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Samenvatting International Business Context (6314M0169Y)
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Summary of 37 pages for the course International Business Context at UvA (Grade: 8.5)
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Exam (individual): open book exam (2-hour) 2 SHORT QUESTIONS (30 min)
1 ESSAY QUESTION (60 min)
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Week 1: Introduction to International Business
Mandatory readings:
Berry, H., Guillén, M.F. and Zhou, N., 2010. An institutional approach to cross-
national distance. Journal of International Business Studies, 41(9), pp.1460-
1480. (Koppelingen naar een externe site.)
Note: focus on distance(s), not method.
IBC = International Business Context
IBC consists of institutional, cultural and regulatory (contextual) factors that
influence business.
Liability of Foreignness (LoF)
MNEs at a disadvantage to local competitors in a host country
o Costs of doing business abroad, non-local status (Hymer, 1976)
LoF the fundamental assumption driving theories of MNEs (internationalization
theory, OLI paradigm, Uppsala model)
To overcome LoF, MNEs need to provide foreign subsidiaries with FSAs
(traditional view)
Disadvantages to operating in a foreign market due to (Zaheer, 1995):
o Spatial distance: induces travel, transportation & coordination costs
o Unfamiliarity with the host country, adaption & learning costs
o A lack of legitimacy, (economic) nationalism by local stakeholders
o Home-country restrictions on host-country activities
Concept of Distance
Among one of the most important streams of research in IB
4 decades of distance-related research BUT, no clear consensus on which is
the ’best’ distance to consider in IB
MNEs at a disadvantage in the host economy compared to domestic firms
(LoF) a result of distance (Ghemawat, 2001)
Difficult to anticipate the effects of distance
MNEs overcome distance with FSAs or using isomorphism strategy
Distance normally assumed to have a negative impact, but there are examples
of evidence for positive effects on IB value creation
,CAGE framework
Distance may originate from differences along four dimensions:
Cultural Distance
o “A country’s cultural attributes determine how people interact with one
another and with companies and institutions”
o Language, religion, ethnic/racial identity, shared history & norms
Administrative/institutional Distance
o Encompasses differences in the regulatory, normative, and cognitive
pillars of institutions
Geographic Distance/Spatial distance
Economic Distance
The MNE overcomes “distance” with FSAs.
It can be difficult to anticipate the effects of distance
Eclectic Paradigm: OLI Model (Rugman et al,, 2011)
Integration of country- & firm-level, 3 types of advantages influencing FDI:
Ownership advantages:
Asset advantages in various (in)tangible assets – overlap with FSAs
Transactional advantages in coordinating network of geo dispersed SUBs
Location advantages (countries having some CSAs vis-à-vis other countries):
e.g. natural resources, demand conditions, cultural or institutional factors
Aiming to acquire location-specific assets (e.g. knowledge, human capital,
natural resources
4 FDI motives
Internalization advantages: refers to benefits of creating, transferring, deploying,
recombining and exploiting FSAs internally instead of via contractual arrangements
with outside parties.
How? Entry Mode Choice
Definition: choice of the form of operation firms use to enter foreign markets
Why is it crucial? Important implications in terms of
Resource commitment
Exploration vs. exploitation strategies
Risk and uncertainty
Learning and knowledge transfers
Which are the main factors to consider?
Home-host country distances
FDI motivation
Host-country characteristics, i.e. pollical and economic risks, regulations
Firm strategy
Scandinavian: Uppsala Model (Johanson & Vahlne, 1977)
, The Uppsala model, stages of internationalization
o Internationalization as a cumulative and path-dependent process based
on past international experience and knowledge base
“Experiential market knowledge”
o Firm with no (or few) international experience enter foreign markets
1. Exporting
2. Sales subsidiary
3. Investing in production facilities
Benefits of exploiting FSAs abroad => risks of operating in unknown foreign
environments
o Firms initially expand in nearby geographic countries that are relative
familiar (i.e. geographically, institutionally and culturally proximate)
o After accumulating experience, MNEs expands into more distant
countries
IBV of MNEs (Institutional Based-View)
“Given the influences of (in)formal frameworks on firm behavior, any strategic choice
that firm make inherently affected by formal and informal constraints of a given
institutional framework” (Peng, 2002)
Institutional frameworks are heterogeneous around the world
MNEs adapt strategic choices dealing with host countries heterogeneities:
o Protection of IPR
o Corruption & bribery
o Embargos & sanctions
o Terrorism
o Currency exchange risk
Cultural Approaches
The main (5) cross-country cultural studies:
1. GLOBE project (House, Hamges, Javidan, Dorfman & Gupta, 2004),
2. Hofstede’s (2003) Cross-cultural Dimensions,
3. Survey of Values (Schwartz, 1999),
4. Smith, Peterson and Schwartz's (2002) Study of Event Management,
5. World Values Survey (Inglehart, Basañez, Diez-Medrano, Halman & Luijkx,
2004).
What is CG about?
Corporate governance concerns “the structure of rights and responsibilities among
the parties with a stake in the firm” (Aoki, 2001).
, US centered definitions:
Strategy
Economists
Stakeholders theory: the relationships btw and among shareholders, the board
of directors, and senior managers
The main issues for the course:
WHO controls the corporation?
WHAT mechanisms do different groups use to exert control?
How to COMPARE the similarities and differences in corporate governance
across countries?
CG codes:
Best practicing concerning
Executive remuneration
The independence of non-executive directors
The formation of board committees
The position of shareholders and
The role and position of the auditor
Despite differences, CGCs similar related to the CG objectives =>
CG objective: as instruments of self-regulation, sketching best practices with respect
to management, supervision, disclosure, and auditing.
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