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IB 2.2 Silicon valley

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  • Thomas WestcottLegal AdvisorUNCTAD
  • Transcript

    • 1. International Business
      To add
    • 2.
    • 3. Another View
    • 4. Explaining Internationalization
      Early contribution of ‘Uppsala model’: Johanson & Wiedersheim-Paul 1975; Johanson & Vahlne 1977
      Key insight: internationalization is an incremental commitment, in terms of (a) geographical sequence and (b) entry mode choice, due to the gradual accumulation of experiential knowledge of foreign markets reducing the uncertainty effect
      interplay between knowledge and commitment the key driver
    • 5. Distinctiveness of Uppsala model
      ‘We do not believe that [internationalization] is the result of a strategy for optimum allocation of resources to different countries where alternative ways of exploiting foreign markets are compared and evaluated.
      We see it rather as the consequence of a process of incremental adjustments to changing conditions of the firm and its environment.’ (Johanson and Vahlne 1977, p. 35)
    • 6. Empirical basis for model: e.g.
      PHARMACIA:
      9 overseas affiliates at the time.
      In the case of 8, the firm had received orders from foreign market, then signed an agency/licensing agreement.
      After a few years, established sales subsidiary (or made an acquisition in 1 case).
      In two countries began manufacturing, but only less complicated production at first.
      In case 9, started a sales subsidiary almost immediately, but company decision-maker had prior country experience.
      (Johanson & Vahlne 1977)
    • 7. Incremental pattern (1): ‘Establishment chain’
      No regular export
      Direct exporting, via independent agent/distributor
      Establishing foreign sales subsidiary
      Foreign production/ manufacturing
      Johanson & Wiedersheim-Paul 1975; Johanson & Vahlne 1977; cf Bilkey & Tesar 1977, Cavusgil 1980, Czinkota 1982
    • 8. Psychic distance
    • 9. Why these patterns? A process explanation
      ‘the firm develops knowledge when it operates in the market,
      this knowledge enables the firm to better see and evaluate business opportunities, consequently, to make new market commitments.
      In their turn, these commitments lead to learning and the ability to identify new market opportunities, and so on.’ (Johanson and Vahlne 2003, p. 9)
    • 10. The Uppsala model
      STATE ASPECTS
      CHANGE ASPECTS
      Market (Experiential)
      Knowledge
      Commitment
      Decisions
      Current
      Activities
      Market
      Commitment
      Johanson & Vahlne 1977, p. 37
    • 11. The Uppsala model
      • Lack of market/operations knowledge =main obstacle to internationalization
      • 12. Can only be acquired through first-hand experience
      • 13. Includes i.e. getting to know customers, suppliers, government agencies
      • 14. Includes firm’s internationalization knowledge: firm’s own resources and ability to develop international operations
      • 15. Reduces uncertainty associated with foreign market commitment
      • 16. Provides framework for perceiving and formulating business opportunities
      Johanson & Vahlne 2003, p. 10
      STATE ASPECTS
      CHANGE ASPECTS
      Market (Experiential)
      Knowledge
      Commitment
      Decisions
      Current
      Activities
      Market
      Commitment
      Johanson & Vahlne 1977, p. 37
    • 17. The Uppsala model
      STATE ASPECTS
      CHANGE ASPECTS
      Market
      Knowledge
      Commitment
      Decisions
      Result of the conception of business opportunities, which in turn are a result of market (experiential) knowledge.
      Johanson and Vahlne 2003, p. 12
      Current
      Activities
      Market
      Commitment
      Johanson & Vahlne 1977, p. 37
    • 18. The Uppsala model
      • Largely consist of ‘everyday contact with customers, intermediaries, suppliers, authorities and other individuals and organisations important to their firm’
      • 19. ‘current activities evidently have a continuous impact on internationalisation, occasionally being interrupted by discontinuities…’
      • 20. By interacting with other firms in a market, the firm learns about their needs and situation
      • 21. Interaction builds trust, which is an important element in commitment building
      (Johanson and Vahlne 2003:11)
      STATE ASPECTS
      CHANGE ASPECTS
      Market
      Knowledge
      Commitment
      Decisions
      Current
      Activities
      Market
      Commitment
      Johanson & Vahlne 1977, p. 37
    • 22. The Uppsala model
      • Market commitment: i.e. not just investment, but also marketing and sales  e.g., after-sales service commitments
      • 23. Amount of commitment: i.e. level of investment
      • 24. Degree of commitment: extent to which commitment cannot easily be withdrawn, and is defended by the firm
      • 25. Degree of commitment dependent on firm’s resources and capabilities at home
      Johanson and Vahlne 2003, p. 12
      STATE ASPECTS
      CHANGE ASPECTS
      Market (Experiential)
      Knowledge
      Commitment
      Decisions
      Current
      Activities
      Market
      Commitment
      Johanson & Vahlne 1977, p. 37
    • 26.
    • 27. Hall
    • 28.
    • 29. Dimensions of National Culture
    • 30. Multiple of Cultureor ‘interfaces’ (Saner)
    • 31. The Contexts ofInternational Negotiations
    • 32.
    • 33. Influence of Culture on Negotiation: Managerial Perspectives
      Definitions of negotiation
      Negotiation opportunity
      Selection of negotiators
      Protocol
      Communication
      Time sensitivity
      Risk propensity
      Groups versus individuals emphasis
      Nature of agreements
      Emotionalism
    • 34.
    • 35. Cultural Categories
    • 36. National Communication Patterns
      Finland
      USA
      Germany
    • 37. USA
      Germany
      Japanese
      Arabic
    • 38. Japanese Business
    • 39. II. Samurai’s Rule
      III. Modern-ization
      I. Emperor’s Rule
      IV. Postwar
      1603
      X
      WAR
      1867
      Rapid recovery and growth
      NARA
      Centralization
      MEIJI
      Westernization,industrialization,militarilization
      EDO
      Tokugawa Shogunate
      KAMAKURAMUROMACHISENGOKU
      HEIAN
      Nobles,Decentralization
      × 645
      Internal wars, dynamic & fluid society
      Peace, isolation, conservative class society
      Taika Reform
      Clan fights
      Hunting & gathering
      xxxx
      xxxx
      xxx
      WEST!!!
      Chinese culture &political system
      WEST: guns &Christianity
      US occupation1945-52
      Rice
      Buddhism
    • 40. Japan’s Multi-layered Identity
      P.4
      Pre-historic Japan
      先史時代の日本
      Rice cultivation
      Buddhism, China
      Heian & Samurai Culture
      Guns & Christianity
      Edo Culture
      Note: Colored areas indicate external impacts
      Western influence
    • 41. Wartime controlled economy
      Energy saving & lean management
      Recovery period
      Postwar recovery period
      Bubble economy
      High-growth period
      Heisei recession
      Process management methodology
      Japanese style management
      American style management method
      Strategy & marketing
      Market-based flexible manufacturing
      American style global management
      Productivity improvement
      1960~
      1970~
      1980~
      1990~
      2000~
      1950~
      1940~
      <Japanese Economy Trends>
      <Management Innovation History>
      Japanese Economy and Management Innovation
    • 42. Japanese keiretsu
      • Types
      • 43. Horizontal keiretsu
      • 44. Vertical keiretsu
      • 45. Characteristics
      • 46. Extensive share cross-holdings
      • 47. Personnel swaps
      • 48. Strategic coordination
      • 49. Commercial transactions
    • Yataro Iwasaki(1835-85)Mitsubishi Zaibatzu
      PP.45-46
      三菱
      Seisho(政商) from Tosa, founder of Mitsubishi Zaibatsu
      Shipping company--grew fast with government support (receiving gov’t ships, contract for military transport)
      Established Nippon Yusen (NYK Line), fierce battle with Kyodo Unyu (anti-Mitsubushi company), 1883-85
      Expanded to many areas: trade, banking, shipbuilding, coal, mining (later, more)
      Mechanical factory in Nagasaki, ca 1885
      Bakufu’s Steel Mill in Nagasaki, transferred to Mitsubishi in 1884
    • 50. Mitsubishi Heavy Industries
      Mitsubishi
      Corporation
      Bank of Tokyo-Mitsubishi
      Automotive
      Mitsubishi Fuso Truck Bus
      Mitsubishi Motors
      Shin Caterpillar Mitsubishi
      Finance & insurance
      DC Card
      Diamond Lease
      Meiji Life
      Mitsubishi Auto Credit
      Mitsubishi Securities
      Mitsubishi Trust & Banking
      Tokio Marine and Fire
      Industrial equipment
      Mitsubishi Electric
      Mitsubishi Kakoki
      Mitsubishi Precision
      Toyo Engineering Work
      Electronics & telecom
      IT Frontier
      Mitsubishi Research Inst
      Mitsubishi Space Software
      Nikon
      Space Communications
      Industrial materials
      Asahi Glass
      Dai Nippon Toryu
      Mitsubishi Aluminum
      Mitsubishi Cable Indus
      Mitsubishi Materials
      Mitsubishi Plastics
      Mitsubishi Rayon
      Mitsubishi Shindoh
      Mitsubishi Steel
      Transportation & dist
      Mitsubishi Logistics
      Mitsubishi One Transport
      NYK Line
      Resources & energy
      Nippon Oil
      Mitsubishi LPG
      Mitsubishi Nuclear Fuel
      Mitsubishi Paper Mills
      Chemical & pharmaceutical
      Dai Nippon Toryu
      Mitsubishi Chemical
      Mitsubishi Gas Chemical
      Mitsubishi Petrochemical
      Consumer goods & foods
      Kirin Beverage
      Kirin Brewery
      Ryoshoku
      Real estate & construction
      Mitsubishi Estate
      P.S. Mitsubishi
      Mitsubishi’s Horizontal Keiretsu
    • 51. Major FDI Firms in Meiji Period
      FDI was relatively small (cf. China, India). However, it played leading roles in tobacco, oil refining, electrical and general machinery, weapons, automobiles, glass, (aluminum). Later, zaibatsu mostly took over FDI technology and production.
      Source: S.J.Bytheway (2005), pp.166-167
    • 52. Post War Keiretsu
      Mitsubishi
      Bank of Tokyo
      Mitsubishi/ Bank of Mits
      Nikon
      Kirin
      Sutitomo
      Sutitomo Bank
      NEC
      Mitsui
      Toshiba
      Fuyo
      Fuji Bank
      Marubeni
      Dai-Ichi
      Dai-Ichi Kangyo Bank
      Cannon
      Nissan (part)
      Sanwa
      Sanwa Bank
      Kobe Steel
    • 53. Production Methods & Kaizen
    • 54. TaiichiOhno
    • 55. Production Methods & Kaizen
    • 56. Production Methods
    • 57. Efficiency
      Any production method relies on efficiency – this can be viewed in different ways:
      Productivity – a measurement of output per unit of the factor used (labour, capital or land)
      Total Output
      Productivity = -------------------
      Units of Factor
      Technical Efficiency – output produced using the fewest possible inputs
      Productive Efficiency – output produced at the lowest possible cost
    • 58. Efficiency
      Production decisions involve deciding methods for new production runs and analysis of existing methods.
