Week 1: Coure set-up & Theoretical Foundations
Rugman, Verbeke (1992) (Bartlett & Ghoshal)
- Transaction cost theory (Williamson): an economic theory developed to understand
the various costs associated with economic transactions, particularly in the context of
business activities. TCT focuses on the costs incurred in the process of exchanging
goods, services or assets, emphasizing the role of transaction costs in shaping the
structure of economic activities
- The TC Theory posits that the international operations of an MNE depend on 3 crucial
elements
1. Firm-specific advantages
- These encompass proprietary known-how (unique assets) and
transactional advantages, ex product technology, marketing skills,
property know-how
- MNEs benefit from economizing on transaction costs through
multinational coordination and control of assets
- Example: IKEA, offers standardized products under a strong and
recognized global brand
2. Country-specific advantages
- Benefits associated with locating activities in specific countries due to
structural market imperfections and opportunities ex. Access to growing
market or natural resources
- Example: the Saudi Arabian Oil Industry, natural resources accesses
by companies in that location
3. Internationalization advantages
- Benefits that a company gains from internationalizing its operations, ex.
Proprietary technology or protection of intellectual property. Relative
benefits associated with different entry modes (exports, licensing, joint
ventures, FDI) when serving foreign markets
- Example: Amazon acquisition of Whole Foods, now from online only
shopping company into physical company
How do these 3 interact?
- FSAs are not confined to the home country and can be transferred across borders
(brand reputation, managerial expertise)
- CSAs in a host country can contribute to the development of new FSA (ex. Unique skill
set or local expertise)
- IAs depend on a company’s transactional FSAs to operate foreign subsidiaries (ex.
Advanced technologies, efficiency supply chain management, marketing strategies)
,Transnational solution: a strategic framework for MNEs that can simultaneously develop both
location-bound and non-location bound firm-specific advantages (FSAs) in both the home
and host countries. It is a complex and it involves a network of technology, financial resources,
creative ideas and people. Involves an optimal mix between managed integration and market
mechanisms, recognizing the need for a balanced approach. Complexity of balancing global
integration and local responsiveness.
- Location-bound: FSAs that benefit a company only in a particular location or set of
locations, leads to benefits of national responsiveness. Ex. agricultural production, tourist
attractions, mining operations
- Non-location bound: FSAs that can be exploited globally and lead to benefits of scale
scope or exploitation of national differences. Not restricted to a geographical area. Ex.
software development, e-commerce, consulting services
- Example: Unilever, a brand present in many countries. The brand recognition and the brand
power are non-location bound firm specific advantages because they can be leveraged in more
than one country. Also, it offers local products by adapting products to local needs and
characteristics, therefore it is a location-bound firm specific advantage because it incorporates
information that has value in a specific country
Foss & Pedersen (2004)
- MNC literature, transition from the market failure approach to the knowledge-based
view
- Focuses on knowledge and supports the idea that when studying MNCs it is key to
focus on knowledge. It must be combined with a view of organizational mechanisms
as instruments of influencing the sourcing, building, deployment and transfer of
knowledge resources
- The authors advocate for combining the knowledge-based view with an
understanding of organizational mechanisms. They stress the need to recognize
organizational structures and processes as instruments that shape how knowledge is
acquired, developed, deployed and transferred within MNCs
- The authors acknowledge the significant emphasis on knowledge but argue for its
integration with an understanding of organizational mechanisms that influence the
sourcing, building, deployment and transfer of knowledge resources within MNCs
Cantwell, Dunning, Lundman (2010)
- MNE definition: a company that engages its activities in more than one country.
- Cantwell’s definition: a coordinated system or network of cross-border value creating
activities. The MNE is characterized by the sum of total of all its value-creating
activities over which it has a significant influence
- Value-creation: involves the production and distribution of goods and services,
utilizing ownership (O) specific advantages related to resources, capabilities and
markets
- This paper emphasizes institutions from a macro perspective, meaning how institutions
shape behavior of firms. On the other hand, it emphasizes the relevance of a micro
, approach and how firms adapt to institutions and this creates a Co-Evolutionary
Approach:
- dynamic interplay between managerial actions and environmental forces that
occur at the same time and influence and shape each other.
- Institutional-theory: framework that examines how formal and informal rules, norms
and structures collectively known as institutions, influence and shape the behavior of
firms operating across national borders
- 3 types of institutional pressures
1. Coercive pressures: arise from formal regulations and laws.
2. Normative pressures: stem from social norms and expectations
3. Mimetic pressures: MNEs imitate practices of successful peers or
competitors
- Legitimacy and Isomorphism: MNEs seek legitimacy in their host countries,
aiming to be perceived as socially acceptable and compliant with local
norms. The pursuit of legitimacy can lead to isomorphic behavior, where
MNEs adopt similar structures and practices as other firms in the industry or
region.
Porter, 1986
- Explores the changing nature of international competition and its implications for firms
- Delves into several key trends in international competition, including the rise of new
competitors from developing countries, the increasing importance of technology and
innovation, and the growing role of government policies in shaping competition
- The author argues that firms need to adapt to these changes by developing new
strategies and capabilities
- Main message: firms can pursue a combination of standardization (concentration)
and tailoring (dispersion) in their international operations, and in certain cases,
simultaneously employ both strategies through effective coordination. Finding a
harmonious balance between global consistency and local adaptability.
Porter identifies 4 different strategic options that MNEs have to compete internationally:
Strategic options to compete internationally
1. High foreign investment with extensive coordination among subsidiaries
- The goal is to create a seamless and integrated operation on a global scale
2. Purest global strategy
- Consistent and standardized approach across all countries it operates in
3. Country-centered strategy by multinationals with a number of domestic firms operating
in only one country
- Recognizes the unique characteristics and demands of each market
4. Export based strategy with decentralized marketing
- Exporting products to different countries and allowing each local market to handle
its own marketing and adaptation. Less central control
, Porter’s Theory
1. Market Attractiveness Model
- Porter proposes the market attractiveness model, in which businesses thrive in
attractive markets. Factors like market size, growth potential and customer
purchasing power.
2. Competitive Advantage Theory
- Stresses the importance of strategic positioning. Firms must identify unique
selling propositions and differentiate itself from competitors
Ghemawat, (Pankaj) 2008
- 3 As Framework: Adaptation, Aggregation and Arbitrage
- Three strategic imperatives for dealing with the differences across countries in
the context of international competition
- The AAA framework offers a holistic approach to international strategy,
recognizing the importance of not only adapting to and aggregating similarities
but also strategically arbitraging differences across countries
- Adaptation
- Objective: local responsiveness
- Key idea: adaptation involves adjusting business practices, products and
strategies to suit the specific conditions and demands of the local market
- Aggregation
- Objective: achieving economies of scale and scope
- Key idea: aggregation focuses on capturing efficiencies by consolidating and
standardizing certain business activities. The goal is to leverage commonalities
across different markets, leading to cost savings and improved
competitiveness
- Arbitrage
- Objective: exploiting economic differences
- Key idea: Arbitrage seeks to capitalize on economic variations across countries.
This involves taking advantage of differences in factors like labor costs, capital
costs, tax rates and other economic conditions to optimize resource allocation
and enhance competitiveness
Knowledge clips (1)
Globalization: increasing interconnectedness, integration and interdependence of economies
and business worldwide
Internationalization: extension of economic activities across domestic borders and establishing
presence in international markets
Difference between Globalization and Internationalization:
