Summary International Business Strategy
Current debates in global strategy – W. Peng, G Pleggenkuhle-miles (2009)
Three general views on global strategy:
1. Global strategy is one particular for of MNE strategies that treats countries around the
world as a common, global marketplace
2. Global strategy is treated as “international strategic management”
3. Global strategy entails the strategy of firms around the globe, which is firms’ theory about
how to compete successfully (predominantly used in this paper).
Institutions define the rules of the game. International firms must know the formal and
informal rules of the countries they operate in. The institution-based view implies that a firms’
strategies are enabled and constrained by the different rules of the game.
1) Cultural vs institutional distance
- Global strategy is fundamentally shaped by the formal and informal institutions.
- National culture and institutional heritage both majorly impact business activities.
- Studies generally argue that as the cultural differences between a home and host country
increase, the effective operation in host markets decreases. Increased cultural difference led to
greater complexity and uncertainty for managerial decision-making, increasing managerial
risk.
- However, there are inconsistent findings such as the effectivity of joint ventures between
local firms and international firms, the relationship between cultural distance and MNE
performance, the decreasing importance of cultural distance after establishment of the firm.
- These critics usually look beyond Hofstede’s dimensions towards an institutional construct
with the argument that cultural distance can be complemented by institutional distance.
- Claiming a causality link between cultures and institutions is useless.
2) Global vs regional geographic diversification
- Many ‘regional’ MNEs are incorrectly defined as ‘global’ firms. Much of the international
activity is conducted at the intra-regional instead of global scale. Second, many MNE
operations are organized at the regional levels opposed to the global level.
- One of the main reasons for this is the lower liability of foreignness in the regional areas.
Furthermore, it is difficult to manage an internal network spanning more than one region.
- In line with the previously mentioned, recent research on regional diversification and firm
performance suggested that regionally focused firms are more likely to maximize
performance.
- However, there are critics: regional concentration of MNE activity is more reflective of GDP
and trade than distinctive MNE strategy and the regional view data only captured a snapshot
in time.
3) Convergence vs divergence in corporate governance
- There is an ongoing debate between whether there is convergence or divergence taking place
in corporate governance.
- People arguing in favor of convergence state that market forces enhance cross-national
convergence on international standards. However, market pressures were not found to be the
main drivers of such conformity. Instead, adoption was found to be driven mainly by a nation-
state’s regulatory authorities’ concern about the potential risk of foreign market closure to
non-compliant firms.
,- Another example highlighting the convergence addresses cross listing (listing shares on
foreign stock markets). The primary reason for this is to tap into pools of capital.
- On the other hand, some people argue for divergence. The diversity of practices ‘nearly
defies a common definition’.
- In US and UK firms, promoting more concentrated ownership is a frequently recommended
solution to the principal-agent problem. However, making this recommendation in Asia can
be counterproductive.
- Furthermore, cross-listed firms do not necessarily adopt US governance systems, and US
and UK security laws have rarely been implemented effectively against those firms.
- Overall, complete convergence as well as divergence will both be very unlikely.
Crossvergence will be the most likely to occur, adequately explaining the dynamic
interaction.
- De jure (convergence in formal rules) find support, whereas de facto (convergence of actual
practices) do not find support.
4) Domestic vs overseas CSR
Two viewpoints for the responsibility of the firm: managers should make decision to
maximize the wealth of a firm, as well as fulfill the societal duty going beyond simply
maximizing wealth.
- Because corporate resources are limited, most of the resources are devoted nationally as
opposed to abroad.
- There is a lack of a clear solution regarding how firms should distribute their CSR practices.
Lecture 1
- The essence of strategy is to find a way to cope with competition.
- Three typical views of strategy formulation:
1. Industry structure affects strategy
2. Firm resources affect strategy
3. Strategy is an emerging process (Learning-by-doing)
There are five competitive forces: bargaining power of suppliers, bargaining power of buyers,
threat of new entrants, threat of substitutes and industry rivalry.
- Resource based view: competitive advantage comes from firms’ internal resources
- According to Mintzberg (1978), strategy is an emerging process which forms
gradually. A strategy is formed when there is an observed, consistent pattern in a
decision stream.
- Mintzberg argues that a good strategy is formulated through learn by doing (feedback
loop).
Overall strategy formulation framework:
, - In order for a firm to achieve efficiency, a firm can be regarded as in input-output system.
Maximize value of input, minimize cost of output.
- The economy of scale implies a cost advantage of global integration (achieved through
market size).
Global operation involves different types of risk:
- Violent conflict risk (wars, revolutions, terrorism)
-Macro-economic risk (random movement in labor wage rates, geographically dispersed
operation)
- Political risk (the ability of a government to credibly commit to a set of policies such as the
change of government and influence of lobbying)
- Globalization allows firms to operate in a diverse environment and connect ideas from
different locations. Through external linkages, globalization allows firms to access an even
wider source of information (P&G’s open innovation model)
Tradeoff among objectives:
- Efficiency vs learning & efficiency vs managing risks
Week 2
Managerial cognition and internationalization – Maitland & Sammartino 2015
- Managers can intentionally influence the
MNEs growth paths, which is considered IBs
most neglected internationalization factor.
- The greater the institutional or psychic
distance between a firm’s home and host
country, the greater the reluctance to enter such
markets/the greater the difficulty in transferring
FSAs developed in other locations. As the LOF
decreases, the urge for JVs decreases, turning
them into potential WOS’s. Hence, the LOF in
diminished by experience-based learning
reducing outsiders’ information and knowledge
deficits.
- Mental models are cognitive structures and
processes individuals use to make sense of the
world around them. These models contain knowledge an individual has acquired over his/her
lifetime.