      Decisions may include:
      Substitute machinery for labour?
      Use of new technology?
      Organisation of the production layout?
      Change of production method?
    • 59. Production Methods
      As technology and analysis of production methodology has improved, methods have changed dramatically – what used to be labour intensive production methods are now capital intensive
    • 60. Production Methods
      The choice of production method and the factor inputs depends on such things as:
      • the nature of the product
      • 61. factor costs
      • 62. the scale of production
      Textile factory
      Copyright: Stock.Xchng
    • 63. Production Decisions
      Market size and
      Segment
      One-Off Order?
      Which method?
      Complexity of design
      Type of Product
      Mass Market product?
      Batch?
      Factor Costs –
      Land, Labour and
      Capital
    • 64. Production Methods
      Job Production – One-off production - each item might have particular specifications
      Flow Production – suitable for mass market products that are identical
      Batch Production – each stage of the production process has an operation completed on it before moving on to the next stage – allows modifications to be made to products that otherwise are the same
    • 65. Production Methods
      Which is more efficient?
      Operation 1
      2
      3
      4
      5
      6
      7
      Finished Product
      8
      9
      10
      11
    • 66. Production Methods
      Or this?
      1a
      1b
      1c
      1d
      4
      Operation 1
      2a
      2b
      2c
      Finished product
      3a
      3b
      3c
      3d
    • 67. Production Methods
      Or this?
      Cell 1
      Cell 2
      Cell 3
      Finished Product
      Finished Product
      Finished Product
    • 68. Production Methods
      Answer
      It could be any of them!
      The design of the production space can influence:
      Output levels
      Factor use
      Efficiency
      Cost levels
      Quality assurance procedures
    • 69. Kaizen (Continuous Improvement)
    • 70. Kanban
    • 71. Kaizen (Continuous Improvement)
      Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors!
      Focus on gradual and continuous improvement
      A whole business philosophy
      Importance of EVERYONE buying into the concept and the vision
    • 72. Kaizen
      • Efficient stock control methods help reduce costs and improve cash-flow
      • 73. Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation
      Fundamental principles – often characterised as ‘lean production’ – reducing waste, zero defects, high quality control measures at all stages
      • Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time
      • 74. Punctuality in all aspects – delivery, supply, manufacture, etc.
    • 75. “4 P” Model of the Toyota Way
      Problem
      Solving
      (Continuous
      Improvement and Learning)
      • Continual organizational learning through Kaizen
      • 76. Go see for yourself to thoroughly understand the situation. (Genchi Genbutsu)
      • 77. Make decisions slowly by consensus, thoroughly considering all options; implement rapidly (Nemawashi)
      • 78. Grow leaders who live the philosophy
      • 79. Respect, develop and challenge your people and teams
      • 80. Respect, challenge, and help your suppliers
      People and Partners
      (Respect, Challenge and Grow Them)
      Adding Value to Customers &
      Society
      • Create process “flow” to surface problems
      • 81. Level out the workload (Heijunka)
      • 82. Stop when there is a quality problem (Jidoka)
      • 83. Use pull systems to avoid overproduction
      • 84. Standardize tasks for continuous improvement
      • 85. Use visual control so no problems are hidden
      • 86. Use only reliable, thoroughly tested technology
      Process
      (Eliminate Waste)
      Philosophy
      (Long-term Thinking)
      • Base management decisions on a long-term philosophy, even at the expense of short-term financial goals
    • Base management decisions on a long term philosophy, even at the expense of short-term financial goals
      Toyota mission:
      • Contribute to the economic growth of the country in which it is located (external stakeholders)
      • 87. Contribute to the stability and well being of team members and partners (internal stakeholders)
      • 88. Contribute to the overall growth of Toyota
    • Principle One
      “The most important factors for success are patience, a focus on long term rather than short-term results, reinvestment in people, product, and plant, and an unforgiving commitment to quality.”
      -Robert B. McCurry, former Executive V.P., Toyota Motor Sales
    • 89. “4 P” Model of the Toyota Way
      Problem
      Solving
      (Continuous
      Improvement and Learning)
      • Continual organizational learning through Kaizen
      • 90. Go see for yourself to thoroughly understand the situation. (Genchi Genbutsu)
      • 91. Make decisions slowly by consensus, thoroughly considering all options; implement rapidly (Nemawashi)
      Eliminate Waste through Flow
      & Standardization
      • Grow leaders who live the philosophy
      • 92. Respect, develop and challenge your people and teams
      • 93. Respect, challenge, and help your suppliers
      People and Partners
      (Respect, Challenge and Grow Them)
      • Create process “flow” to surface problems
      • 94. Level out the workload (Heijunka)
      • 95. Stop when there is a quality problem (Jidoka)
      • 96. Use pull systems to avoid overproduction
      • 97. Standardize tasks for continuous improvement
      • 98. Use visual control so no problems are hidden
      • 99. Use only reliable, thoroughly tested technology
      Process
      (Eliminate Waste)
      • Base management decisions on a long-term philosophy, even at the expense of short-term financial goals
      Philosophy
      (Long-term Thinking)
    • 100. Waste
      PRODUCT
      BUILT & SHIPPED
      CUSTOMER
      ORDER
      Time
      PRODUCT
      BUILT & SHIPPED
      CUSTOMER
      ORDER
      Waste
      Time (Shorter)
      is a manufacturing philosophy which shortens the time between the customer order and the product build / shipment by eliminating sources of waste.
      Business as Usual
      Lean Manufacturing
      Lean Manufacturing
    • 101. Product Lead Time
      • Value Added Time is only a very small percentage of the Lead time.
      • 102. Traditional Cost Savings focused on only Value Added Items.
      • 103. LEAN FOCUSES ON NON-VALUE ADDING ITEMS.
    • Before Lean: Organization By Machine Type With Convoluted Flow
      No Organization and No Control
    • 104. Empties +
      production kanban
      Empties + withdrawal
      kanban
      A
      B
      C
      D
      E
      F
      G
      H
      Customer Plant
      Needed
      Components + kanban
      Newproduct
      Preceding processes replenish what is taken away.
      Downstream processes withdraw what they need when they need it.
      PULL
      Supplier Plant
    • 105. Why Focus on Flow?
      “If some problem occurs in one-piece-flow manufacturing then the whole production line stops. In this sense it is a very bad system of manufacturing. But when production stops everyone is forced to solve the problem immediately. So team members have to think, and through thinking team members grow and become better team members and people.”
      Teruyuki Minoura, former President, Toyota Motor Manufacturing,
      North America
    • 106. Lean Tools to Support Flow
      5S-Visual Workplace
      Total Productive Maintenance
      Quick Changeover
      Standardized Work
      Quality Methods
    • 107. Describe this area...
    • 108. Describe this area...
    • 109. What is TPM?
      Total Productive Maintenance (TPM) is
      Productive Maintenance with EVERYONE’s participation
      Maintenance=Teachers, Doctors of Equipment
      Operators=Clean, inspect, routine repair
    • 110. Why Quick Change Over?
      Difference in average inventory level with more changeovers
      Change Over
      Average inventory levels
      Inventory level
      Time
      The more quickly we changeover, the more our inventory levels decrease. This helps accomplish our goal of waste elimination.
    • 111. Standardized
      Work Chart
      Detail of each
      Process Step
      Work Element Sheet
      Detail of the Elements
      of each Process Step
      Takt
      90s
      1
      2
      3
      4
      5
      Assembly Process #
      StackChart
      (Yamazumi)
      A Visual Tool for Balancing Processes
      Standard Work Tools
    • 112. Standardized tasks are the foundation for continuous improvement and employee empowerment
      “Today’s standardization…is the necessary foundation on which tomorrow’s improvement will be based. If you think of “standardization” as the best you know today, but which is to be improved tomorrow-you get somewhere. But if you think of standards as confining, then progress stops.”
      Henry Ford, Today and Tomorrow, 1926
    • 113. “4 P” Model of the Toyota Way
      The heart & soul of
      The Toyota Way
      Problem
      Solving
      (Continuous
      Improvement and Learning)
      • Continual organizational learning through Kaizen
      • 114. Go see for yourself to thoroughly understand the situation. (Genchi Genbutsu)
      • 115. Make decisions slowly by consensus, thoroughly considering all options; implement rapidly (Nemawashi)
      • 116. Grow leaders who live the philosophy
      • 117. Respect, develop and challenge your people and teams
      • 118. Respect, challenge, and help your suppliers
      People and Partners
      (Respect, Challenge and Grow Them)
      • Create process “flow” to surface problems
      • 119. Level out the workload (Heijunka)
      • 120. Stop when there is a quality problem (Jidoka)
      • 121. Use pull systems to avoid overproduction
      • 122. Standardize tasks for continuous improvement
      • 123. Use visual control so no problems are hidden
      • 124. Use only reliable, thoroughly tested technology
      Process
      (Eliminate Waste)
      • Base management decisions on a long-term philosophy, even at the expense of short-term financial goals
      Philosophy
      (Long-term Thinking)
    • 125. People and Partners
      Respect, Challenge, and Grow Them:
      9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others
      10. Develop exceptional people and teams who follow your company’s philosophy
      11. Respect your extended network of partners and suppliers by challenging them and helping them improve
    • 126. One-PieceFlow Demands Team Work!
      x
      x
      x
      x
      x
      Traditional Western Team
      x
      x
      x
      x
      x
      x
      x
      x
      x
      x
      x
      x
      Need
      help?
      Need
      help?
      Toyota Way Team
      X
      Workcell
    • 127. Principle Five: Stop & Fix Problems
      Mr. Ohno used to say that no problem discovered when stopping the line should wait longer than tomorrow morning to be fixed. Because when making a car every minute we know we will have the same problem again tomorrow.”
      -Fujio Cho, President, Toyota Motor Corporation
    • 128. 1
      2
      3
      4
      5
      6
      7
      9
      1
      3
      8
      1
      0
      1
      1
      1
      2
      1
      4
      S
      T
      O
      P
      B
      U
      T
      T
      O
      N
      S
      T
      O
      P
      B
      U
      T
      T
      O
      N
      (
      S
      T
      O
      P
      T
      H
      E
      L
      I
      N
      E
      A
      U
      T
      H
      O
      R
      I
      T
      Y
      )
      (
      S
      T
      O
      P
      T
      H
      E
      L
      I
      N
      E
      A
      U
      T
      H
      O
      R
      I
      T
      Y
      )
      5
      4
      Abnormality
      Station 5
      Team Leader
    • 129. Kaizen
      Typical Toyota Organization to support Continuous Improvement
      Team Size
      Team Member
      { 5 - 8 }
      Team Leader
      { 3 - 4 }
      Group Leader
      { 5 - 8 }
      Asst. Manager
      { 4 - 10 }
      Manager
      Source: Bill Costantino, former group leader, Toyota, Georgetown.
    • 130.
