Lecture 2 - Internationalisation Theories

Question 1

What is the transaction cost analysis argument?

Answer 1

Only makes sense to buy (outsource) if costs involved in monitoring are still low enough to make money

Question 2

What are the backbones of transaction costs theory?

Answer 2

Assumptions of malfeasance and opportunism

Question 3

What is malfeasance?

Answer 3

When a supplier tries to cut costs and save money, something often assumed to be true

Question 4

What is opportunism?

Answer 4

When a supplier thinks they can get away with malfeasance

Question 5

What is the definition of make?

Answer 5

when a firm producs goods/ services internally

Question 6

What are the advantages of the make decision?

Answer 6

Greater control over production
Protection of proprietary technology
Consistent quality management

Question 7

What are the challenges of the make decision?

Answer 7

High capital investment
Management complexities
Limited flexibility

Question 8

What is the definition of the buy decision?

Answer 8

A firm outsources production to third party suppliers

Question 9

What are the advantages of the buy decision?

Answer 9

Cost efficiency (lower labor and production costs)
Focus on core business activities
Accessed to specialised suppliers

Question 10

What are the challenges of the buy decision?

Answer 10

Loss of control over quality and production speed
Dependency on suppliers
Risk of intellectual property theft

Question 11

What are the key factors influencing the make or buy decision?

Answer 11

Cost analysis
Qulaity and reliability
Core competencies
Supply chain stability
Regulatory and legal considerations

Question 12

Describe Apple’s supply chain

Answer 12

Designs software and proprietary chips in house
Outsources hardware manufacturing

Question 13

Why does apple choose to make software and proprietary technology and outsource hardware manufacturing?

Answer 13

it balances innovation with cost efficiency

Question 14

What are the challenges in Apple’s supply chain?

Answer 14

Supply chain disruptions affecting production timelines
Heavy dependence on third-party manufacturers, leading to risks in case of political or economic instability
Quality control issues due to reliance on multiple suppliers

Question 15

What is the decision framework for makingor buying?

Answer 15

Strategic analysis, aligning with business goals

Cost benefit evaluation, to ensure financial viability

Risk assessment to assess market uncertainties

Long term sustainability assessment, to decipher potential to grow

Question 17

What is the order of decisions in the decision making framework?

Answer 17

Decide whether the process is a core competency (Yes = Make)

(If No) Decide whether outsourcing provides significant cost savings (No = Make)

(If Yes) Can quality and supply chain risks be managed effectively? (Yes = Buy, No = Make)

Question 18

What are the types of resources a firm can exploit strategically to expand internationally?

Answer 18

Tangible
Intangible
Human Resources
Organisational capabilities

Question 19

How do resources influence international strategy?

Answer 19

Firms analyse their resources before choosing an international expansion strategy

Strong brand equity allows direct entry into foreign markets

Firms with limited financial resourcs may opt for joint ventures

Question 20

What may firms with limited financial resourcs opt for?

Answer 20

Joint ventures

Question 21

What are the different entry modes?

Answer 21

Exporting
Licensing and franchising
Joint ventures and strategic alliances
Wholly owned subsidiaries

Question 22

Describe Coca-Cola’s global expansion

Answer 22

Utilised respurces through strong brand equity, extensive distribution network and financial strength

Their strategy contained a combination of franchising, joint ventures and direct investment

They were able to adapt to local tastes while maintaining global branding

Question 23

What are the challenges in international expansion?

Answer 23

Resource constraints
Cultural and regulatory barriers
Competition from local firms with better market knowledge

Question 24

What are some strategies to overcome the challenges of international expansion?

Answer 24

Strategic partnerships to leverage local expertise

Incremental market entry to reduce financial risk

Investing in local talent and adapting products to cultural preferences

Question 25

What does a strong resource base allow for?

Answer 25

Firms to choose more aggressive expansion modes

Question 26

What are the steps involved in the international planning process?

Answer 26

1) Preliminary analysis and screening, matching company/ country needs 2) Defining market segments and adapting marketing mix 3) Developing the marketing plan 4) Implement and control

Question 27

What do different authors posit is the best marketing strategy?

Answer 27

Levitt - standardisation Porter - control or dominance of market through scale Hamel and Prahalad - broad portfolio of products

Question 28

What are some modes of internationalisation?

