in arms-length market transactions. According to
internalization theory (Buckley and Casson, 1976), arguably the leading theory in international
business, these choices are fundamentally about finding the most efficient (cost minimizing) way of
operating abroad. For example, establishing a subsidiary in a foreign country, often referred to as 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.
For market-seeking companies the basis for their international expansion is typically that they own
brands or trademarks that are – or, given suitable investment in them, can be made – valuable when
expanding in new markets. Expanding abroad by setting up own subsidiaries is a way of safeguarding
branded assets.
The assets that are potentially at risk for efficiency-seeking companies are usually not (primarily) a
brand or a trademark as in the case of market-seeking companies. Rather, such companies often make
substantial investments in production and logistical systems and hardware to gain economies of scale,
scope and time. Such investments typically result in assets that are tailor-made to the specific needs of
the company and have little, or substantially reduced value in alternative uses. That makes them
vulnerable to hold-up and under-investment problems if not safeguarded under common ownership
,(Williamson, 1985). That is not to say, of course, that efficiency-seeking companies always prefer to
expand abroad through wholly owned subsidiaries.
Resource-seeking companies experience challenges regarding hold-up as well as under-investment
that seem similar to those of efficiency-seeking companies. These instances leave companies exposed
to contract breaches or extortionate behavior from other parties. However, a distinctive difference for
resource-seeking companies is that the risks they face often refer to the actions of governments and
other political actors in the countries where they operate. That leaves even the extra safeguards
provided by ownership at risk, since local authorities can seize assets without paying full reparation.
Companies that venture abroad for strategic asset-seeking motives are likely to prioritize control over
their foreign operations, perhaps overriding other relevant concerns.
Are the various motives equally prevalent across different parts of an economy? Probably not.
Market-seeking is a typical driver of companies’ internationalization in consumer goods and many
services, i.e. industries where local tastes, preferences and regulations are likely to matter much for
companies’ product offer and business strategies. At the same time, there should be a high degree of
transferability of key elements of the business strategy (e.g. brand) across markets. Efficiency-seeking
has traditionally occurred in manufacturing industries, where companies have placed production
abroad to benefit from lower wages levels and other costs, rationalized production, and sourcing of
cheaper inputs and components from foreign sources. Increasingly, however, many services have also
relocated to foreign locations. Resource-seeking is prevalent in extractive industries such as minerals
and oil and gas, but also in other primary sectors such as forestry, fisheries and agriculture. Resource-
seeking can also be a vital element for companies whose essential strategy is to control and coordinate
vertical supply chains such as Starbucks (coffee house), Apple (computers and personal IT
equipment), and Zara (fashion). Finally, strategic asset seeking, while undoubtedly occurring in many
industries (perhaps especially among emerging market companies that are eager to catch-up with their
Western counterparts quickly, see e.g. Guillén and Garcia-Canal, 2009; Meyer et al., 2009), is
probably characteristic for high-tech industries such as pharmaceuticals, computers, and bio-
technology. There are also differences across motives regarding which value activities that are typical
for them. Marketing and sales activities are logically associated with market-seeking; manufacturing
with efficiency-seeking, extraction and production with resource-seeking; and research/development
and other innovation oriented activities with strategic asset seeking.
This all can be summarized in
figure 1 at the right.
, Ghemawat, P., & Altman, S. A. (2019). The state of globalization in 2019, and what it means for
strategists. Harvard Business Review, 2-8.
Globalization, since the Brexit and Trump shocks of 2016, has been shaped by a tug of war between
economic fundamentals and policy threats. How should executives think about building their
businesses amid such turbulence? Since smart business decisions depend on accurate perceptions of
the environment, executives should begin with a clear-eyed view of how globalization measures are
trending. To help business leaders navigate through — and even profit from — globalization’s
turbulence, we offer recommendations for strategy (how to compete), presence (where to compete),
architecture (how to organize), and non-market strategy (how to engage better with society).
The new DHL Global Connectedness Index (which we co-authored with Caroline R. Bastian)
demonstrates that the world ended 2017 more globalized than ever before. In 2017, strong growth
across most of the world propelled the DHL Global Connectedness Index to a record high. The
proportions of trade, capital, information, and people flows crossing national borders all increased
significantly. The last time that happened was 2007. This striking juxtaposition of global flows
running close to all-time highs but still falling far below managers’ perceptions highlights both the
opportunities and the challenges that globalization continues to pose for multinational firms.
Succeeding across borders and distances is still much more difficult than winning at home, but some
of the same barriers that constrain international flows also increase the rewards for companies that
find ways to overcome them.
How to compete?
If threats to globalization continue to mount, firms with marginal competitive positions abroad are
especially vulnerable. More specifically, consider whether your company needs to rebalance across
the time-tested international strategies of aggregation (leveraging scalable assets across countries),
arbitrage (exploiting differences, e.g. in labor costs), and adaptation (adjusting to differences).
Aggregation and arbitrage directly create value across countries, so think first about your approach to
those two strategies. Present trends suggest many firms may need to tilt toward aggregation or at least
to be more judicious in their reliance on arbitrage. Adaptation can extend the geographic reach of
aggregation and arbitrage, but it comes at a cost in terms of lost scale economies or diminished access
to foreign inputs. When barriers to globalization rise, boosting adaptation via localization is a logical
response, but one with clear limits. If you have to localize so much that you no longer have a
significant advantage over local competitors, you may have to reconsider the option of retreating from
some markets.
Where to compete?
These trends imply that firms should continue to prioritize markets by weighing their opportunities in
particular countries against the cultural, administrative/political, geographic, and economic (“CAGE”)
distances between them. What’s new is that administrative/political distances are changing faster than
they usually do. Firms cannot reconfigure their operations with each shift in a volatile geopolitical
environment, but now may be the time to invest in nimbler supply chains, to review contingency
planning, and so on. While trade tensions are already crimping global growth, some firms and even
some countries could profit from them. The International Monetary Fund, for example, predicts short-
run gains for Canada/Mexico, the Eurozone, and Japan from tariff escalation between the US and
China under some scenarios.
How to organize?
If your company changes its competitive strategy or its geographic footprint, adjustments to its
organizational architecture may need to follow. A tilt toward aggregation could require strengthening
your R&D function to bolster your technological edge. Boosting adaptation, on the other hand,
usually implies fortifying the roles of in-country leaders abroad. And any major shift in a company’s
geographic footprint has knock-on effects for reporting and decision-making structures.