    • 131. Bumper Trimming Job Breakdown Sheet
    • 132. Auditing Standardized Work
    • 133. Roles and Responsibilities
    • 134. Toyota Way Principles in 4P Model
      The dynamic of
      The Toyota Way
      Problem
      Solving
      (Continuous
      Improvement and Learning)
      • Continual organizational learning through Kaizen
      • 135. Go see for yourself to thoroughly understand the situation. (Genchi Genbutsu)
      • 136. Make decisions slowly by consensus, thoroughly considering all options; implement rapidly (Nemawashi)
      • 137. Grow leaders who live the philosophy
      • 138. Respect, develop and challenge your people and teams
      • 139. Respect, challenge, and help your suppliers
      People and Partners
      (Respect, Challenge and Grow Them)
      • Create process “flow” to surface problems
      • 140. Level out the workload (Heijunka)
      • 141. Stop when there is a quality problem (Jidoka)
      • 142. Use pull systems to avoid overproduction
      • 143. Standardize tasks for continuous improvement
      • 144. Use visual control so no problems are hidden
      • 145. Use only reliable, thoroughly tested technology
      Process
      (Eliminate Waste)
      Philosophy
      (Long-term Thinking)
      • Base management decisions on a long-term philosophy, even at the expense of short-term financial goals
    • Typical Improvement Opportunities Available
    • 146. Improvement Approaches of Typical Companies
    • 147. Toyota Leverages Opportunities at all Levels
    • 148. Principle Twelve
      Genchi Genbutsu
      “Observe the production floor without preconceptions and with a blank mind. Repeat “why” five times to every matter.”
      -Taiichi Ohno
    • 149. “No Problem” is problem
      Problems are opportunities to learn
      Hiding problems undermines the system
    • 150. Learning from the Toyota Way
    • 151. Characteristics of Effective Lean Transformation
      Top Down Directive that this is the new way.
      Bottom-up involvement in concrete projects with clear results.
      Develop internal experts through learning by doing.
      Expert sensei to guide the process and teach.
      Learning philosophy: every project, activity, is a chance to learn.
      Start with value stream transformation projects.
      Build on successes to transform broader organization and culture over time---YEARS!
    • 152. Why is this hard to do?
      Traditional organizations in fire fighting mode
      No clear vision of the future state
      culture change is hard
      Organizational change is disruptive
      Management has to change its role from managing from the office to deeply understanding processes!
    • 153. REVIEW
    • 154. RtB
    • 155. Offshoring
    • 156. The Steroids
    • 157. Cool Hunter
    • 158.
    • 159. Next
    • 160. Forces
      Cluster
      Competencies
    • 161. Forces
    • 162. Genzyme
      Founded in 1981
      Scientists studying genetically inherited enzyme diseases
      Global Market
      Orphan Drugs
    • 163. Genzyme’s Focus on “Orphan Drugs”
    • 164. Genzyme’s Focus on “Orphan Drugs”
    • 165. In 1983, the FDA established the “Orphan Drug Act,” giving seven years market exclusivity to developers of drugs for rare (<200,000 patients) diseases.
      Also chose unusual strategy of doing its own manufacturing and sales rather than licensing to a large pharmaceutical company.
      Diversified into side businesses to fund its R&D
      Chemical supplies
      Genetic counseling
      Diagnostic testing
    • 166. Genzyme’s Focus on “Orphan Drugs”
      6-103
    • 167.
    • 168. Foces
    • 169. Assessing the Firm’s Current Position
      Porter’s Five-Force Model
      Whether a particular industry will be profitable
      determine if an individual firm’s chances for success via a vis its competitors
    • 170. Assessing the Firm’s Current Position
      Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers (for firm to leave the market)
      Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)
      Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for backward vertical integration - firm produce its own supplies
      Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for forward vertical integration - supplier enters firm’s business
      Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price.
      6-107
    • 171. Genzyme
    • 172. Mitigating Circumstances
    • 173. Clusters
    • 174. Salmon
    • 175. Salmon in Chile
    • 176. Salmon Cluster
    • 177. Salmon Cluster
      • Fertilization & incubation
      • 178. Freshwater breeding - smelt fattening
      • 179. Infrastructure of cages
      • 180. Tanks & recirculation systems
      • 181. Transport services
      • 182. Vaccines, antibiotics and pharmaceuticals
      • 183. Feed production &supply
    • Salmon Clusters
      • Fertilization and incubation of ova
      • 184. Freshwater breeding - smolt fattening
      • 185. Infrastructure of cages and related services (maintenance of nets)
      • 186. Tanks and recirculation systems
      • 187. Transport services:
      • 188. Research and production of vaccines, antibiotics and other pharmaceutical products:
      • 189. Feed production and supply
    • Theory of Industry Clusters
    • 190. What are Industry Clusters? (Porter)
      Geographic concentrations of competing, complementary, or interdependent firms
      Common needs for talent, technology, and infrastructure
      Dynamic, changing as the industries themselves or external conditions change
      Centered on firms that sell outside the local, state, national market
      Driving forces in a national, regional, state or metropolitan economy
    • 191. What are Industry Clusters? (Porter)
      Porter Definition
      Geographic concentrations
      Common needs
      Dynamic, changing
      Sell outside the local, state, national market
      Driving forces economy
      Chilean salmon
      .
      .
      .
      .
      .
    • 192. Competencies
    • 193. Competency
      “A bundle of skills and technologies (rather than a single discrete skill or technology) that enables a company to provide a particular benefit to customers” - Hamel and Prahalad 1994, p. 199.
    • 194. It provides consumer benefits
      It is not easy for competitors to imitate
      It can be leveraged widely to many products and markets.
    • 195. Dunning–Kruger Effect
      People reach erroneous conclusions and make unfortunate choices but their incompetence robs them of the metacognative ability to realize it
      Illusory Superiority
    • 196. Core Competencies at FedEx
      FedEx
      Logistics
      management
      Metacompetency
      Package
      tracking
      Bar-code
      technology
      Wireless
      communications
      Network
      management
      Linear
      programming
    • 197. Levels of competition for competence
      Levels
      Canon
      Develop precision mechanics,
      fine optics, microelectronics,
      and electronic imaging
      Develop and acquire
      constituent skills
      and technologies
      Bring competencies together
      to develop laser printer engines
      Synthesize
      core competencies
      Core product (engine) sold to
      HP, Apple, etc.
      Maximize
      core product share
      Maximize end
      product share
      (own brand plus
      OEM)
      Canon printers and Canon parts
      on competitors’ printers
      (own brand plus OEM)
    • 198. Swatch
    • 199. Swatch Activity
      Summarize
      Look at the three theories
      Brainstorm and try to make connections where these theories apply and do not apply
      Criticize the choices made, and/or give suggestions to the country
    • 200. Theories
      CwC
      RtB
      International Product Life Cycle Model
      11/9: the fall of the Berlin Wall opening Windows
      8/9: Netscape goes public
      Work flow software:
      Forces
      Cluster
      Competencies
      Open SOurce
      Dunning Kruger Effect
      Uploading
      Outsourcing
      Offshoring
      Supply-chaining
      In-sourcing
      In-forming
      Steroids
      Triple Convergence
      Personalization
      Strategic Alliance
      democtatization
    • 201. Case Study
    • 202. Psychographic Segmentation
      Divides a population into groups that have similar psychological characteristics, values, and lifestyles
      Lifestyle
      people’s decisions about how to live their daily lives, including family, job, social, and consumer activities
      The most common method for developing psychographic profiles of a population is to conduct a large-scale survey
      AIO statements
      VALS and VALS 2 “Values and Lifestyles”
    • 203. Western Psychographic Segmentation
    • 204. Swatch: Psychographic Segmentation
      6-10: Consider it "cool", because big kids have it (42% awareness!)
      11 –15: ("teeny boppers") provides sense of identity
      11 –15: ("young rockers") high awareness, but represents t.b. lifestyle
      11-15: ("students") Swatch too wild for them, but they might buy it to fit in
      16 –22: ("rockers") like the price, but dislike the male model geeks
      16 –22: ("preppies") prefer a dressier watch
      16- 22: ("trendies") hate it; "fast food of time pieces" (73% wear no watch)
      22 –32: ("transitionaries") like its durability, disposability, price
      22 –43: ("older casuals") watches used to tell time (4% awareness!)
      • 33-43: ("weekend hippies") teen image (high awareness, but 43% have never seen a Swatch in real life
    • 205. Japan Psychographic Segmentation
      Integrators
      Innovators/Adopters
      Display, daring, exciting
      Rykoshiki
      Home, career, status
      Traditional
      Traditional dress, customs, cooperative
      Pragmatics
      Few commitments, uninformed
      Sustainers
      Lack money, education, sustain the past
    • 206. Swatch
      Positioning / Repositoning
    • 207. Discussion
      How do companies we have seen use psychographic segmentation in mix?
      Think: Swatch, Unilever, NIN
    • 208. Internationalization
    • 209. Strategies for Operations Abroad
      International
      Control remains predominately with HQ in home county
      Low pressure for local responsiveness-high pressure cost reductions
      Multidomestic
      Customize operations and products to each local market
      High local responsiveness-low pressure cost reductions
    • 210. Strategies for Operations Abroad
      Global
      Tendency to centralize main operational functions
      Can mobilize world-wide resources
      High cost reductions from economies of scale and experience curve-low customization to national borders
      Transnational
      Looking for ‘global learning’ from HQ to subsidiaries, in reverse and between subsidiaries
      Cost reductions and product differentiation
    • 211. Advantages and disadvantages of the four strategies
    • 212. Discussion
      How do Swatch and Unilever employ Global Strategies?
    • 213. Global Strategy
      To go global or not?
      Compelling Reasons
      Diversity of earnings
      Exposure to new and emerging markets
      Experience curve and access to the most demanding customers
    • 214. Discussion
      Why do Unilever and Swatch enter new markets?
      How do Unilever and Unilever enter the markets?
      What is unique is unique or different about their approach?
    • 215. Global Company (2SMCG)
      1. Standard Products and Marketing Mix
      Core product and minimum marketing adaptations
      Economies of scale benefits
      Segmentation cross national borders
    • 216. Global Company (2SMCG)
      2. Sourcing all Assets on an Optimal Basis
      Ability to source all assets in value chain in terms of availability or cost-competitiveness
      Importance of assets deployment
    • 217. Global Company (2SMCG)
      3. Market Access in Line with Break-Even Volume
      Size not as important as generation of sales to cover demands of infrastructure and investment
    • 218. Global Company (2SMCG)
      4. Contesting Assets
      Ability to neutralize the assets and competencies of competitors
    • 219. Global Company (2SMCG)
      5. Global Orientation of Functions
      R&D, procurement, production, logistics, marketing, human resources and finance functions internationalizedorganizational structure
    • 220. Discussion
      To what degree are Unilever and Swatch global companies?
    • 221. Discussion
    • 222.