Answer 28

Uppsala model Sprinkler approach Born Globals

Question 29

What is the Sprinkler approach to internationalisation?

Answer 29

Multiple entry into different markets, first mover advantage important

Question 30

Describe Dunning's Eclectic Theory

Answer 30

a generic set of variables which contain the ingredients necessary for any satisfactory explanation of particular types of foreign value-added activity explains why eirms engage in FDI Consists of 3 key advantages: OLI Helps businesses decide where and how to expand internationallu

Question 31

What are the advantages of Dunnings' Eclectic Theory?

Answer 31

Ownership specific advantages Location specific advantages Internalisation advantages

Question 32

What are the ownership specific advantages of Dunnings Eclectic theory?

Answer 32

The competitive edge that makes a firm successful abroad Includes: brand reputation, proprietary technology, economies of scale, superior management

Question 33

What are the location specific advantages of Dunnings Eclectic theory?

Answer 33

Why firms choose specific countries for FDI Includes: cheap labour and production costs, access to resources, market proximity, government incentives

Question 34

What are the internalisation advantages of Dunnings Eclectic theory?

Answer 34

Why firms choose FDI over licensing or franchising Includes: protecting IP, ensuring product quality, reducing transaction costs

Question 35

What criticisms has Dunnings Eclectic Theory received?

Answer 35

Ownership advantages is perhaps just a simple case of scale following the acquisition along with the resulting market power Seperating ownership advantage from location advantage is difficult since there is inherent overlap amongst the two Methodologically it may be difficult to meausre these three advantages without overlap (Itaki 1991)

Question 36

Why is OLI important?

Answer 36

Helps firms decide where and how to expand internationally Explains why firms invest abroad instead of licensing/ franchising Useful for multinationals, governments, and business strategists

Question 37

What is the Uppsala model of internationalisation

Answer 37

Conceptualises the decision making process regarding international commitment, based on risk reduction that is achieved through experiential learning Is network based rather than atomistic, where relationships are built, as opposed to unconnected buyers and sellers transacting

Question 38

What two things are achieved by the Uppsala model/ Stage model?

Answer 38

Increasing commitment to international investments with respect to entry modes Addresses the increasing tolerance for psychic distance in terms of location choices

Question 39

What does the Uppsala model primarily focus on?

Answer 39

Risk reduction or management Gaining knowledge Building experience

Question 40

What does the Uppsala model describe?

Answer 40

Internationalisation as a step by step process, where firms start with domestic operations and gradually enter foreign markets with increasing commitment

Question 41

What is the Uppsala model based on?

Answer 41

Experiential learning and market knowledge

Question 42

Why is the Uppsala model important?

Answer 42

Helps firms expand revenue, reach new customers, and diversify risks

Question 43

What are the key assumptions of the Uppsala model?

Answer 43

Firms expand internationally in stages Companies start with markets that are culturally and geographically close Learning from experience reduces uncertainty Initial entry is low risk, commitment increases with knowledge

Question 44

What are the stages of the Uppsala model?

Answer 44

1) No regular export activity, firm operates only domestically 2) Export via agents, small scale exporting with local partners 3) Sales subsidiary, establishing an in market presence 4) Production/ manufacturing subsidiary, full scale investment in the foreign market

Question 45

What are some criticisms of the Uppsala model?

Answer 45

Not applicable to all industries, high tech firms often expand rapidly Ignores role of networks and partnerships in modern globalisation Some firms enter multiple markets simultaneously (born globals)

Question 46

What are Born Global firms?

Answer 46

Firms that internationalise from inception instead of gradually Typically expand within first few years They leverage technology, niche markets, and networks to grow globally They challenge traditional models like Uppsala

Question 47

What are the characteristics of Born Globals?

Answer 47

Niche market focus to serve specialised needs Technology driven to enable global reach Small but agile, iften SMEs but highly adaptable Network and partnerships to overcome resource constraints

Question 48

Provide an example of Born Global firm?

Answer 48

Spotify Launched in multiple european countries early on Is a digital product, and there is global demand for an internet based service

Question 49

How does Knight et al. (2004) define Born Globals?

Answer 49

Firms internationalising within 3 years and having 25% or more of revenue from overseas markets, yet this 25% figure is dropped in later work