Theories of International Business
Table of Contents
THEME 1 - CORE IB THEORIES.................................................................................................................3
VALUE CHAINS.................................................................................................................................................3
PRODUCT LIFE CYCLE........................................................................................................................................5
FIRM SPECIFIC ADVANTAGES..............................................................................................................................6
OLI MODEL....................................................................................................................................................7
STAGES (UPPSALA) MODEL................................................................................................................................9
INSTITUTION BASED VIEW................................................................................................................................11
READINGS...............................................................................................................................................12
RUGMAN, A.M., VERBEKE, A., & NGUYEN, Q.T.K. 2011. FIFTY YEARS OF INTERNATIONAL BUSINESS THEORY AND
BEYOND. MANAGEMENT INTERNATIONAL REVIEW, 51(6): 755-786......................................................................12
BUCKLEY, P., & CASSON, M.C. 2009. THE INTERNALIZATION THEORY OF THE MULTINATIONAL ENTERPRISE: A REVIEW OF
THE PROGRESS OF A RESEARCH AGENDA AFTER 30 YEARS. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 40(9): 1563-
1580...........................................................................................................................................................14
PENG, M. 2002. TOWARDS AN INSTITUTION-BASED VIEW OF BUSINESS STRATEGY. ASIA PACIFIC JOURNAL OF
MANAGEMENT, 19(2-3): 251-267..................................................................................................................15
DUNNING, J.H. 2000. THE ECLECTIC PARADIGM AS AN ENVELOPE FOR ECONOMIC AND BUSINESS THEORIES OF MNE
ACTIVITY. INTERNATIONAL BUSINESS REVIEW, 9(2) 163–190................................................................................16
THEME 2 – REGIONAL & GLOBAL INTEGRATION PROCESSES................................................................19
GLOBALISATION.............................................................................................................................................19
DRIVERS OF GLOBALISATION – GARRETT (2000).................................................................................................20
SEMI GLOBALISATION – GHEMAWAT (2003)......................................................................................................23
REGIONALISATION – RUGMAN & VERBEKE (2004)...............................................................................................25
READINGS...............................................................................................................................................26
GARRETT, G. 2000. THE CAUSES OF GLOBALIZATION. COMPARATIVE POLITICAL STUDIES, 33(6/7): 941-991. .............26
GHEMAWAT, P. 2003. SEMI GLOBALIZATION AND INTERNATIONAL BUSINESS STRATEGY. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 34(2): 138–152. ..............................................................................................................27
RUGMAN, A. M., & VERBEKE, A. 2004. A PERSPECTIVE ON REGIONAL AND GLOBAL STRATEGIES OF MULTINATIONAL
ENTERPRISES. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 35(1), 3-18. ...........................................................27
THEME 3 – MNE ENTRY MODES............................................................................................................28
FDI MOTIVES................................................................................................................................................28
MARKET ENTRY MODES: NON-EQUITY...............................................................................................................28
MARKET ENTRY – EQUITY................................................................................................................................31
MARKET ENTRY – SELECTION...........................................................................................................................33
,READINGS...............................................................................................................................................34
DUNNING, J. H. (1998). LOCATION AND THE MULTINATIONAL ENTERPRISE: A NEGLECTED FACTOR? JOURNAL OF
INTERNATIONAL BUSINESS STUDIES, 45-66. .......................................................................................................34
GAO, G.Y., MURRAY, J.Y., KOTABE, M. AND LU, J. (2010) A ‘‘STRATEGY TRIPOD’’ PERSPECTIVE ON EXPORT BEHAVIORS:
EVIDENCE FROM DOMESTIC AND FOREIGN FIRMS BASED IN AN EMERGING ECONOMY. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 41(3): 377–396. ..............................................................................................................35
PAN, Y. AND TSE, D.K. (2000) THE HIERARCHICAL MODEL OF MARKET ENTRY MODES. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 31(4): 535-554. ...............................................................................................................36