    • 223. Entrepreneurship
    • 224. Entrepreneurs solve big problems
    • 225. Japan
    • 226. Most difficult problems do not have obvious solutions
    • 227. Entrepreneurs
      Necessary Traits
    • 232. Entrepreneurship creates positive change
      Entrepreneurial Efforts
      Employees
      Consumers
      Shareholders
      • Great opportunities
      • 233. Greater income
      • 234. New products, services
      • 235. Increased wealth
      Government
      General Economy
      • Additional tax revenue
      • 236. Reduction in social benefit need
      • 237. Secondary and tertiary creation of opportunities
    • Three Forms of Entrepreneurship
      Types of Entrepreneurship
      Individual
      Micro & Small Enterprises
      Large Markets
      Entrepreneurship driven by instincts to survive
      • Vegetable vendor
      • 238. Cattle rearing
      • 239. Tea Stall
      • 240. The area of microfinance
      • 241. Supported by small loans between USD $50 - $200
      • 242. Debt structure; short payback period
      • 243. Proven area for finance
      Small to medium businesses with scope and employment
      • 5-100 employees
      • 244. Relies on internal business sense to succeed
      • 245. Currently with limited financial support
      • 246. Need USD $20K to $250K
      • 247. Generally rely on personal funds, family, friends, and money lenders
      Large businesses with large scope and employment
      • Typically run by highly educated managers
      • 248. Exit markets well understood
      • 249. Significant conventional venture capital support
      • 250. Need USD millions in equity
      • 251. Primarily service export or urban focused
      • 252. Proven area for finance
    • 253. Entrepreneurial India
    • 254. Look at Four
    • 255. Entrepreneurial India- “Top Incubation Center”
      1. Centre for Innovation, Incubation&
      Entrepreneurship (CIIE) - IIM Ahmedabad
      • Set up in 2001
      • 256. Since inception CIIE has 15-odd innovations grow out of the incubation centre in varied technologies
      2. Society for Innovation and Entrepreneurship (SINE)- IIT Bombay
      • Set up in 2004
      • 257. It currently has 16 companies under its incubation programme
    • Entrepreneurial India- “Top Incubation Center”
      3. Cell for Tech Innovation, Development & entrepreneurship support- IIT Chennai
      • Set up in 2000
      • 258. Organises national level competitions, ‘Breakthrough’ (general business plan competition) and ‘Genesis’ (social entrepreneurship plan competition)
      4. Society for Innovation and Development (SID) - IISc, Bangalore
      • Set up in 2006
      • 259. The investigator is given a seed capital for Rs 20 lakh a year for two years as soft loan for the approved plan
    • Entrepreneurship Type
      Synergy w/ Rural and Semi Urban India
      Dis-synergy w/ Rural and Semi Urban India
      Individual / Microfinance
      • Flexible, meets local requirements
      • 260. Demonstrated ability to scale numbers of individuals
      • 261. Microfinance an established and growing industry
      • 262. Limit to impact
      • 263. Skills of great entrepreneurs not dispersed to others
      • 264. Diminishing returns with market saturation
      Micro and small enterprise / informal sources
      • Can provide value added employment to multiple people
      • 265. Only need one entrepreneur for multiple increases in income
      • 266. Flexible – tailored to local market and infrastructure requirements
      • 267. Hamstrung by lack of capital and business building support
      • 268. Scale requirements limit flexibility
      • 269. Limited understanding of rural and semi-urban India
      • 270. Rural and semi-urban India unlikely to be attractive currently
      Large markets / mainstream venture capital
      • Can mobilize Fund quickly
      • 271. Brings most sophisticated business experience
      • 272. Commercial venture capital entrenched in India
      Micro and small enterprises are key, receive least support
    • 273. Entrepreneurial India- “Industry-Academia Interface”
    • 274. Micro Credit
    • 275. Microfinance Institutions
      Entrepreneurs
      The Traditional Microfinance Lending Process
      Banks and NGOs
      • Microfinance institutions typically get the money that they lend, from banks or non-governmental organizations, or both
      • 276. This can be expensive, as it is often borrowed with interest
      • 277. There may also be difficult application procedures to access debt capital from non-governmental organizations
      • 278. Some organizations can even find themselves shut out due to the region they operate in, particularly post-conflict regions
      • 279. Restrictions that microfinance institutions face ultimately affect the entrepreneurs, who rely on microfinance institutions to serve them
    • You!
      Microfinance Institutions
      Entrepreneurs
      The Kiva Microfinance Lending Process
      With Kiva, you can be micro-lender
      You can act as a banker and provide the funds to microfinance institutions that they then lend to entrepreneurs
    • 280. Kiva
      • Kiva.org is a website which allows you to lend to an entrepreneur in the developing world who needs a loan
      • 281. Through Kiva, you loan as little as $25 to an entreprenuer at 0% interest
      • Browse
      • 282. Loan requests are funded within minutes
    • Size of the loan and status
      Picture of the entrepreneur
      Summary of the business and loan, including when it is expected to be paid back
      Description of the business and what the loan will be used for
      Information on the microfinance institution which is managing the loan on the ground
    • 283. The business page also shows you all of the other people around the world who are contributing to this loan
    • 284. Kiva’s Microfinance Partners
      Kiva has 89 Microfinance Partners in 42 countries and is still growing
      Ukraine
      Moldova
      Bulgaria
      Tajikistan
      Azerbaijan
      Afghanistan
      Iraq
      Gaza
      Pakistan
      Haiti
      Mexico
      Mali
      Vietnam
      Dominican Republic
      Senegal
      Cambodia
      Nicaragua
      Congo
      Ghana
      Uganda
      Honduras
      Togo
      Nigeria
      Ecuador
      Kenya
      Cameroon
      Indonesia
      Tanzania
      Bolivia
      Peru
      Mozambique
      Paraguay
      Samoa
    • 285. 172
      Kiva Introduction: What are Kiva’s benefits?
      Internet Lender
      • Transparent (“I know where my money is going”)
      • 286. Sustainable (“If repaid, I will re-lend to someone else”)
      • 287. Affordable (“I only need $25 to change someone’s life”)
      • 288. Unique (“I love microfinance and I want to participate”)
      Microfinance Institution
      • 0% interest USD debt capital
      • 289. No liability: Client loss borne by Internet Lender
      • 290. Flexible repayment terms
      • 291. Exhibit your work to an international audience
    • Chavez and Entrepeneurship
    • 292. HAARP
    • 293. How
    • 294.
    • 295. Silicon Valley
      Silicon Valley is a nickname for the southern part of the San Francisco Bay Area centered roughly on Sunnyvale.
      coined by journalist Don C. Hoefler in 1971,
      It was named "Silicon" for the high concentration of semiconductor and computer related industry in the area, and "Valley" for the Santa Clara Valley.
      Fairchild Semiconductor really started and then fuelled it all
    • 296.
    • 297. WWII
      The First Electronic War
    • 298. British and American Air War in Europe
      28,000 Active Combat Planes40,000 planes lost or damaged beyond repair:18,000 American and 22,000 British79,265 Americans and 79,281 British killed
    • 299. The German Air Defense SystemThe Kammhuber Line
      Integrated Electronic air defense network
      Covered France, the Low Countries, and into northern Germany
      Protection from British/US bomber raids
      Warn and Detect
      Target and Aim
      Destroy
    • 300. German Air Defense System
    • 301. Himmelbelt
      Local Air Defense
      Network
      • Box ~30 x 20 miles
      • Integrated network
      of radars, flak,
      fighters,
      searchlights
      Radars fed Himmelbett centers
      • Operators worked from rows of
      seats in front of a huge screen
      • Fighters would fly orbits around
      a radio beacon
      – fighter controller talked it to the
      vicinity of the target
      • Fighters would turn on its radar,
      acquire the target, and attack
    • 302. Flak Radar Controlled Anti Aircraft Guns
      15,000 Flak Guns
      400,000 soldiers in flak batteries
      Radar-directed flak to 30,000’
      Fused for time
      Fragmentation rounds
      No Proximity Fuses
      105 mm flak
    • 303. Two
      The Electronic Shield
      Electronic Warfare
    • 304. Harvard Radio Research Lab Signals Intelligence and Electronic Warfare
      Reduce losses to fighters and flak
      Find/understand German Air Defense
      Electronic and Signals Intelligence
      Jam/confuse German Air Defense
      Radar Order of Battle
      Chaff
      Jammers
      Top Secret 800 person lab
    • 305. ELINT Understand German Air Defense
      B-24J flights inside Germany to intercept German radar signals
      Fitted with receivers & displays
      Wire and strip recorders
      Frequency, pulse rate, power, etc.
      50 MHz to 3 GHz
    • 306. Window/ChaffJam Wurzburg
      Strips of aluminum foil
      1/2 Wurzburg frequency
      46,000 packets tossed out by hand
      Each packet contained 2,000 strips
      Automatic dispensers came later
      First used July 1943
      Raid on Hamburg
      Shut down German air defense
      Used 3/4’s of Aluminum Foil in the US
    • 307. Blind German Early Warning Radar
      Put Jammers on Airplanes
      Carpet” AN/APT-2 Jammer
      Confuse Wurzburg radar
      Shut down flak
      Shut down GCI
      5 Watts
    • 308.
    • 309. Fred Terman
      Who Ran this Secret Lab and became
      the Father of Electronic Warfare?
      • Harvard Radio Research Lab
      – Separate from MIT's Radiation Laboratory
      – Ran all electronic warfare in WWII
      – 800 people
      – 1941-1944
      • Director: Fredrick Terman - Stanford
    • 310.
    • 311. Fred Terman
      Stanford Professor of engineering 1926
      encouraged his students, William Hewlett and David Packard to start a company
      Dean of Engineering 1946
      Provost 1955
    • 312. Spook Entrepreneurship
    • 313. Terman Strategy
      Focus on microwaves and electronics
      Not going to be left out of gov’t $’s this time
      Recruits 11 former members of RRL as faculty
      Set up the Electronics Research Laboratory (ERL)
      “Basic” and Unclassified Research
      First Office of Naval Research (ONR) contract 1946
      By 1950 Stanford was the MIT of the West
    • 314. Korean WarSpook Work Comes to Stanford
      • Applied Electronics Laboratory (AEL)
      – “Applied” and Classified Military programs
      – Doubles the size of the electronics program
      – Separate from the unclassified Electronics
      Research Laboratory
      – Made the university, for the first time, a full
      partner in the military-industrial complex
    • 315. Cold War and Research
      The Cold War battlefield moves 500 miles east
      Fear of a “nuclear Pearl Harbor”
      Countermeasures, Elint and Sigint, become critical
      Stanford becomes a center of excellence for the NSA,CIA, Navy, Air Force
    • 316. The Cold War is an Electronic War
    • 317. Stanford Helps Understand theElectronic Order of Battle
      Where are the Soviet radars?
      Consumers; SAC, CIA.
      Details of the radars
      NSA/CIA to contractors
      Periphery of Soviet Union known
    • 318.
    • 319.
