Samenvatting
Summary Lecture notes and articles International Management
- Instelling
- Vrije Universiteit Amsterdam (VU)
Lecture notes and summary of obligatory readings
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Voorbeeld van de inhoud
Lecture 1. Why internationalize?_______________________________________________________________________________________________
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Kuemmerle. Go global or no
DataClear is facing a dilemma common to many small companies that realize they have a global opportunity on their
hands. Should it take the plunge into new markets at the risk of overreaching its capabilities or stick to its knitting at
the cost of missing key growth opportunities and be crushed by competitors?
What is internationalization?
TRUE Multinational Enterprise (MNE):
1. Substantial direct investment in foreign countries (not just trading relationships of an export business).
When they make strategic decisions, they make them for the whole organization. Abroad are just
subsidiaries and decisions are made in the HQ. So relationships (e.g. knowledge flow) between subsidiaries
will also come up.
2. Active management of these offshore assets (not simply holding them as a passive financial portfolio)
3. Strategic and organizational integration of operations located in different countries → “active coordinated
management”
Employment and assets often come from emerging markets multinationals.
How do firms internationalize?
Classic internationalization process = Uppsala model = incremental process of increasing commitment and
understanding of foreign market.
Born global = Global entrepreneurs who “don’t automatically buy raw materials from nearby suppliers or set up
factories close to their headquarters [but who] … hunt for the planet’s best manufacturing locations and scout for
talent across the globe, tap investors wherever they may be located, and learn to manage operations from a
distance – the moment they go into business.”
International management (what is different) -> more complex
Multiple operating environments (diverse patterns of consumer preferences, channels etc)
Organizational complexity and diversity (complex demands across barriers of time, language etc)
Global competitive game (multiple markets, new strategic options)
Political demands and risks (need to mesh corporate strategy with host country policies)
Currency fluctuations and exchange risks (economic performance measures in multiple currencies)
Lu. International diversification and firm performance: the s-curve hypothesis
Internationalization and performance
How international should I be? When will internationalization be beneficial?
When you just start -> decrease in level of performance (phase 1), because company needs to learn so invest time
and resources to understand how a foreign market works. = liability of foreignness. The total costs for the liabilities
of foreignness decrease and become level when an internationalizing firm becomes so familiar with various foreign
countries that the establishment of foreign subsidiaries becomes more or less the same as the establishment of
domestic subsidiaries. Liability of newness = new companies have higher costs then other companies, because for
example they need to find suppliers. Costs will be lower when companies learn and encounter improvements in
legitimacy. Coordination costs on the other hand will increase with more and more internationalization.
Costs will decrease after a while because they learned from the market, so companies will then start enjoying the
benefits of internationalization (phase 2). Companies should stay in this phase, so companies should try to renew
themselves for example on how to coordinate more effectively. Management can extend the peak of performance
by moving the threshold of internationalization to a higher level, meaning developing capabilities for managing
complexities.
,In the end (phase 3), there will be increasing costs for coordination because it is all too much if a companies keeps
internationalizing so at a certain point it is enough. Benefits are decreasing because of coordination costs.
Benefits Costs
Economies of scale and scope Liability of foreignness
Spread investment risks over countries Liability of newness
Exploitation of firm specific assets Governance costs (e.g.
information asymmetry)
Exploration through experiential learning
& access to location specific advantages
Point of article: there is an S-shape relationship between internationalization and performance. Does not mean that
every company will experience it, but in general companies do. Further, firms investing more heavily in intangible
assets, such as technology and advertising, achieved greater profitability gains from growth in foreign direct
investment. This because intangible assets do not lose their value easily, so one way to make money out of it is to
deploy it in a broad range of markets.
In what way is international environment important for apple? -> supply, make products abroad, bigger market,
reduce taxes, optimize supply chain & human capital (knowledge). Other company’s (Dell, Samsung etc) will enter
Apple’s home market, so then it needs to go abroad to make revenue.
Kobrin. Bricks and mortar in a borderless world: globalization, the backlash,
and the ME
Globalization
First globalization -> late nineteenth century
Second globalization -> late twentieth century. More extensive (integrating more countries), more intensive (deep
integration of national economies), connections matter. Everything falls after the great recession in 2007.
Both waves of globalization have two things in common: (1) both occurred during an unusual conjunction of political
and economic conditions that are temporarily (fall Berlin Wall and onset of period of peace) and (2) developments in
technology both facilitated globalization and resulted in fundamental changes in economic structure, and for the
first wave this ended in devolution of the world economy.
Current international environment
Transport and communication revolution
The international economy is organized in terms of integrated networks of subsidiaries of MNEs
Deep rather than shallow globalization
Disbursed technological specialization integrated through networks where the most important flows involve
information and intermediate products
o The value of any individual node—a local research, development, or production operation—
dependends upon integration into the network as a whole.
