Week 1: Theoretical Foundations Flashcards
(39 cards)
What is an MNE?
How do they contribute to globalisation?
an MNE owns and controls value-creating activities in at least one other country than the home region and commonly uses FDI to do so
as a result of their activities, the world is becoming increasingly interconnected through e.g. GVCs
What is Internationalisation?
The extension of economic activity across borders
Internationalisation + _______ = globalisation
elements of functional integration
Globalisation is a non-static process that…
observes integration of economic activity and regulations across countries
it also observes culture, technology and political dimensions
Why do we need to understand globalisation? (4 points)
understanding globalisation allows understanding the very existence of MNEs and what room they have to manouvre in the international business world, how much they are affected by trends and the extent to which they need to adapt in foreign markets
Name the three main debates around globalisation and their main concern.
Hyperglobalists vs sceptics - is globalisation real?
End of globalisation - is globalisation dead?
Consequences of globalisation - is globalisation good?
Briefly elaborate on what hyperglobalists believe.
hyperglobalists vs sceptics
hyperglobalists believe that today’s economy is genuinely borderless and that information, capital and innovation flow all over the world at top speed, enabled by technology
They argue for global products, standardisation and homogenous consumer tastes (the world is flat)
Briefly elaborate on what skeptics believe.
hyperglobalists vs sceptics
Sceptics believe globalisation is a myth and in certain aspects the world economny is less globalised than 120 years ago
They argue for enduring variation in national business systems (e.g., germany liberalised finance and labour regulations after the reunion) and regionalisation is what truly is hapening. Most trade and FDI happens inside the triads.
Briefly elaborate on the discussion around the end of globalisation.
`this stream in academia argues whether globalisation is dead; it discusses the future of globalisation as a result of anti-globalisation movements, such as brexit or america first
some argue globalisation is just picking up pace now, while others argue recent events of increasing opposition hinders the globalisation process
Briefly elaborate on the discussion of the consequences of globalisation.
this stream asks whether globalisation is good; it discusses whether or not globalisation is good for all parties involved or just a select few (MNEs might have power over governments by threatening to offshore, which cripples democracy)
also often argued is the negative environmental issues as well as instability and homogeneisation of cultures
What are the two main pressures of globalisations MNEs need to respond to?
How do the pressures of globalisation differ for MNEs?
1) global integration, local responsiveness
2) pressures differ - some firms wont need to integrste global operations and may just control a network of a few standalone subsidiaries; others, such as automotive industries, have strong pressures of global integration and need to operate carefuylly coordinated value chains to reap the avantages of low cost locations as they face stronger global competition
simulatenously, companies may have to serve and react to local markets and adapt products to local demands - if they source inputs locally, their subsidiary network may not be as globally integrated
Quickly explain the difference between global integration and local responsiveness.
global integration: the extent to which industry is globalised and the extent to which the country it operates in is part of the global economic system
local responsiveness: extent to which companies need to serve and react to local markets
What are the four strategies firms can apply in response to pressures from local responsiveness and global integration?
- global
- international
- multidomestic
- transnational
Global Value Chains can already be complex for MNEs to coordinate. What two factors/layers add to the complexity?
- first layer of complexity of MNEs GVCs arise from geographic and organisational dispersion of business activities - GVC activities are not only distributed within the MNE network and boundaries (through subsidiaries) but also involve players outside the MNE boundaries (suppliers, universities, etc.)
- Second layer of complexity is added through the fact that these players are also located in different locations around the world, which may create distance, high frictions and coordination costs
What two sets of activities are portrayed on the global smiling curve?
- production networks - lower value adding activities, such as logistics, production and distribution that are mainly reliant on tangible assets
- innovation systems - higher value added activities, such as basic and applied R&D, design, marketing and brand management, sales, those largely dependent on intangible assets (innovation capabilities or brand power)
How do MNEs organise their GVCs? What drives this decision?
key decision drivers according to transaction cost theory of MNEs depend on FSA (e.g., IKEAs strong brand association), CSA (e.g., Saudi Oil) and internalisation advantages (benefits associated to keeping acitivities within the firm, e.g., amazon buying whole foods to transform amazon from web-only to physical outputs)
What three things do you need to keep in mind when thinking of the interaction between FSA, CSA and IA? (1 each)
These three factors are interdependent and cannot be considered in isolation because:
1. fsa are not only developed in the home country, but also in the foreign subsidiaries, which can then be transferred back home or within the network
- csa (also in a specific host country) can contribute to the development of new FSA
- IA depend on a company’s transactional FSA to operate in foreign subsidiaries
Briefly explain what the transnational solution is.
simple case of an MNE in a home country, mirrored to its subsidiary in a host country; both child and parent have their own standalone FSA, routines and resource recombination abilities; both have individiual CSA in their own country of operation and both sides FSA interact with each other. CSA help the development of new FSA.
What is the difference between location bound and non location bound FSA?
NLB-FSA: refers to advantages which are highly flexible and can be transferred from one lcoation to another within the MNE network at low marginal cost (e.g., unilevers brand power and recognition can be leveraged in more than one country); NLB-FSA lead to benefits of scale, scope or exploitastion of national differences
LB-FSA: refers to advantages that create value for a firm if deployed in a certain location and cannot be transferred across MNE networks (e.g., unilevers knowledge developed for local products), as it incorporates knowledge that cannot be deployed elsewhere; leads to benefits of national responsiveness but require significant costs and adaption to be used elsewhere
How do NLB-FSA and LB-FSA relate to the transnational solution?
the transnational solution counts on the transfer of NLB-FSA in the MNE network, therefore, for such advantages NLB-FSAshould be developed for transnational MNEs while LB-FSA should be leveraged in the host environment for reasons of local responsiveness if need be.
What are the two things you need to consider when formulating an international strategy?
- how to organise international activities along the GVC
- how to leverage differences across countries
- its not so much about becoming an MNE but about formulating a strategy for an MNE
What is the difference between a multi-domestic and a global industry?
Multidomestic: competition is fragmented from country to country, so if a firm operates in two countries, the competitive strategies adopted in one market may not be successful in another (e.g., insurances)
Global industries: competition crosses borders and occurs on a world-wide basis - companies operating in the global industry should design their strategy to fit different markets served by the firm, since these tend to be highly connected (e.g., electronic consumer goods)
What other framework can be used to determine international strategy?
AAA Framework - Ghemawat, 2008
What does the AAA Framework stand for?
Adaptation
Aggregation
Arbitrage