    • 320. U-2 Sigint Platform (1956)Stanford and Silicon Valley
      System IV
      150 - 40,000 MHz
      Stanford Electronics Laboratories
      Ramo Woolridge
      E/F Band ELINT recorder (1956)
      A Band ELINT recorder (1959)
      E/F Band Jammer (1959)
      Granger Associates
      Watkins Johnson
      – QRC -192 Elint receiver
      – 50 -14,000 MHz
      Communications receiver
      – 100-150 MHz/3 channel tape recorder
    • 321. Stanford Joins the “Black” World
      Electronics Research Laboratory
      “Basic” and Unclassified Research
      Applied Electronics Laboratory (AEL)
      “Applied” and Classified Military programs
      Merge and become the Systems Engineering
      Lab (SEL) in 1955
      Same year Terman becomes Provost
    • 322. Terman Changes the Startup/University Rules
      Silicon Valley as We Know it Starts Here
      Graduate students encouraged to start companies
      Professors encouraged to consult for companies
      Terman and other professors take board seats
      Technology transfer/IP licensing easy
      Getting out in the real world was good for your academic career
    • 323. Stanford’s Role
      Interaction with industry (via legacy just discussed)
      Research funding and creativity
      Silicon Valley as a nearby planting ground for ideas
      Role of students as inventors, as disseminators, and as part of the workforce
      Encouraging entrepreneurship …
    • 324. Microwave Valley - Components
      Klystrons, Carcinotrons, & Traveling Wave Tubes
      Eitel-McCullough (1934)
      Varian Associates (1948)
      Litton Industries (1946)
      Huggins Laboratories (1948)
      Stewart Engineering (1952)
      Watkins-Johnson (1957)
      Microwave Electronics Co. (1959)
    • 325. 1966
      Hewlett-Packard entered the general purpose computer business with its HP-2115 for computation, offering a computational power formerly found only in much larger computers. It supported a wide variety of languages, among them BASIC, ALGOL, and FORTRAN.
      HP-2115
    • 326. Spook Innovation
    • 327. Radio Dishes Get Funded
      Attach ELINT receivers to Bell Labs
      60’ radar antenna in New Jersey
      Use “matched filter” techniques
      Developed at Stanford
      • Build steerable antenna at Sugar
      Grove Virginia
      • Pay for and build Stanford “Dish”
      Hide relationships via “cover agencies”
    • 328. Project Grab 1960-1962
      ELINT in Space
      No more overflights
      Collect radar emissions from
      Soviet air defense radars
      Built by the Naval Research Laboratory
      Used by SAC for EOB then given to the NRO
    • 329. Microwave Valley - Systems
      Some Stanford Alum’s
      Sylvania Electronics Defense Laboratory (1953)
      Countermeasures, search receivers, converters
      Hired faculty as consultants, including Terman
      GE Microwave Laboratory (1956)
      Granger Associates (1956)
      Electronic Systems Laboratories (ESL) (1964)
      Sylvania EDL director William Perry founder
      Argosystems (1969)
    • 330. Terman and the Cold WarSilicon Valley’s 1st Engine of Entrepreneurship
    • 331.
    • 332. Valley Attracts Financial Attention1st West Coast IPO’s
      1956 Varian
      1957 Hewlett Packard
      1958 Ampex
    • 333. The Rise of Risk Capital
      “The Group” 1950’s
      • First Bay Area “Angels”
      – Reid Dennis
      – William Bryan
      – William Edwards
      – William K. Bowes
      – Daniel McGanney
      ~ 10 deals $75 -$300K
    • 334. Summary
      • Terman/Stanford/Government responsible for
      entrepreneurial culture of Silicon Valley
      • Military primed the pump as a customer for key
      technologies
      – Semiconductors, computers, Internet
      – But very little technical cross pollination
      • Venture Capital turned the valley to volume corporate
      and consumer applications
    • 335.
    • 336. Hewlett Packard and Wozniack
      Steven Paul Jobs, Stephen Gary Wozniak and Ronald Gerald Wayne founded Apple Computer.
      In 1976, Ronald Wayne resigns from Apple Computer with only a one time payment of $80.
      Hewlett Packard grants Gary Wozniak the permission to create the Apple I.
    • 337. Japan
    • 338. Rice Markets And Taxes
      Taxes
      Jomen (fixed amount) system
      Stabilization
      Transport
      Roads
      Trade Routes
      Sekisho (passport Controls)
      Trade Cartels
      Futures markets
    • 339. Rich Merchants in Edo Period (Gosho)
      Sumitomo
      -16c Adopt Western copper refining, copper trade (Kyoto)-17c Move to Osaka
      -Besshi Copper Mine (under Bakufu’s commission)
      <Transition to Meiji>
      Manager: Saihei Hirose
      -Avoiding gov’t confiscation-Introducing Western mining technology to renovate Besshi
      -Business diversification
      MITSUI
      -17c From Matsuzaka
      -Kimono trade & money exchange in Edo, Kyoto, Osaka – huge success
      <Transition to Meiji>
      Manager: Rizaemon Minomura
      -Cope with bakufu policy
      to protect Mitsui business
      -Support and work with
      new government
      -Internal reform: from gosho to zaibatsu
      -1876 Establish Mitsui Bank & Mitsui Trading Company
    • 340. The Black Ships
    • 341. Negative Consequences
      Comprehensive commercial treaties
      treaties which the bakufu signed with the West were unequal treaties
      Japan had no right to decide tariffs (set at 5%)
      Japanese court could not judge foreign criminals in Japan.
      Japanese Indemnification for Political Problems
      Inflation: Samari Impoverished
      Arms
    • 342. Positive Consequences
      New ideas, technology, industry and systems
      Silk and tea suddenly found huge overseas markets.
      Western Goods
      Yokohama merchants
    • 343. Trade 1876-80
    • 344. Japanese Respose
      Initially, avoid colonization by the West
      Rapid modernization and Westernization
      Become “first-class” nation on a par with West
      Fukoku Kyohei (富国強兵) - Rich Country, Strong MilitaryShokusan Kogyo(殖産興業) - Increase Products, Build Industries
    • 345. Konosuke Odaka: World of Craftsmen, World of Factories(NTT Publishing, 2000)
      In Japan’s early factories, traditional shokunin (craftsmen) and modern shokko (workers) coexisted.
      Craftsmen were proud, experienced and independent. They were the main force in initial technology absorption.
      Workers received scientific education and functioned within an organization. Their skills and knowledge were open, global and expandable.
      Over time, craftsmen were replaced by workers. Experience was not enough to deepen industrialization.
    • 346. Monozukuri (Manufacturing) Spirit
      Mono means “thing” and zukuri (tsukuri) means “making” in indigenous Japanese language.
      It describes sincere attitude toward production with pride, skill and dedication. It is a way of pursuing innovation and perfection, disregarding profit or balance sheet.
      Many of Japan’s excellent manufacturing firms were founded by engineers full of monozukuri spirit.
      Akio Morita (Sony’s co founder)1921-1999
      Sakichi Toyota1867-1930
      Konosuke Matsushita1894-1989
      Soichiro Honda1906-1991
    • 347.
    • 348.
    • 349. Four
    • 350. Steps to Managing Export Operations
      • Step 1 -Segment World markets
      • 351. Product Quality and Product feature segmentation
      • 352. Factors influencing segmentation
      • 353. Purchasing power
      • 354. Consumer tastes
      • 355. Weather conditions
      • 356. Level and dispersion of wages and technical skills
      • 357. Important factors in analysis
      • 358. Emerging demand met by innovations in product technology in one country that are mirrored in other countries
      • 359. Deregulation and restructuring of markets
      • 360. Government policies and programs
      Slide 4-2
      Beamish, Morrison, Inkpen and Rosenzweig
      INTERNATIONAL MANAGEMENT 5/e
      McGraw-Hill
      © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
    • 361. Steps to Managing Export Operations (contd..)
      • Step 2 - Select an Entry Strategy to Promote Sustainable Competitive Advantage
      • 362. Standardized product to all markets
      • 363. Product- Life cycle strategy
      • 364. Localized market strategy
      • 365. A combination of strategies can also be followed
      • 366. Step 3 - Take a long-run Perspective
      • 367. Initial costs must be viewed as investments
      • 368. Returns on investments will not be immediate in export markets
      Slide 4-3
      Beamish, Morrison, Inkpen and Rosenzweig
      INTERNATIONAL MANAGEMENT 5/e
      McGraw-Hill
      © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
    • 369. Pricing in Export Markets
      • Strategy 1 - Requiring prices in export markets that yield higher returns than are available in domestic markets
      • 370. Based on the belief that export operations are more risky relative to domestic sales - can result in uncompetitive prices.
      • 371. Strategy 2- Pricing to yield similar returns in domestic and export markets
      • 372. Based on the viewpoint that export markets do not necessarily differ from domestic markets
      • 373. Strategy 3 - Pricing to yield lower returns, or even losses, in export markets—at least in the short run
      • 374. Reflects an approach that views export markets as the potential growth markets of the future - firm vulnerable to antidumping action
      • 375. Strategy 4 - Pricing to sell production in excess of the needs of the domestic market so long as these sales make a contribution to fixed overhead and profit
      • 376. View of export markets as a dumping ground for production in times of excess capacity - firms very vulnerable to anti-dumping actions
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    • 377. Stages of Export Market Involvement
      • Stage 1 – Unplanned entry
      • 378. Unsolicited order from abroad, overproduction, declining domestic sales, pressures, “follow the leader” behavior, government-sponsored trade fairs, and funded export missions
      • 379. Stage 2 – Systematic evaluation of the impact of exports
      • 380. Stage 3 - Exports become a major factor in the firm’s strategy and operations.
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    • 381. Trade Intermediaries
      • Import Traders
      • 382. For every export, there is an import
      • 383. Pure importers are market connectors; they create value through linking producers abroad to buyers in the domestic market
      • 384. Pure importers usually have an advantage such as knowledge of the domestic market and practices
      • 385. Export Traders
      • 386. They are also market connectors
      • 387. Their advantages lie in knowledge of markets in particular countries or in knowledge of worldwide markets for particular products.
      • 388. Trading Houses
      • 389. Pure import operations and pure export operations are joined together in the trading houses
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    • 390. Vital Questions to be asked
      • Does our product and firm have a sustainable competitive advantage in export markets and, if so, why?
      • 391. What are the export markets and the segments of those markets that will value our product sufficiently (relative to other competing products) to offset our costs of production and distribution?
      • 392. Should the firm export a standard product with a standard marketing mix worldwide or should it tailor its products and marketing mix to individual export markets?
      • 393. What natural and government-imposed trade barriers impede linking production in one country to purchase in another, and what factors might facilitate this linkage?
      • 394. What are the most appropriate channels of distribution for our product to achieve our goals in export markets?
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    • 395. Present day export trade
      • Tariff and nontariff barriers to trade have fallen globally and free trade areas have developed.