BROUTHERS, K. D., & HENNART, J. (2007). BOUNDARIES OF THE FIRM: INSIGHTS FROM INTERNATIONAL ENTRY MODE
RESEARCH. JOURNAL OF MANAGEMENT, 33(3), 395-425 ...................................................................................38
THEME 4 – HOME AND HOST COUNTRIES.............................................................................................38
DISTANCES....................................................................................................................................................38
CULTURAL DISTANCE.......................................................................................................................................41
CRITIQUE OF CULTURAL DISTANCE.....................................................................................................................42
CAGE FRAMEWORK.......................................................................................................................................44
THE (DOUBLE) DIAMOND MODEL.....................................................................................................................46
SUMMARY OF DISTANCE IN INTERNATIONAL BUSINESS..........................................................................................49
READINGS...............................................................................................................................................50
HUTZSCHENREUTER, T., KLEINDIENST, I., & LANGE, S. (2016). THE CONCEPT OF DISTANCE IN INTERNATIONAL BUSINESS
RESEARCH: A REVIEW AND RESEARCH AGENDA. INTERNATIONAL JOURNAL OF MANAGEMENT REVIEWS, 18(2), 160-179. 50
MOON, H.C., RUGMAN, A.M. AND VERBEKE, A. (1998). A GENERALIZED DOUBLE DIAMOND APPROACH TO THE GLOBAL
COMPETITIVENESS OF KOREA AND SINGAPORE. INTERNATIONAL BUSINESS REVIEW, 7(2): 135–150.............................51
HOFSTEDE, G. (1994).‘THE BUSINESS OF INTERNATIONAL BUSINESS IS CULTURE.’ INTERNATIONAL BUSINESS REVIEW, 3(1):
1-14............................................................................................................................................................52
THEME 5 – NEW MNES.........................................................................................................................53
INTERNATIONAL NEW VENTURES (INVS) AND BORN GLOBALS................................................................................53
EMERGING MARKET MULTINATIONALS (EMMNES).............................................................................................56
READINGS...............................................................................................................................................60
LUO, Y. AND TUNG, R.L. (2007) INTERNATIONAL EXPANSION OF EMERGING MARKET ENTERPRISES: A SPRINGBOARD
PERSPECTIVE. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 38(4): 481-498......................................................60
OVIATT, B.M. AND MCDOUGALL, P.P. (2005) TOWARD A THEORY OF INTERNATIONAL NEW VENTURES. JOURNAL OF
INTERNATIONAL BUSINESS STUDIES, 36(1): 29-41...............................................................................................62
,Theme 1 - Core IB Theories
Traditionally, international business (IB) is defined as a business or firm that
engages in international economic activities
IB is about managing complexity and uncertainty
o Cross border activity brings new challenges
o Requiring awareness and strategic thinking
Core theories of international business
o At the country level
o At the firm level
o At the subsidiary level (daughter company)
Resource-based View of IB
Institutional-based View of IB
Value Chains
We can look at an industry’s and a company’s value chain
The different business functions and the different stages where they add
value
Michael Porter’s value
chain
Primary
activities –
where a product
is built, and
value is added
o
Remember-
a
company
is not just
one
block,
there are
multiple
departments that each have different functions
Value chain and the Boundary of the Firm
, Boundary of the firm – what does the firm do itself and what does someone
else do
o A firm that has all the activities within in its own firm, like marketing,
distribution etc.
Otherwise, you can outsource some of these activities – e.g., logistics or final
assembly.
o Like Heineken outsourcing the creative aspect of their marketing to
TBWA
And their social media content to Boomerang
The International Industry Value Chain
With IB they have the whole world to move their value chain around
From ‘centre of gravity’ to vertical integration
Where are the ‘profit pools’, and where does a company have strategic
capabilities?
Where to expand, where to divest?
What local market factors/institutions enter these decisions?
Outsourcing vs. FDI
Outsourcing: turning over an organizational activity to an outside supplier
that will perform it on behalf of the focal firm
o Offshore: outsourcing to a firm abroad
o Onshore: outsourcing to a domestic firm
Outsourcing is in contrast to FDI where you set up subsidiaries abroad and
the work is done “in-house”, but the location is overseas
Value chain
Think in terms of Apple
o The products are designed in California, here a lot of value is added to
the product
o The final assembly however is in China, this is outsourced because it
is much cheaper
The company that handles this is Foxconn
Also, Apple advertising, this is typically outsourced
Think also of iPhone cases, these are produced by all kinds of different
companies – these fall outside of Apple’s value chain
What is a MNE (TNC, MNC)?
