Theme I: Core IB Theories
Lecture, Literature & Notes
By AceAcademy ©
, Theme I: Core IB Theories
Conceptualizing IB
International Business (IB):
International Business involves engaging in global economic activities, both
domestically and internationally.
It centers on managing complexity and uncertainty, which arise from:
o New challenges posed by cross-border operations
o The necessity for awareness and strategic thinking
Vertical Integration:
Vertical Integration entails using internal exchanges for business activities.
It adds value when transactions occur frequently enough to justify integration.
However, it comes with drawbacks such as:
o Increasing the asset base and capital employed
o Reducing flexibility and limiting access to external expertise
o Inability to fully leverage supplier efficiency and scale
o Diverting focus from core business capabilities
o Converting variable costs into fixed costs
o Blurring the evaluation and understanding of costs
Outsourcing:
Outsourcing involves delegating organizational activities to external suppliers.
It can be offshore (with a foreign firm) or onshore (with a domestic entity).
In contrast to Foreign Direct Investment (FDI), where subsidiaries are established
abroad and work is done in-house but in an overseas location.
Vertical Integration vs. Outsourcing?
Considerations when choosing between Vertical Integration and Outsourcing include:
o Problems associated with outsourcing
o Dependence resulting from co-specialization or co-location
o Potential issues with performance, including customization, quality, and
availability
o Dependence created by market power dynamics
o Risks of losing critical know-how
o Weakened commitment and competitive signaling challenges
o Possible spillover effects on competitors
o The potential for a decline in differentiation
Lecture, Literature & Notes
By AceAcademy ©
, Theme I: Core IB Theories
Conceptualizing IB
International Business (IB):
International Business involves engaging in global economic activities, both
domestically and internationally.
It centers on managing complexity and uncertainty, which arise from:
o New challenges posed by cross-border operations
o The necessity for awareness and strategic thinking
Vertical Integration:
Vertical Integration entails using internal exchanges for business activities.
It adds value when transactions occur frequently enough to justify integration.
However, it comes with drawbacks such as:
o Increasing the asset base and capital employed
o Reducing flexibility and limiting access to external expertise
o Inability to fully leverage supplier efficiency and scale
o Diverting focus from core business capabilities
o Converting variable costs into fixed costs
o Blurring the evaluation and understanding of costs
Outsourcing:
Outsourcing involves delegating organizational activities to external suppliers.
It can be offshore (with a foreign firm) or onshore (with a domestic entity).
In contrast to Foreign Direct Investment (FDI), where subsidiaries are established
abroad and work is done in-house but in an overseas location.
Vertical Integration vs. Outsourcing?
Considerations when choosing between Vertical Integration and Outsourcing include:
o Problems associated with outsourcing
o Dependence resulting from co-specialization or co-location
o Potential issues with performance, including customization, quality, and
availability
o Dependence created by market power dynamics
o Risks of losing critical know-how
o Weakened commitment and competitive signaling challenges
o Possible spillover effects on competitors
o The potential for a decline in differentiation