      • 396. Firms often now analyze trade opportunities on a regional, and sometimes even broader basis
      • 397. Products are often not sent directly from one home production site to an export market abroad. Inputs are sourced in a number of countries and assembled in other countries, and the final product is sold in yet other countries
      • 398. Trade intricately linked with foreign investment, joint ventures, licensing, franchising, contract production, and component sourcing
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    • 399. Countertrade
      • A special form of exporting is countertrade, the linked exchange of goods for goods in international trade
      • 400. Countertrade covers - Barter ,Counterpurchase, Compensation or buyback, Production sharing, Industrial offsets, Switches, Unblocking funds and Debt for equity swaps
      • 401. Can be complicated and costly to negotiate and execute
      • 402. Important characteristics of countertrade contracts need to be attended to carefully by an exporter
      • 403. Generally countertrade is an inefficient form of trade. It creates costs and risks for both importers and exporters
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    • 404. Major Project Development
      • Importance and investment increased during the 1990s –likely to continue to increase in the future.
      • 405. Generally for infrastructure development - electricity generation, telecommunications, water and sewage treatment facilities, and even roads and ports.
      • 406. Types of Major projects
      • 407. Turnkey projects
      • 408. Firm undertakes to construct a major project, then turns it over to its owners when it is in full operation
      • 409. Build, operate, and transfer projects (BOT)
      • 410. Firms bid for the right to construct the project, the winning firm also operates the facility after it is completed.
      • 411. Ownership is limited to a certain time period, after which the project is transferred to another organization
      • 412. Build, operate, and own projects (BOO)
      • 413. Firms bid for the right to construct the project.
      • 414. The winning firm also operates the facility after it is completed. .
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    • 415. Exports, Imports, and International Finance
      • Important aspects for exporters/importers
      • 416. Effect of the real exchange rate on competitive advantage,
      • 417. Effect of variations in the nominal exchange rate on export and import profitability
      • 418. Pricing of the goods in the importers currency
      • 419. Countered by setting up currency hedge
      • 420. Use of forward contracts
      • 421. Effect of trade on financing needs and sources
      • 422. Irrevocable letter of credit (LoC) used to overcome uncertainty
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    • 423. Six
      Licensing
    • 424. What is Licensing?
      • Licensing is a contractual arrangement whereby the licensor (selling firm) allows its technology, patents, trademarks, designs, processes, know-how, intellectual property, or other proprietary advantages to be used for a fee by the licensee (buying firm).
      • 425. It is a strategy for technology transfer.
      • 426. Franchising is an organizational form where the franchisor of a service, trademarked product, or brand name allows the franchisee to use the same in return for a lump sum payment and/or royalty, while conforming to required standards of quality, service, and so forth.
      Beamish, Morrison, Inkpen and Rosenzweig
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    • 427. When is Licensing employed?
      • Used both in technology intensive and non technology-intensive industries (eg. Computer software, food, sport teams, publishing)
      • 428. A licensor lacks the capital knowledge of foreign markets required for exporting or FDI, but wants to earn additional profits with minimal commitment.
      • 429. Host-country governments restrict imports or FDI, or both; or the risk of nationalization or foreign control is too great.
      • 430. A firm wishes to test the potential for future direct investment.
      • 431. The technology involved is not central to the licensor’s core business. Generally only peripheral technologies are licensed.
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    • 432. When is Licensing employed? (contd..)
      High prospects of technology “feedback” or “flowback”
      The licensor wishes to exploit its technology in secondary markets that may be too small to justify larger investments; the required economies of scale may not be attainable.
      The licensee is unlikely to become a future competitor.
      Rapid pace of technological change such that the licensor can remain technologically superior to the licensee. If the technology may become obsolete quickly, there is pressure to exploit it fully while the opportunity exists.
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    • 433. Licensing Related Issues
      Risks
      Dissipation of proprietary advantage
      Tarnishing of reputation due to lack of quality
      Profits may not be maximized
      Difficulty in enforcement of license terms
      Intellectual Property Rights
      IP legislations nonexistent or not enforced
      “Reluctant Licensing” – attempts to offset piracy
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    • 434. Licensing Related Issues (contd..)
      Costs of Licensing
      Protection costs
      License Agreement costs
      Agreement Maintenance costs
      Unattractive markets for Licensing
      Governmental regulatory schemes
      Restrictions imposed on duration and exclusive rights to territories
      Foreign exchange controls and tax on royalty fees
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    • 435. Elements of License Agreement
      A clear and correct description of the parties to the agreement
      A preamble or recitals describing the parties, their reasons for entering into the arrangement, and their respective roles.
      A list of defined terms for the purposes of the particular contract to simplify this complex document and to eliminate ambiguity.
      A set of schedules, in an exhibit or appendix, where necessary, to segregate lengthy detailed descriptions of any kind.
      Explicit description of the grant that is fundamental to the agreement and the nature of the rights being granted to the licensee.
      Description of any geographical limitations on the licensee’s manufacturing, selling, or sublicensing activities.
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    • 436. Elements of License Agreement (contd..)
       A description of any exclusive rights to manufacture and sell that may be granted including rights to sublicense.
      The terms relating to the duration of the agreement and its extension or review.
      Provisions for the granting of rights to downstream refinements or improvements made by the licensor in the future.
      Provisions for “technological flowback” agreements.
      Details regarding the royalties or periodic payments based on the use of licensed rights.
      Specification of minimum performance requirements and other protection clauses
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    • 437. Some Licensing Announcements
      Starbucks, the U.S. coffee chain, hopes to have 500 branches in Asia by 2003 through licensing agreements
      Licensed properties account for nearly half of the $4 billion in home decorating retail sales sold for the Halloween season.
      Palm makes new licensing deals with Intel, Motorola and Texas Instruments, to expand the Palm operating system into all kinds of mobile devices from handhelds to cell phones and perhaps even wristwatches.
      On June 26, 2001, hundreds of independent record companies in Britain and Europe signed a licensing agreement with Napster to immediately make thousands of tracks available to computer-users worldwide.
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    • 438. Eight
      Strategy
    • 439. The Changing World
      Globalization is the buzzword!
      Change in traditional approaches towards more innovative strategies
      Firms forced to trade off between globalization and localization
      Transformation is slow mainly due to anti-globalization protests and the Internet
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    • 440. Pressures towards Globalization
      Broad factors making global competition possible
      Freer Trade
      GATT, WTO agreements
      Creation of free trade zones, regional trading blocks like EU, ASEAN
      Global financial services and capital markets
      Growth seen in FDIs
      Growth of Overseas venture capitalists and trans-national banks
      Advances in communications technology
      Ease of organizational control
      The Internet
      Facilitates ease of communication
      CRM, EDI systems are now in place in many companies
      Internet exchanges link buyers and sellers worldwide and have opened up new markets
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    • 441. Pressures towards Globalization (contd..)
      Industry Specific Factors
      Universal customer needs
      Global customers
      Many MNCs sell to other MNCs and need to keep up with the international expansion of the customers
      Global competitors
      High investment intensity
      High investments required for R&D, advertising due to increased competition
      When investment intensity is high, many companies are eager to amortize expenses by selling products globally
      Pressures for cost reduction
      Economies of scale and learning are important in price-sensitive markets
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    • 442. Pressures towards Localization
      Country specific Factors
      Trade barriers
      Tariffs, subsidizing domestic production, voluntary export restrictions, competing technical standards
      Cultural differences
      Cultural and religious beliefs, purchasing power, weak enforcement of laws
      Nationalism
      The Internet
      Anti-globalization activism
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    • 443. Pressures towards Localization (contd..)
      MNC-Specific Pressures
      Organizational resistance to change
      Logistics limitations
      Management skills and competencies
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    • 444. Business Strategies
      Exhibit 8-1
      Mapping Industries
      High
      Semiconductors
      Telecommunications
      Watches
      Global Industries
      Aerospace
      Civil Aircraft
      Automobiles
      Need for Vertical Integration
      Regional Industries
      White Goods
      Packaged Foods
      Multidomestic Industries
      Cement
      Funeral Homes
      Low
      High
      Need for Local Responsiveness
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    • 445. Key Recommendations for Managing the Formulation Process
      Invest Heavily in Data Collection
      Use multiple data sources, tap external sources and develop internal sources to overcome suspect data
      Determine the Potential for Critical Scale Economies
      Weigh the Value of other Globalization Benefits
      Rotate Country Managers More Frequently to Help Them Develop a Global Vision
      Be Prepared to Reassess your Performance Measurement System and Reward System
      Take a Balanced Approach
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    • 446. Twelve
      Govt Relations
    • 447. Sources of Trade Regulation
      GATT and WTO
      Set up to deal with tariffs and non tariff barriers to trade
      Tokyo Round in mid 1970s
      Tariff barriers reduced significantly
      Partial success with non-tariff barrier reduction mainly due to complexity and sensitivity
      Uruguay Round – 1986-1993
      Challenging problems addressed – technical barriers, trade in services, intellectual property rights, trade in technology etc.
      More member countries – 117
      Problems of developing countries addressed
      WTO formed – meets every 2 years
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    • 448. Trade Agreements and Associations
      U.S. – Canada Free Trade Agreement
      Formed January 1988 – world’s largest free trade area
      Dispute resolution mechanisms established
      NAFTA formed with Mexican representatives
      Association of Southeast Asian Nations
      ASEAN formed August 1967 with 5 member states, presently has 10 members
      Regarded as a loose economic cooperation channel but expected to change, FTA with China expected
      Move towards ASEAN FTA
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    • 449. Trade Agreements and Associations (contd..)
      Asia-Pacific Economic Corporation
      APEC established 1989, presently has 21 members
      Primary vehicle for open trade and economic cooperation
      Agreement to develop free trade yet to be reached
      ANDEAN and MERCOSUR
      Composed of South American nations with an objective of setting a common external tariff
      European Union
      Slow process of European integration
      Founded on the principle of supranationality
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    • 450. Opportunities and Threats
      Exhibit 12- 1
      Opportunities and Threats from Government Actions
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    • 451. Political Strategy
      Essential for a firm to form and implement political strategy
      Formulation
      Objectives
      Issues
      Stakeholders (allies, opponents, targets)
      Position/Case (“public interest”)
      Implementation
      Timing
      Techniques
      Direct (negotiate, litigate)
      Indirect (advocacy advertising, political contributions)
      Vehicles (e.g. coalition, Government Relations department, consultants)
      Style (e.g., confrontation or conciliation)
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    • 452. Impact of International Business-Government InteractionObjectives and Motivations of MNC-SOE Alliances and Acquisitions
      Objectives of MNCs
      Increase profits, reduce potential risks and achieve economies of scale
      Control/preempt competition, expand market share, achieve first mover advantage
      Obtain lower-cost production or distribution facilities
      Develop or adapt technology jointly, obtain new labor or technology resources
      Expand domestic sales through overseas operations
      Obtain new labor or technology resources
      Objectives of SOEs or Privatized Enterprises
      Ensure survival and financial viability
      Gain competitiveness and become profitable
      Acquire new technology and improve managerial competence
      Objectives of Governments
      Generate public revenues from SOE sales
      Reduce subsidies to loss making SOEs, foreign debts and public budget deficits
      Strengthen private sector, increase national productivity and stimulate growth
      Expand shareholding among citizens and reduce government role in economy
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    • 453. Proactive Management of Relations
      MNE’s Perception of Government Policy
      Exhibit 12-4
      MNE’s approach to
      Government Policy
      Viewed as Potentially Influenced
      by MNE Managers
      Viewed as outside the Influence
      Of MNE Managers
      To achieve
      Benefits of
      integration
      MNE’s objectives in Business – Government
      Interactions
      To achieve
      Benefits of
      National
      Responsiveness
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    • 454. Bargaining Power
      Discriminatory enforcement occurs due to differing characteristics of subsidiaries – Bargaining Power
      Sources of Bargaining power for host country
      Growing capability to replace the MNE’s products
      Control over access to raw materials, labor and capital
      Sources of Bargaining power for MNE
      Vertical integration
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    • 455.