Current debates in global strategy – W. Peng, G Pleggenkuhle-miles (2009)
Three general views on global strategy:
1. Global strategy is one particular for of MNE strategies that treats countries around the
world as a common, global marketplace
2. Global strategy is treated as “international strategic management”
3. Global strategy entails the strategy of firms around the globe, which is firms’ theory about
how to compete successfully (predominantly used in this paper).
Institutions define the rules of the game. International firms must know the formal and
informal rules of the countries they operate in. The institution-based view implies that a firms’
strategies are enabled and constrained by the different rules of the game.
1) Cultural vs institutional distance
- Global strategy is fundamentally shaped by the formal and informal institutions.
- National culture and institutional heritage both majorly impact business activities.
- Studies generally argue that as the cultural differences between a home and host country
increase, the effective operation in host markets decreases. Increased cultural difference led to
greater complexity and uncertainty for managerial decision-making, increasing managerial
risk.
- However, there are inconsistent findings such as the effectivity of joint ventures between
local firms and international firms, the relationship between cultural distance and MNE
performance, the decreasing importance of cultural distance after establishment of the firm.
- These critics usually look beyond Hofstede’s dimensions towards an institutional construct
with the argument that cultural distance can be complemented by institutional distance.
- Claiming a causality link between cultures and institutions is useless.
2) Global vs regional geographic diversification
- Many ‘regional’ MNEs are incorrectly defined as ‘global’ firms. Much of the international
activity is conducted at the intra-regional instead of global scale. Second, many MNE
operations are organized at the regional levels opposed to the global level.
- One of the main reasons for this is the lower liability of foreignness in the regional areas.
Furthermore, it is difficult to manage an internal network spanning more than one region.
- In line with the previously mentioned, recent research on regional diversification and firm
performance suggested that regionally focused firms are more likely to maximize
performance.
- However, there are critics: regional concentration of MNE activity is more reflective of GDP
and trade than distinctive MNE strategy and the regional view data only captured a snapshot
in time.
3) Convergence vs divergence in corporate governance
- There is an ongoing debate between whether there is convergence or divergence taking place
in corporate governance.
- People arguing in favor of convergence state that market forces enhance cross-national
convergence on international standards. However, market pressures were not found to be the
main drivers of such conformity. Instead, adoption was found to be driven mainly by a nation-
state’s regulatory authorities’ concern about the potential risk of foreign market closure to
non-compliant firms.
,- Another example highlighting the convergence addresses cross listing (listing shares on
foreign stock markets). The primary reason for this is to tap into pools of capital.
- On the other hand, some people argue for divergence. The diversity of practices ‘nearly
defies a common definition’.
- In US and UK firms, promoting more concentrated ownership is a frequently recommended
solution to the principal-agent problem. However, making this recommendation in Asia can
be counterproductive.
- Furthermore, cross-listed firms do not necessarily adopt US governance systems, and US
and UK security laws have rarely been implemented effectively against those firms.
- Overall, complete convergence as well as divergence will both be very unlikely.
Crossvergence will be the most likely to occur, adequately explaining the dynamic
interaction.
- De jure (convergence in formal rules) find support, whereas de facto (convergence of actual
practices) do not find support.
4) Domestic vs overseas CSR
Two viewpoints for the responsibility of the firm: managers should make decision to
maximize the wealth of a firm, as well as fulfill the societal duty going beyond simply
maximizing wealth.
- Because corporate resources are limited, most of the resources are devoted nationally as
opposed to abroad.
- There is a lack of a clear solution regarding how firms should distribute their CSR practices.
Lecture 1
- The essence of strategy is to find a way to cope with competition.
- Three typical views of strategy formulation:
1. Industry structure affects strategy
2. Firm resources affect strategy
3. Strategy is an emerging process (Learning-by-doing)
There are five competitive forces: bargaining power of suppliers, bargaining power of buyers,
threat of new entrants, threat of substitutes and industry rivalry.
- Resource based view: competitive advantage comes from firms’ internal resources
- According to Mintzberg (1978), strategy is an emerging process which forms
gradually. A strategy is formed when there is an observed, consistent pattern in a
decision stream.
- Mintzberg argues that a good strategy is formulated through learn by doing (feedback
loop).
Overall strategy formulation framework:
, - In order for a firm to achieve efficiency, a firm can be regarded as in input-output system.
Maximize value of input, minimize cost of output.
- The economy of scale implies a cost advantage of global integration (achieved through
market size).
Global operation involves different types of risk:
- Violent conflict risk (wars, revolutions, terrorism)
-Macro-economic risk (random movement in labor wage rates, geographically dispersed
operation)
- Political risk (the ability of a government to credibly commit to a set of policies such as the
change of government and influence of lobbying)
- Globalization allows firms to operate in a diverse environment and connect ideas from
different locations. Through external linkages, globalization allows firms to access an even
wider source of information (P&G’s open innovation model)
Tradeoff among objectives:
- Efficiency vs learning & efficiency vs managing risks
Week 2
Managerial cognition and internationalization – Maitland & Sammartino 2015
- Managers can intentionally influence the
MNEs growth paths, which is considered IBs
most neglected internationalization factor.
- The greater the institutional or psychic
distance between a firm’s home and host
country, the greater the reluctance to enter such
markets/the greater the difficulty in transferring
FSAs developed in other locations. As the LOF
decreases, the urge for JVs decreases, turning
them into potential WOS’s. Hence, the LOF in
diminished by experience-based learning
reducing outsiders’ information and knowledge
deficits.
- Mental models are cognitive structures and
processes individuals use to make sense of the
world around them. These models contain knowledge an individual has acquired over his/her
lifetime.
