The Main Arguments of Evolution Theory

International Management Prof. dr. Niels Noorderhaven Lecture 1 Agenda • • • 1. 2. 3. Introduction and organizational matters Does “international” still matter? Conceptual foundations of international business strategy (1) • • Case: Honda in the USA Literature: Textbook chapter 1 (pp 13-33 + 59-62) Team Lectures Niels Noorderhaven Cases Fons Naus Ana Aranda Gutierrez Zhengyu Li Teaching strategy Complementarity of lectures – readings • Individual case participation • Each lecture, one or several cases from the book will be expanded to put the theory into practice • Importance of research articles Grading • 70% MC exam – See Study manual for correction formula • Exam dates December 13, 2012 and April 12, 2013 • 30% 2 Interactive lectures – individual participation • Interactive lectures grades of 2010 and 2011 can be transferred Book • http://www. cambridge. rg/features/management/verbeke/ Does “international” still matter? 7 Transportation & communication costs fall 17 September 2012 8 Tariffs fall, anti-dumping measures rise anti- 17 September 2012 9 Globalization Theory: • Linguistic, trade and cultural barriers become less important • ‘Stateless’ MNCs • Within MNCs worldwide diffusion of technologies, knowledge and information Convergence of world economies 17 September 2012 10 Why is nationality important to people? Individual identity and social identity • Three processes of social identity formation: • social categorization • social comparison • social identification • (Self-)categorization: what is the salient category? 17 September 2012 11 Why is nationality important to people? • Positive stereotyping of “in-group”, negative stereotyping of “out-group” • Nationality differences are particularly salient when people have no common history • Nationality then becomes a source for one’s own identity and for the ascribed identity of the other 7 September 2012 12 Does “international” still matter? Yes, because …. • Cultural , institutional and language differences persist • Leading to differences in (business) decision making • Nationality forms an important basis for social categorization processes • Leading to shortcuts like cultural attribution and stereotyping With the effect that doing business across borders is different than domestic business 13 Conceptual foundations of international business strategy 4 Definition of international business strategy International business strategy means effectively and efficiently matching a multinational enterprise’s (MNE’s) internal strengths (relative to competitors) with the opportunities and challenges found in geographically dispersed environments that cross international borders. Such matching is a precondition to creating value and satisfying stakeholder goals, both domestically and internationally. 15 TABLE OF CONTENTS (1) Introduction and overview of the book’s framework • Part one: Core concepts (1) Conceptual foundations of international business strategy (2) The critical role of firm-specific advantages (3) The nature of home country location advantages (4) The problem with host country location advantages (5) Combining firm-specific advantages and location advantages in an MNE network 16 TABLE OF CONTENTS (2) • Part two: Functional issues (6) (7) (8) (9) (10) International innovation International sourcing and production International finance International marketing Managing managers in the multinational enterprise 7 TABLE OF CONTENTS (3) • Part three: Dynamics of global strategy (11) Entry mode dynamics 1: foreign distributors (12) Entry mode dynamics 2: strategic alliance partners (13) Entry mode dynamics 3: mergers and acquisitions (14) The role of emerging economies (15a) International strategies of corporate social responsibility (15b) International strategies of environmental sustainability 18 The seven concepts of the unifying framework • • • • • • Internationally transferable (or non-location bound) firmspecific advantages (FSAs) Non-transferable (or location-bound) FSAs Location advantages Investment in – and value creation through – recombination Complementary resources of external actors Bounded rationality Bounded reliability The MNE’s unique resource base • Physical resources (natural resources, buildings, plant equipment). • Financial resources (equity and loan capital) • Human resources (individuals and teams, entrepreneurial and operational skills). Upstream knowledge (sourcing knowledge, product and process-related technological knowledge). • Downstream knowledge (marketing, sales, distribution and after sales service). • Administrative knowledge (organizational structure, culture and systems). • Reputational resources (brand names, reputation for honest business dealings). International transferability of FSAs? • Paradox: If the FSA consists of easily codifiable knowledge (i. e. , if it can be articulated explicitly, as in a handbook or blueprint), then it can be cheaply transferred abroad, but it can also be easily imitated by other firms.

Though expensive and time-consuming to transfer tacit knowledge across borders, the benefit to the MNE is that this knowledge is also difficult to imitate. It is often a key source of competitive advantage when doing business abroad. Some FSAs are not transferable abroad: location-bound locationFSAs (1) Four main types: • Stand-alone resources linked to location advantages (privileged retail locations). • Local marketing knowledge and reputational resources, such as brand names (may not be applicable to a host country context, or valued to the same extent). Local best practices (i. e. routines), such as incentive systems or buyer-supplier relations (may not work abroad). • Domestic recombination capability (may not work in foreign markets – e. g. , because co-location of resources is needed). Some FSAs are not transferable abroad: location-bound locationFSAs (2) • Even if transferability of the relevant resources were technically possible, this does not mean potential for profitable deployment, i. e. the resource bundles that may be transferable from a technical perspective (e. g. , the way n which a product is marketed at home), do not constitute an FSA abroad. Location advantages • Entire set of strengths of a location, and accessible by firms in that location. • Should always be assessed relative to the strengths of other locations. • Instrumental to FSAs Motivations for foreign expansion • Natural resource seeking – Verbeke: physical, financial or human resources • Market seeking • Strategic resource seeking – e. g. , knowledge, finance • Efficiency seeking – E. g. , low labor cost Case: Honda in the USA Background Prior to 1970s exports of motorcycles and cars • Drivers of foreign production: – Rising value of the yen against US$ – Fear of import restrictions – The Clean Air Act in the US – First oil crisis • Motivation for expansion (natural resource, market, strategic resource, efficiency seeking? ) Honda’s approach • After four-year decision process Honda of America Manufacturing established in Marysville, Ohio, in 1978 • Top priority: attain Japanese-level quality and efficiency – – – – – Selection of employees Training program Fly in managers and workers from Japan Develop lean supplier network Upgrade supplier quality level 1980: start production of cars • Present: 9 production plants in USA Honda’s FSAs • Non-location bound FSAs: – – – – – – – Know-how four-strike engines with optimal power-to-weight ratio Management principles Quality systems Employee selection processes Training and knowledge transfer routines Manufacturing expertise Supplier management approach • • Location-bound FSAs in the host country: – High demand for specific products Resource recombination: – – – Use four-strike engines in many products (motorcycles, small cars, generators, …) Design and manufacturing skills + knowledge of consumer preferences in USA Melding existing and new resources through management exchange program Exploit new capabilities worldwide Complementary resources of external actors • Opportunity to study American way of production at Ford • Extensive use of American experts and consultants (especially for selecting location) • Critical role of suppliers Bounded rationality issues lack of knowledge local conditions • Suppliers’ lack of familiarity with Honda • New employees lack of familiarity with “The Honda Way” Bounded reliability issues • Moral hazard/adverse selection employees • American managers have local priorities Deliberate strategy? Agenda for next lecture 1. 2. 3. 4. Four types of MNEs Recombination Bounded rationality & reliability Firm-specific advantages (FSAs) • Cases: 3M & IKEA • Literature: Textbook chapter 1 (pp 33-76) + chapter 2 NB: Class will be in SZ 31

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