    • 456. Lockout
      Acquiring Technology Cheaply.
      Innovating.
      Selling Product Below Cost.
      Build market share.
      Adquiriendo Tecnología Barato.
      Innovación.
      Venta Del Producto Debajo Del Coste.
      Cuota de mercado de la estructura.
    • 457. Lockout Case: VCR
      En los años 80, Japón demandó el mercado global del VCR para sí mismo por los competidores potenciales de debajo-tasacio'n. Adquirieron una patente para el proceso del VCR de una compañía americana que no podría encontrar una manera de hacer un beneficio a corto plazo en el VCR.
      Las compañías japonesas entonces comenzaron a vender VCRs debajo de coste para construir la cuota de mercado y pronto vendían en un tan alto volumen que sus costes declinaron a un nivel provechoso.
      Las economías japonesas de la escala eran tan grandes que los competidores extranjeros eran bloqueados fuera del mercado.
      In the 1980s, Japan claimed the global VCR market for itself by under-pricing potential competitors. They acquired a patent for the VCR process from an American company that couldn’t find a way to make a short-term profit on the VCR.
      Japanese companies then began selling VCRs below cost to build market share & soon were selling at such a high volume that their costs declined to a profitable level.
      Japanese economies of scale were so great that foreign competitors were locked out of the market.
    • 458.
    • 459. Part 1: The Strategic Imperatives
      Ch 1Expanding Abroad: Motivations, means & Mentalities
      INB / MGT 352
      International Management
      Spring 2008
      Transnational Management, Text, Cases, and Readings in Cross-Border Management, Christopher Barlett, Sumantra Ghoshal & Palu Beamish, 5th Edition, 2008
    • 460. Definition of a Multinational Enterprise (MNE)
      MNE have “substantial direct investment” in foreign countries (1) and “actively” (not passively) manage and coordinate these offshore assets, and their operations as integral parts of the company, both strategically an organizationally.
      MNEs include ExxonMobil, Royal Dutch Shell, BP, Toyota, Ford, DaimlerChrysler, GE, Wal-Mart, GM, ChevronTexaco
      In addition, definition of MNEs includes Intel, Unilever, Samsung, Singapore Airlines, McKinsey & Co., and Starbucks
      Note 1: These are not simply trading relationships of an import/export business.
    • 461. Explosive Growth (MNE)
      Number of International Companies
      UNCTAD - United Nations agency in charge of all matters relating to FDI and international corporations.
      1995 – 45,000 parent companies with 280,000 foreign affiliates ($7 trillion in sales)
      2004 – 70,000 parent companies with 690,000 foreign affiliates ($19 trillion in sales)
    • 462. Economic Importance of MNEs
      MNEs are equivalent in economic importance to medium-sized economies of Chile, Hungary, or Pakistan
      MNEs have considerable influence
      Employ high percentage of business graduates
      Pose the most complex strategic and organizational challenges for their managers
    • 463. Top 500 MNEs
      70% of world trade
      85% of world automobiles
      70% of computers
      35% of toothpaste
      65% of soft drinks
    • 464. Largest 100 MNE
      In 2003, excluding banking and finance, the largest 100 MNEs accounted for over
      $ 8 Trillion in worldwide assets, of which
      $4.0 trillion was located outside there respective home countries.
    • 465. Motivations (the ‘Why’) of MNE Int’l Expansion
      Traditional Motivations
      Securing key supplies (aluminum, rubber, oil, etc.)
      Market-seeking behavior (Nestle, Bayer, Ford)
      Access to low-cost factors of production (clothing, electronics, household appliances, watches,
      Emerging Motivations
      Scale economies
      Economies of scale and scope
      Economies of scope
      Ballooning R&D investments
      Shortening product life cycles
      Scanning and learning capability
      Competitive positioning
    • 466. Motives to Go International
      Market-Seeking
      Motives
      The Historically Indigenous Firm
      Cost-Reduction
      Motives
      Strategic
      Motives
    • 467. Global Strategy: An Organizing Framework
    • 468. What Forces Drive MNEs Toward Global Integration & Coordination?
      Economies of scale
      Economies of scope
      National differences in the availability & cost of productive resources
    • 469. Economies of scale
      How do new technologies make an economy of scale possible?
      Why are capital-intensive industries susceptible to economies of scale?
      How do I quantify an economy of scale?
      What might threaten the benefits sought under an economy of scale?
    • 470. Economies of scope
      What is an economy of scope?
      What factors or changes might “enable” an economy of scope to develop?
      What threats to an economy of scope could exist?
    • 471. MNE Advantages Int’l Operations
      Ensuring critical supplies
      Entering new markets
      Tapping low-cost factors of production
      Leveraging their global information access
      Capitalizing on competitive advantage of multiple market positions
      Use strength to play strategic game of “global chess”
    • 472. Means (the How?) of Internationalization: Prerequisites and Processes
      Prerequisites for Internationization
    • 473. Scale Economies: Use of Scale for
      Competitive Advantage – Higher Volume
      Inhibits Flexibility
      Political Risks
      Resource Risks
      Competitive Risks
      Scope Economies: Cost of Joint Production
      For Two or More Products
      Provides Sharing of Physical Resources
      Provides for Shared External Relationships
      Provides for Shared Knowledge
    • 474. Tremendous Growth in International Trade & Commerce
    • 475. Foreign Market Entry Modes
      Foreign Market Entry Modes
      Wholly-owned
      subsidiaries
      Joint Venture
      (e.g., w/local partner)
      Franchising
      Level of control over foreign services
      Licensing
      Export
      (e.g., through agent
      or distributor)
      Indirect export
      Amount of resources committed to foreign market
    • 476. International Mindsets
      Specific pressures will affect competition in industries and firms that cross national boundaries causing
      a “global orientation” that relies on coordination of worldwide activities to maximize the collective organization, and
      a “multidomestic orientation” that responds to individual country opportunities and constraints.
      Increasingly, there are pressures for international companies to be both globally efficient and locally responsive.
      These pressures derive from environmental changes such as new technologies, unanticipated competition, and the convergence of industry boundaries.
      In such situations, firms exhibit a “transnational mindset” to simultaneously gain efficiency and local market benefits.
    • 477. International Mindsets
      Multinational Systems
      International Systems
      Businesses that follow an international strategy tend to have distributed GIS in which systems in the central headquarters are connected to those in the foreign operations.
      Businesses that follow a multinational strategy tend to have decentralized, or independent, information systems for their central headquarters and different foreign operations.
      Transnational Systems
      Global Systems
      Business that follow the transnational strategy require complex, integrated GIS in which the central headquarters and all the foreign operations participate equally
      Businesses that follow a global strategy ten to have highly centralized GIS determined by the central headquarters.
    • 478. Foreign Market Entry Modes
      • Exporting
      • 479. Countertrade
      • 480. Contract manufacturing
      • 481. Licensing
      • 482. Franchising
      • 483. Turnkey projects
      • 484. Non-equity strategic alliances
      • 485. Equity-based ventures such as wholly-owned subsidiaries and equity joint ventures
    • Motives to Go International
      Market-Seeking
      Motives
      The Historically Indigenous Firm
      Cost-Reduction
      Motives
      Strategic
      Motives
    • 486. 1-293
      Evolutionary Stages
      Stage 1: Foreign Inquiry
      Stage 2: Export Manager
      Stage 3: Export Department and Direct Sales
      Stage 4: Sales Branches and Subsidiaries
      Stage 5: Assembly Abroad
      Stage 6: Production Abroad
      Stage 7: Integration of Foreign Affiliates
    • 487. International Strategy
      Assets, responsibilities decentralized
      Formal control systems
      HQ
      International mentality
      4-294
    • 488. International Strategy
      Assets, responsibilities decentralized
      Formal control systems
      HQ
      International mentality
      • Main role is to support the domestic parent company in different ways, such as contributing incremental sales to domestic manufacturing operations
      • 489. Products developed for domestic market sold abroad
      • 490. Technology and other knowledge are transferred from parent company to overseas operators
      • 491. Offshore manufacturing represents a means to protect company’s home market
      • 492. Companies with this mentality regard themselves fundamentally as domestic with some foreign appendages
      • 493. Managers assigned to overseas operations are often domestic misfits who happen to know a foreign language or have previously lived abroad
      • 494. Decisions related to foreign operations tend to be made in an opportunistic or ad hoc manner
      4-295
    • 495. HQ
      An “International Business Strategy” Deploying Global Information Systems (GIS)
      International Strategy
      International Diagram
      Involves transferring knowledge and skills from the central headquarters to the foreign operations.
      Assets, responsibilities decentralized
      Formal control systems
      International mentality
      GIS Deployment Strategy
      International Strategy
      Businesses that follow an international strategy tend to have distributed GIS in which systems in the central headquarters are connected to those in the foreign operations.
      4-296
      4-296
    • 496. Multinational Strategy
      Loose controls; strategic decisions remote
      HQ
      Financial reporting flows
    • 497. Multinational Strategy
      Loose controls; strategic decisions remote
      HQ
      Financial
      Reporting flows
      • A multinational strategic mentality develops as managers begin to recognize and emphasize the differences among national markets and operating environments
      • 498. Companies adopt a more flexible approach to their int’l operations by modifying their products, strategies, and even management practices country by country
      • 499. As they develop national companies that are increasingly sensitive and responsive to their local environments, these companies undertake a strategic approach that is literally multinational: Their worldwide strategy is built on a foundation of the multiple, nationally responsive strategies of the company’s worldwide subsidiaries.
      • 500. Managers tend to be highly independent entrepreneurs, often nationals of the host country
      • 501. Using their local market knowledge and the parent company’s willingness to invest in these growing opportunities, these entrepreneurial country managers often can build significant local growth and considerable independence from headquarters
      • 502. Results in a very responsive marketing approaches in the different national markets, it also gives rise to an inefficient manufacturing infrastructure within the company
      • 503. Plants are built more to provide local marketing advantages or improve political relations than to maximize production efficiency
      • 504. Similarly, the proliferation of products designed to meet local needs contributes to a general loss of efficiency in design, production, logistics, distribution, and other functional tasks
    • An “Multinational Strategy”
      Loose controls; strategic decisions remote
      HQ
      Financial
      Reporting flows
      Multinational Strategy
      Multinational Diagram
      Central home base; decentralized production, sales, marketing in other countries. The business allows its foreign operations to function largely independently.