→Trying to close national borders would be costly and ineffective
The Backlash -> Old-established industries are destroyed by new ones. People become more against globalization
Why?
Economic dislocation: job losses due to offshoring + positive at macro level but no uniform distribution
Nationalism: fear of the “other” and threat to community and national identity
Economic dislocation
top 1% income rose from 7.7% in 1971 to 22% in 2015
loss of manufacturing jobs and shrinking middle class
economic growth has slowed
, free trade has negative effects (gains are not distributed uniformly)
fear of “other” in an ever-shrinking world (national culture is threatened)
Globalization: what can be undone?
We have reached a point where the particular conjunction of economic (no trade agreements, US no longer single
leader) and political (neoliberalism is under fire, Russia taking control) conditions supporting globalization no longer
exist. If globalization is cyclical then we have reached an inflection point, however, globalization is also structural,
which means it is resistant to change.
Possible to stop globalization? -> No, if Trump puts tariffs, other countries will respond so American companies
cannot cheaply export and then companies will no longer open up their companies in America. So nobody will want
that. So, need to find some more structural solutions. Closure of borders is costly and not possible in the long run,
since the international economy exists of integrated network of subsidiaries and global production networks.
Possible globalization scenarios
1. Middle through: consequences of Brexit are not that bad en parties will work it out and trade continuous
2. Irrational exuberance: trade maintains regionally but flow will encounter deep falls.
3. Billiard table world: uncertain and unstable world. People try to restrict trade but the costs are too high but
the lesson is short-lived so end up in never ending cycle. People now face an environment in which the
pressures to integrate (integrate locally to exploit efficiencies) and fragment (differentiate locally to respond
to national political, legal, social and cultural conditions) is constantly changing and difficult to predict, while
before everybody was heading towards integration.
What if barriers are raised?/consequences of uncertainty:
Cross-border transfers of goods and services is more difficult
Ability to transfer personal among subsidiaries could be restricted
Staffing becomes more difficult
National security is in danger because of increased international conflict, will impact FDI
Rules will be unclear because organizations such as WTO will not be there
Increasing tensions between for example nations
Lessard. Building your company’s capabilities through global expansion
How can companies increase the odds of success in new international markets?
1. Evaluate whether the company’s capabilities are relevant and transferable to a new country – and whether
the company can get value from it
2. Ask whether the capabilities gained through cross border expansion will be complementary transferable and
value-providing to the rest of the organization
International expansion motivations (even though it is so complex):
Market and resource seeking: (1) secure raw materials, (2) exploit factor cost differences, (3) protect
exports and (4) provide growth
Competitive positioning: (1) match competitors, (2) capture global scale, (3) preempt markets and (4) play
global chess
Global scanning/learning: (1) global intelligence scan, (2) access scarce knowledge and (3) recruit skills
Mostly because it will help them upgrade their capabilities + learn new things
Task global strategists: build a platform of capabilities culled from the resources, experiences, and innovations of
units operating in multiple locations; to transplant those capabilities wherever appropriate and then systematically
upgrade and renew them – ahead of the competition. Examples are Apple and Ikea (do it yourself furniture).
Global winners create and sustain their international competitiveness through a systematic process of:
Exploiting = exploiting capabilities in a foreign market that were developed at home OR acquire companies.
Two important questions are: (1) how well will the company’s capabilities travel and (2) where are they best
replicated. Use RAT-test (relevant, appropriable and transferable).
, Renewing = gain access to strategic assets or develop new capabilities. Necessary to determine whether the
new additions will actually result in an overall enhancement of the company’s capabilities and its global
competitive position. On method is setting up shops in well-known ‘lead markets’ or in technology hotspots
OR joint ventures and acquisitions. Use CAT-test (are the new assets complementary, appropriable
(generates value) and transferable).
Enhancing = the RAT and CAT test together are a cycle of capability exploitation and enhancement. At first,
home-developed capabilities allow a company to enter a foreign
market (RAT), but its subsequent efforts require the development
of new host-country-specific capabilities (CAT). The relative
importance of the RAT and CAT cycle, and the pace at which this
dynamic cycle operates, will depend on a company’s maturity, its
stage of internationalization and the overall state of industry.
o RAT: rapidly evolving lead markets
o CAT: companies in competitive markets + companies in a
comfortable position that need shaken up
Rat-test consists of three questions:
1. Relevant: do people want it?
2. Appropriable: can I benefit from it or will other company copy it?
3. Transferable: can I also do it in another country?
Cat-test explores whether new capabilities will be complementary, appropriable and transferable. It helps the
strategist understand the potential of the new assets and capabilities to enhance existing advantages. 3 questions:
1. Complementary
2. Appropriable: can I benefit from it?
3. Transferable: employ knowledge somewhere else?
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