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Summary Theories of International Management LECTURES
Theories of international management, management, FDI, MNEs, Uppsala, LOF, Distance
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Lecture summaries TIMIntroduction lecture
Themes:
- Theme 1: Theoretical Foundations for Studying IB & MNEs
- Theme 2: Regional & Global Integration Processes
- Theme 3: Entry Mode of MNEs and FDI Motivations
- Theme 4: Home and Host Country Effect and the Concept of Distance
- Theme 5: New and Emerging Types of MNEs
TIM Learning Outcome
1. Explain the core theoretical foundation for studying international business and MNEs
broadly conceived
2. Summarize the relevance of each of the themes covered during the course for
understanding the nature of international business
3. Link together and critically analyse the different theories/conceptual models
associated with the five themes of the course
4. Combine topics and theories of different themes covered during the course to design
a new research idea to study an international business issue
5. Apply the theory/conceptual models associated with the themes to create a
conceptual model for the analysis of contemporary and real-world international
business activity
IM Track
- International Strategy (IS)
o Digs deeper into firm-level strategic decisions surrounding entry modes, MNE
strategies, organization structure etc.
- International Business Context (IBC)
o Digs deeper into macro-level sources of variation such as national business
systems, culture, governance etc.
Lecture 1
Learning outcomes
- Complexity of managing IB activities
- Definition of Multination Enterprises (MNE)
- Definition of Foreign Direct Investment (FDI)
https://www.youtube.com/watch?v=ktx2_Dzy3tM
- Back in the 1900 century, IB was a lot more complicated: phone calls were expensive,
and shipping was slow, and technologies did not give much advantage yet
- Now, all much cheaper and faster
- Computing has made the world more connected than ever
- This change is transforming how companies make their products and distribute them
worldwide
- Global value chain: Value for products is created worldwide
, - They are in almost every sector and are challenging the way we look at the global
economy
- Not every country plays the same role or carries the same weight in global value chains
- Small open economies rely heavily on foreign countries to make goods
- In large economies (E.g. US) domestic goods make up a big percentage of the value
chain (also countries that export commodity goods).
- Lowering barriers to investment will allow countries to better integrate global value
chains
- Governments policies should allow firms and MNEs to reach beyond their borders.
Global value chains: The smiling curve
The people who come up with the idea and the people who sell the product make a lot of
money, but the manufacturing (often in poorer countries) makes not so much money. These
poorer countries are eager to move up to the jobs that pay more (Marketing/Selling/Branding).
Why is IB crucial?
- Understand how globalization has brought about an increasing 'connectedness' of
businesses, markets, people and information across countries
- Develop a global mindset and the necessary skills to evaluate and manage challenges
and opportunities in an increasingly complex global environment
- Effectively plan a career in business by understanding the barriers of doing business
with partner from other countries (agency, distance, LOF)
o Culture, language, political systems, geography, and socio-economic factors
all influence a company’s business practices
Agency Theory
An agency relationship is a contract under which one or more persons (the principals)
engage another person (the agent) to perform some service on their behalf that involves
delegating some decision-making authority to the agent.
ASYMMETRICAL INFORMATION!!
Two assumptions:
- All (principles and agents) are egoists
- The agents are in a position of power since they have access to information and are in a
position to make decisions.
Principles should keep this in mind and make regulations about this type of behaviour by
agents.
LOF
LOF = Liabilities of Foreignness = ‘Costs of doing business abroad’, delivered from a lack of
knowledge about host market
LOF is also strong in Institutions (Apple vs. Samsung in USA/China courts)
Why is an IM/IB strategy important?
, - Asymmetric information (agency)
- Cognitive limitation (bounded rationality)
- Irrational behavior
- Time limitation
- (Reduce) Uncertainty
- Structure & organization (planning)
- Establish a strategic goal
- How to reach the goal... start from the end!
- Etc.
What is IM strategy about?
- How to outperform global competitors
- Which (foreign) markets to enter
- How to develop new products abroad
- How to create synergies between HQ/Subs
- With which foreign firms/partner to cooperate
- How to stimulate entrepreneurship (new ventures)
- How to deal with home/host country changes
- Etc.
International Business & Management
IM is about managing complexity and uncertainty:
- Cross-border activity brings new challenges...
o ...requiring awareness and strategic thinking
o ...implying interdisciplinary approaches and open mindset
IB is more complex than business in a single country:
- Border effects
o Currency and political risks
o Institutional and cultural differences
o Country variations in terms of social values, ethics and expectations
Institutions
, Institutions can be weak or strong:
- “Institutional weakness” means incentive structures are absent, arbitrary, or
ambiguous
- This translates into unpredictability and thus risk
- Depends in part on whether society is rule-based or relationship-based:
o In rule-based settings, institutions are more transparent and predictable (to
outsiders) than in relationship-based settings
E.g. weak enforcement: replicating Starbucks in different ways.
Conceptualizing IB
“Traditionally, international business (IB) is defined as a business (or firm) that engages
in international (cross-border) economic activities” (Peng, 2012)
Conceptually:
- The pursuit of value creating opportunities, ...
- ...by both public and private business organizations, ...
- ... in countries other than their country of origin
The study of international business more holistically considers both the foreign and domestic
firms
IB Keywords
Multinational enterprise (MNE)
- An MNE: ‘a firm that owns and/or controls value creating activities in two or more
different countries’ (Buckley & Casson, 2009)
- An MNE is a firm that uses FDI to establish or purchase income- generating assets
abroad but may also trade goods and services across international borders.
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