MNE = A company that engages in international (cross-border) economic
activities
Transnational Corporation’s (TNCs) = incorporated or unincorporated
enterprises comprising parent enterprises and their foreign affiliates
A parent enterprise is defined as an enterprise that controls assets of
other entities in countries other than its home country, usually by
owning a certain equity capital stake
Table of Contents
THEME 1 - CORE IB THEORIES.................................................................................................................3
VALUE CHAINS.................................................................................................................................................3
PRODUCT LIFE CYCLE........................................................................................................................................5
FIRM SPECIFIC ADVANTAGES..............................................................................................................................6
OLI MODEL....................................................................................................................................................7
STAGES (UPPSALA) MODEL................................................................................................................................9
INSTITUTION BASED VIEW................................................................................................................................11
READINGS...............................................................................................................................................12
RUGMAN, A.M., VERBEKE, A., & NGUYEN, Q.T.K. 2011. FIFTY YEARS OF INTERNATIONAL BUSINESS THEORY AND
BEYOND. MANAGEMENT INTERNATIONAL REVIEW, 51(6): 755-786......................................................................12
BUCKLEY, P., & CASSON, M.C. 2009. THE INTERNALIZATION THEORY OF THE MULTINATIONAL ENTERPRISE: A REVIEW OF
THE PROGRESS OF A RESEARCH AGENDA AFTER 30 YEARS. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 40(9): 1563-
1580...........................................................................................................................................................14
PENG, M. 2002. TOWARDS AN INSTITUTION-BASED VIEW OF BUSINESS STRATEGY. ASIA PACIFIC JOURNAL OF
MANAGEMENT, 19(2-3): 251-267..................................................................................................................15
DUNNING, J.H. 2000. THE ECLECTIC PARADIGM AS AN ENVELOPE FOR ECONOMIC AND BUSINESS THEORIES OF MNE
ACTIVITY. INTERNATIONAL BUSINESS REVIEW, 9(2) 163–190................................................................................16
THEME 2 – REGIONAL & GLOBAL INTEGRATION PROCESSES................................................................19
GLOBALISATION.............................................................................................................................................19
DRIVERS OF GLOBALISATION – GARRETT (2000).................................................................................................20
SEMI GLOBALISATION – GHEMAWAT (2003)......................................................................................................23
REGIONALISATION – RUGMAN & VERBEKE (2004)...............................................................................................25
READINGS...............................................................................................................................................26
GARRETT, G. 2000. THE CAUSES OF GLOBALIZATION. COMPARATIVE POLITICAL STUDIES, 33(6/7): 941-991. .............26
GHEMAWAT, P. 2003. SEMI GLOBALIZATION AND INTERNATIONAL BUSINESS STRATEGY. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 34(2): 138–152. ..............................................................................................................27
RUGMAN, A. M., & VERBEKE, A. 2004. A PERSPECTIVE ON REGIONAL AND GLOBAL STRATEGIES OF MULTINATIONAL
ENTERPRISES. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 35(1), 3-18. ...........................................................27
THEME 3 – MNE ENTRY MODES............................................................................................................28
FDI MOTIVES................................................................................................................................................28
MARKET ENTRY MODES: NON-EQUITY...............................................................................................................28
MARKET ENTRY – EQUITY................................................................................................................................31
MARKET ENTRY – SELECTION...........................................................................................................................33
,READINGS...............................................................................................................................................34
DUNNING, J. H. (1998). LOCATION AND THE MULTINATIONAL ENTERPRISE: A NEGLECTED FACTOR? JOURNAL OF
INTERNATIONAL BUSINESS STUDIES, 45-66. .......................................................................................................34
GAO, G.Y., MURRAY, J.Y., KOTABE, M. AND LU, J. (2010) A ‘‘STRATEGY TRIPOD’’ PERSPECTIVE ON EXPORT BEHAVIORS:
EVIDENCE FROM DOMESTIC AND FOREIGN FIRMS BASED IN AN EMERGING ECONOMY. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 41(3): 377–396. ..............................................................................................................35
PAN, Y. AND TSE, D.K. (2000) THE HIERARCHICAL MODEL OF MARKET ENTRY MODES. JOURNAL OF INTERNATIONAL
BUSINESS STUDIES, 31(4): 535-554. ...............................................................................................................36
