AIM Exam 2010-2011
1. One argument that Guler & Guillen (2010) make in “Home country networks and foreign
expansion” is that social status helps firms overcome the “liability of foreignness”.
a) What is the liability of foreignness? (2 pts)
b) Why would social status remedy the liability of foreignness? (2 pts)
Answer: Liability of foreignness implies that foreign firms have higher operating costs (I)
because they don’t know local rules and practices and have lower perceived legitimacy
(I). If social status is transferable across markets (I), it may offset the increased costs that
firms entering a foreign market face because they are unfamiliar with the way things
work.(I)
2. Image 1 (shown below) shows a network of firms in their home country. Which of the
two firms, WD or DI, is more likely to expand internationally according to Guler and
Guillen’s (2010) article “Home country networks and foreign expansion”? Reason your
answer. (3 pts)
Answer: DI is more likely to expand, and WD is not likely to expand internationally (I).
This is because WD enjoys stronger brokerage advantage than DI (I) and brokerage
advantage is an FSA that is not easily transferable (I).
3. Porter in “Clusters and the new economics of competition” argues that being part of a
cluster has a number of advantages. Yet, there are also reasons why firms would want to
locate outside a cluster. Give three reasons why firms would locate outside a cluster. (3
pts)
Answer: Locating outside a cluster is usually associated with lower real estate costs (I),
lower competition/benefits of a local monopoly (I), and less risk of knowledge leaks (I).
4. Compare the sales data of McDonald’s and Coca Cola (see table 1 on p. 11) from the
article “A Perspective on Regional and Global Strategies” by Rugman and Verbeke
(2004). Based on this article,
a) which one of these two firms can be considered as less global, and why? (2 pts)
b) what would you recommend to this firm to become a truly global player? (2 pts)
Answer: McDonald’s (I) sales are less evenly spread across the triad, with sales beneath
20% in Asia (I). It should increase sales in Asia (I) by developing more local
responsiveness (I).
5. What, according to Wang and Zajac’s (2007) study “Alliance or Acquisition?”
determines whether firms pursue a collaboration versus an acquisition? (4 pts)
Answer: In case of complementary resources (I), firms are more likely to pursue a
collaboration (I), and in case of similar resources (I), firms are more likely to pursue an
acquisition (I).
1
, 6. What, according to Hennart and Reddy’s (1997) paper entitled: “The choice between
mergers/acquisitions and joint ventures”, does the indigestibility hypothesis entail, and
how does this hypothesis predict Mergers/acquisitions versus joint ventures? (4 pts)
Answer: The indigestibility hypothesis implies that desirable assets (I) of a possible JV
partner or acquisition target may be commingled with less desirable assets (I). If assets
are indigestible (ie. cannot be separated), a JV is more likely (I), while an acquisition is
more likely when assets can be thus acquired separately (I).
7. Researchers of international management have studied the relationship between product
differentiation and location choice. How are product differentiation and location choice
related? Reason your answer and name a relevant study. (5 pts)
Answer: Nachum and Wymbs (I) found that firms with highly differentiated products (I)
tend to locate further away from clusters (I) as they benefit less from the cluster (I),
However, this relationship vanishes for firms with most differentiated products (I).
8. MNEs experience pressures of conformity to how things are done in the parent country
and how they are done in the host country. Briefly describe this tension, covering the
following:
a. What do you call the pressures to conform to the parent country/the host country?
(2 pts)
b. Which crucial MNE decision during firm expansion is impacted from a strategic
viewpoint? Name a relevant study and the relation it found between
multidomestic strategy and decision outcome. (3 pts)
c. Of different roles that subsidiaries can take on in MNEs, which one would you
expect to find in case of high pressures to conform to the host country? Reason
your answer and name a relevant study. (4 pts)
Answer: a) Firms experience a tension between pressures of internal and external
isomorphism/internal consistency/integration and local responsiveness. (II)
b) This tension impacts on the mode of entry decision (I), outlined in Harzing’s study (I).
Companies following a multidomestic strategy strive for local responsiveness and are
therefore more likely to choose acquisitions (I).
c) According to a study by Harzing and Noorderhaven (I), in case of high pressure to
conform to the host country, subsidiaries will most likely take the form of the local
innovator (I) because this type experiences high autonomy, low control, and fewer
inputs from HQ than any other type (max II).