BROUTHERS, K. D., & HENNART, J. (2007). BOUNDARIES OF THE FIRM: INSIGHTS FROM INTERNATIONAL ENTRY MODE
RESEARCH. JOURNAL OF MANAGEMENT, 33(3), 395-425 ...................................................................................38
THEME 4 – HOME AND HOST COUNTRIES.............................................................................................38
DISTANCES....................................................................................................................................................38
CULTURAL DISTANCE.......................................................................................................................................41
CRITIQUE OF CULTURAL DISTANCE.....................................................................................................................42
CAGE FRAMEWORK.......................................................................................................................................44
THE (DOUBLE) DIAMOND MODEL.....................................................................................................................46
SUMMARY OF DISTANCE IN INTERNATIONAL BUSINESS..........................................................................................49
READINGS...............................................................................................................................................50
HUTZSCHENREUTER, T., KLEINDIENST, I., & LANGE, S. (2016). THE CONCEPT OF DISTANCE IN INTERNATIONAL BUSINESS
RESEARCH: A REVIEW AND RESEARCH AGENDA. INTERNATIONAL JOURNAL OF MANAGEMENT REVIEWS, 18(2), 160-179. 50
MOON, H.C., RUGMAN, A.M. AND VERBEKE, A. (1998). A GENERALIZED DOUBLE DIAMOND APPROACH TO THE GLOBAL
COMPETITIVENESS OF KOREA AND SINGAPORE. INTERNATIONAL BUSINESS REVIEW, 7(2): 135–150.............................51
HOFSTEDE, G. (1994).‘THE BUSINESS OF INTERNATIONAL BUSINESS IS CULTURE.’ INTERNATIONAL BUSINESS REVIEW, 3(1):
1-14............................................................................................................................................................52
THEME 5 – NEW MNES.........................................................................................................................53
INTERNATIONAL NEW VENTURES (INVS) AND BORN GLOBALS................................................................................53
EMERGING MARKET MULTINATIONALS (EMMNES).............................................................................................56
READINGS...............................................................................................................................................60
LUO, Y. AND TUNG, R.L. (2007) INTERNATIONAL EXPANSION OF EMERGING MARKET ENTERPRISES: A SPRINGBOARD
PERSPECTIVE. JOURNAL OF INTERNATIONAL BUSINESS STUDIES, 38(4): 481-498......................................................60
OVIATT, B.M. AND MCDOUGALL, P.P. (2005) TOWARD A THEORY OF INTERNATIONAL NEW VENTURES. JOURNAL OF
INTERNATIONAL BUSINESS STUDIES, 36(1): 29-41...............................................................................................62
,Theme 1 - Core IB Theories
Traditionally, international business (IB) is defined as a business or firm that
engages in international economic activities
IB is about managing complexity and uncertainty
o Cross border activity brings new challenges
o Requiring awareness and strategic thinking
Core theories of international business
o At the country level
o At the firm level
o At the subsidiary level (daughter company)
Resource-based View of IB
Institutional-based View of IB
Value Chains
We can look at an industry’s and a company’s value chain
The different business functions and the different stages where they add
value
Michael Porter’s value
chain
Primary
activities –
where a product
is built, and
value is added
o
Remember-
a
company
is not just
one
block,
there are
multiple
departments that each have different functions
Value chain and the Boundary of the Firm
, Boundary of the firm – what does the firm do itself and what does someone
else do
o A firm that has all the activities within in its own firm, like marketing,
distribution etc.
Otherwise, you can outsource some of these activities – e.g., logistics or final
assembly.
o Like Heineken outsourcing the creative aspect of their marketing to
TBWA
And their social media content to Boomerang
The International Industry Value Chain
With IB they have the whole world to move their value chain around
From ‘centre of gravity’ to vertical integration
Where are the ‘profit pools’, and where does a company have strategic
capabilities?
Where to expand, where to divest?
What local market factors/institutions enter these decisions?
Outsourcing vs. FDI
Outsourcing: turning over an organizational activity to an outside supplier
that will perform it on behalf of the focal firm
o Offshore: outsourcing to a firm abroad
o Onshore: outsourcing to a domestic firm
Outsourcing is in contrast to FDI where you set up subsidiaries abroad and
the work is done “in-house”, but the location is overseas
Value chain
Think in terms of Apple
o The products are designed in California, here a lot of value is added to
the product
o The final assembly however is in China, this is outsourced because it
is much cheaper
The company that handles this is Foxconn
Also, Apple advertising, this is typically outsourced
Think also of iPhone cases, these are produced by all kinds of different
companies – these fall outside of Apple’s value chain
What is a MNE (TNC, MNC)?
MNE = A company that engages in international (cross-border) economic
activities
Transnational Corporation’s (TNCs) = incorporated or unincorporated
enterprises comprising parent enterprises and their foreign affiliates
A parent enterprise is defined as an enterprise that controls assets of
other entities in countries other than its home country, usually by
owning a certain equity capital stake