9. In the past, managers in MNEs have often looked upon foreign employees as cheap labor,
and upon subsidiaries as appendices of the corporation that serve the production and
distribution of products. How does this contradict the Uppsala model from Johanson and
Vahlne of why firms operate internationally? Refer to the knowledge based theory of the
multinational firm to support your argument. (6 pts)
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1. One argument that Guler & Guillen (2010) make in “Home country networks and foreign
expansion” is that social status helps firms overcome the “liability of foreignness”.
a) What is the liability of foreignness? (2 pts)
b) Why would social status remedy the liability of foreignness? (2 pts)
Answer: Liability of foreignness implies that foreign firms have higher operating costs (I)
because they don’t know local rules and practices and have lower perceived legitimacy
(I). If social status is transferable across markets (I), it may offset the increased costs that
firms entering a foreign market face because they are unfamiliar with the way things
work.(I)
2. Image 1 (shown below) shows a network of firms in their home country. Which of the
two firms, WD or DI, is more likely to expand internationally according to Guler and
Guillen’s (2010) article “Home country networks and foreign expansion”? Reason your
answer. (3 pts)
Answer: DI is more likely to expand, and WD is not likely to expand internationally (I).
This is because WD enjoys stronger brokerage advantage than DI (I) and brokerage
advantage is an FSA that is not easily transferable (I).
3. Porter in “Clusters and the new economics of competition” argues that being part of a
cluster has a number of advantages. Yet, there are also reasons why firms would want to
locate outside a cluster. Give three reasons why firms would locate outside a cluster. (3
pts)
Answer: Locating outside a cluster is usually associated with lower real estate costs (I),
lower competition/benefits of a local monopoly (I), and less risk of knowledge leaks (I).
4. Compare the sales data of McDonald’s and Coca Cola (see table 1 on p. 11) from the
article “A Perspective on Regional and Global Strategies” by Rugman and Verbeke
(2004). Based on this article,
a) which one of these two firms can be considered as less global, and why? (2 pts)
b) what would you recommend to this firm to become a truly global player? (2 pts)
Answer: McDonald’s (I) sales are less evenly spread across the triad, with sales beneath
20% in Asia (I). It should increase sales in Asia (I) by developing more local
responsiveness (I).
5. What, according to Wang and Zajac’s (2007) study “Alliance or Acquisition?”
determines whether firms pursue a collaboration versus an acquisition? (4 pts)
Answer: In case of complementary resources (I), firms are more likely to pursue a
collaboration (I), and in case of similar resources (I), firms are more likely to pursue an
acquisition (I).
1
, 6. What, according to Hennart and Reddy’s (1997) paper entitled: “The choice between
mergers/acquisitions and joint ventures”, does the indigestibility hypothesis entail, and
how does this hypothesis predict Mergers/acquisitions versus joint ventures? (4 pts)
Answer: The indigestibility hypothesis implies that desirable assets (I) of a possible JV
partner or acquisition target may be commingled with less desirable assets (I). If assets
are indigestible (ie. cannot be separated), a JV is more likely (I), while an acquisition is
more likely when assets can be thus acquired separately (I).
7. Researchers of international management have studied the relationship between product
differentiation and location choice. How are product differentiation and location choice
related? Reason your answer and name a relevant study. (5 pts)
Answer: Nachum and Wymbs (I) found that firms with highly differentiated products (I)
tend to locate further away from clusters (I) as they benefit less from the cluster (I),
However, this relationship vanishes for firms with most differentiated products (I).
8. MNEs experience pressures of conformity to how things are done in the parent country
and how they are done in the host country. Briefly describe this tension, covering the
following:
a. What do you call the pressures to conform to the parent country/the host country?
(2 pts)
b. Which crucial MNE decision during firm expansion is impacted from a strategic
viewpoint? Name a relevant study and the relation it found between
multidomestic strategy and decision outcome. (3 pts)
c. Of different roles that subsidiaries can take on in MNEs, which one would you
expect to find in case of high pressures to conform to the host country? Reason
your answer and name a relevant study. (4 pts)
Answer: a) Firms experience a tension between pressures of internal and external
isomorphism/internal consistency/integration and local responsiveness. (II)
b) This tension impacts on the mode of entry decision (I), outlined in Harzing’s study (I).
Companies following a multidomestic strategy strive for local responsiveness and are
therefore more likely to choose acquisitions (I).
c) According to a study by Harzing and Noorderhaven (I), in case of high pressure to
conform to the host country, subsidiaries will most likely take the form of the local
innovator (I) because this type experiences high autonomy, low control, and fewer
inputs from HQ than any other type (max II).
9. In the past, managers in MNEs have often looked upon foreign employees as cheap labor,
and upon subsidiaries as appendices of the corporation that serve the production and
distribution of products. How does this contradict the Uppsala model from Johanson and
Vahlne of why firms operate internationally? Refer to the knowledge based theory of the
multinational firm to support your argument. (6 pts)
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