      Multinational Strategy
      GIS Deployment Strategy
      Businesses that follow a multinational strategy tend to have decentralized, or independent, information systems for their central headquarters and different foreign operations.
    • 505. Global Strategy
      Tight controls; centrally driven strategy
      HQ
      One-way flows,
      goods, information,
      and resources
      4-300
    • 506. Global Business Strategies
      Global Strategy
      Tight controls; centrally driven strategy
      HQ
      One-way flows,
      goods, information,
      and resources
      • In an operating environment of improving transportation and communication facilities and falling trade barriers, some companies adopt a very different strategic approach for their int’l operations
      • 507. These companies think in terms of creating products for a world market and manufacturing them on a global scale in a few highly efficient plants, often at the corporate center
      • 508. Subscribe to Professor Levitt’s to make and sell “the same thing, the same way, everywhere”
      • 509. In an operating environment of improving transportation and communication facilities and falling trade barriers, some companies adopt a very different strategic approach for their int’l operations
      • 510. These companies think in terms of creating products for a world market and manufacturing them on a global scale in a few highly efficient plants, often at the corporate center
      • 511. The underlying assumption is that national tastes and preferences are more similar than different or that they can be made similar by providing customers with standardized products at adequate cost and with quality advantages over those national varieties they know
      • 512. Strategic approach requires considerably more central coordination and control than the others and is typically associated with an organizational structure in which various product or business managers have worldwide responsibility
      • 513. R&D and manufacturing activities are typically managed from headquarters, and most strategic decisions also take place at the center
    • Global Strategy Example
    • 514. Global Strategy
      Loose controls; strategic decisions remote
      Assets, responsibilities decentralized
      Tight controls; centrally driven strategy
      HQ
      HQ
      Complex controls;
      high coordination skills,
      Coordinated strategic
      decision process
      Heavy flows;
      materials, people
      Information &
      technology
      Formal control systems
      HQ
      One-way flows,
      goods, information,
      and resources
      Financial
      Reporting flows
      HQ
      International mentality
      Distributed
      capabilities,
      resources &
      decision making
      Global Business Strategies
      All use global information systems (GISs) in various ways …
      Multinational Strategy
      International Strategy
      Transnational Strategy
      4-303
      4-303
    • 515. A “MNE Business Strategy” Deploying Global Business Systems
      Global Strategy Diagram
      Tight controls; centrally driven strategy
      HQ
      One-way flows,
      goods, information,
      and resources
      All use global information systems (GISs) in various ways …
      Global Strategy
      The central headquarters coordinates the activities of the foreign operations closely.
      Transnational Strategy
      GIS Deployment Strategy
      Business that follow the transnational strategy require complex, integrated GIS in which the central headquarters and all the foreign operations participate equally
      4-304
      4-304
    • 516. HQ
      Transnational Strategy
      Complex controls;
      high coordination skills, coordinated strategic decision process
      Heavy flows;
      materials, people
      information, technology
      Distributed
      capabilities,
      resources &
      decision making
      4-305
    • 517. Complex controls;
      high coordination skills,
      Coordinated strategic
      decision process
      Heavy flows;
      materials, people
      Information &
      technology
      HQ
      Distributed
      capabilities,
      resources &
      decision making
      Transnational Strategy
      • The emerging requirement is for companies to become more responsive to local markets and political needs and pressures to develop global-scale competitive efficiency
      • 518. Key activities and resources are neither centralized in the parent company nor so decentralized that each subsidiary can carry out its own tasks on a local-for-local basis
      • 519. Instead, the resources and activities are dispersed but specialized, to achieve efficiency and flexibility at the same time
      • 520. These dispersed resources are integrated into an interdependent network of worldwide operations
      • 521. Transnational mentality recognizes the importance of flexible and responsive country-level operations – hence a return of “national” into the terminology
      • 522. Compared to multinational approach, it provides for means to link and coordinate those operations to retain competitive efficetiveness and economic efficiency, as is indicated by the prefix “trans”
      • 523. The resulting need for intensive, organization-wide coordination and shared decision-making implies that this is a much more sophisticated and subtle approach to MNE management
    • A “Transnational Business Strategy” Deploying Global Business Systems
      Complex controls;
      high coordination skills,
      Coordinated strategic
      decision process
      Heavy flows;
      materials, people
      Information &
      technology
      HQ
      Distributed
      capabilities,
      resources &
      decision making
      All use global information systems (GISs) in various ways …
      Transnational Strategy
      Transnational Diagram
      Truly global firm; no national headquarters; value-added activities managed from global perspective; optimizes supply & demand, taking advantage of local competitive strengths
      Transnational Strategy
      GIS Deployment Strategy
      Business that follow the transnational strategy require complex, integrated GIS in which the central headquarters and all the foreign operations participate equally
      4-307
      4-307
    • 524. Global “Chess” Between Large MNEs
      Customers demand differentiation along with the level of cost & quality typical of global products
      Host governments have more aggressive development & tax agendas
      MNEs fight for flexibility to continuously change product designs, sourcing, and pricing
    • 525. Multidomestic Strategy Example
    • 526.
    • 527. Chapter 2: Understanding the International ContextResponding to Conflicting Environmental Forces
    • 528. Three Conflicting Setsof External Demands
      Forces for cross-border integration and coordination
      Forces for national differentiation and responsiveness
      Forces for worldwide innovation and learning
      2-312
    • 529. Forces for Global Integrationand Coordination
      Economies of Scale
      Economies of Scope
      Factor Costs
      Increasingly Liberalized Environment for Trade
      Expanding Spiral of Globalization
      2-313
    • 530. Global Competitors as Change Agents
      For industry globalization to take place:
      Underlying drivers (economies of scale and scope, etc.) have to be in place
      But always triggered by actions of one of two global “change agents”
      Examples:
      British Airways (airlines)
      Starbucks (premium coffee shops)
      ISS (cleaning services)
      2-314
    • 531. Global Industries
      To borrow from Shakespeare:
      Some industries are born global
      Some are made global
      Others have global-ness thrust upon them
      2-315
    • 532. Forces for Local Responsiveness
      Cultural differences
      Consumer tastes and preferences
      Ways of doing business
      National infrastructure
      Technical standards (e.g., voltage, TV broadcast, etc.)
      Distribution channels (e.g., supermarkets vs. bazaars)
      Government demands
      National laws and regulations
      Host country pressures and demands
      Local competitors
      Appeal to nationalism
      2-316
    • 533. MNC-Host Government Relationship: A Study in Love/Hate
      MNC
      MNC
      MNC
      Sought for its capital, technology, management
      Accommodated for its contributions to local social and economic needs
      Courted for its global efficiency and world market access
      Host Country Government
      Resented for the nation’s dependence on it
      Feared for its power and independence
      Disliked for its impact on society
      MNC
      MNC
      MNC
      2-317
    • 534. MNC
      Host Government
      Sources of Conflict
      • Motivators
      • 535. Strategic viability: global competitiveness
      • 536. Operational viability: profit
      • 537. Objectives
      • 538. Freedom to integrate operations globally
      • 539. Ability to market and ability to transfer resources freely across borders
      • 540. Measures
      (primarily financial)
      • Profit
      • 541. ROI
      • 542. Market share
      • 543. Motivators
      • 544. National independence: social, economic, political
      • 545. International competitiveness
      • 546. Objectives
      • 547. Protect national sovereignty from external influence
      • 548. Capture global benefits of export markets, efficient industrial base, leading edge technology
      • 549. Measures (social/economic/political)
      • 550. Social cost/benefit
      • 551. Political return
      • 552. Industrial policy “fit”
      2-318
    • 553. MNC
      Host Government
      Sources of Power
      • No investment or exit option
      • 554. Access to needed resource (capital, technology, etc…)
      • 555. Willingness and ability to align with national priorities
      • 556. Development of local support (shareholders, suppliers)
      • 557. Position in global economy (market, scale, competitiveness)
      • 558. Home country support
      • 559. Legislative power: regulate operating and strategic decisions
      • 560. Market power-government as a customer
      • 561. Incentives, supports
      • 562. Attractiveness to competitors
      • 563. Local operations linkage to global position (“hostage”)
      • 564. Shift in power after investment (“obsolescing bargain”)
      2-319
    • 565. Recent Backlash against Globalization
      Early 1990s: Global integration forces dominated
      Most host governments actively sought investment
      Free Trade movement gathered pace
      Late 1990s: Highly visible backlash
      Anti-globalization movement (Seattle, Genoa, etc…)
      Many developing countries are highly sceptical of benefits
      Many MNEs currently rethinking their approach toward globalization
      Need to better articulate benefits they bring
      2-320
    • 566. Forces for Worldwide Innovationand Learning
      Increased need for rapid and coordinated worldwide innovation driven by:
      Shortening product life-cycles
      Increased cost of R&D
      Emergence of global technology standards
      Competitors’ ability to develop and diffuse innovation globally
      2-321
    • 567. Responding to Diverse Forces Simultaneously
      Strength of forces vary by industry; three typical models
      Global industries (consumer electronics)
      Multinational industries (branded packaged goods)
      International industries (telecom)
      2-322
    • 568. Consumer Electronics
      Telecom Switching
      Global Integration
      Branded
      Packaged Products
      Cement
      National Responsiveness
      Global & National Forces: Industry Effect
      2-323
    • 569. Transition to Transnationality
      By 1990s environmental forces undergoing change
      New bases of competition emerging
      New competitors rising on the basis of different competitive capabilities
      Increasingly industries were becoming transnational
      Companies needing to respond to all three diverse and competing sets of forces: global integration, national responsiveness, and worldwide learning
      2-324
    • 570. A Final Word: Risk of “Globalization Glaucoma”
      Blindness to everything but global forces
      Short-sightedness to localizing forces
      “As the 1990s were drawing to a close, the world had changed course, and Coca-Cola had not. We were operating as a big, slow, insulated, sometimes even insensitive “global” company; and we were doing it in an era when nimbleness, speed, transparency and local sensitivity had become absolutely essential.”
      Douglas Daft, CEO, Coca-Cola, March 2000
      2-325
    • 571.
    • 572. International investment agreements:key issues and features
    • 573. Topics for discussion
      Definitions and scope
      Admission and establishment
      Four pillars of protection:
      Liberalisation through NT and MFN
      Transparency
    • 577. Definitions and Scope
    • 578. Scope of an IIA
      • Matter coverage: define those assets to which the treaty applies.
      • 579. Subject coverage: define those persons and legal entities to which the treaty applies.
      • 580. Geographical coverage: define the territory to which the treaty provisions apply.
      • 581. Temporal coverage: determine the date of entry into force of the IIA and its duration.
    • Definition of “investment”
      Depending on purpose of treaty, two main approaches:
      A.     Open-ended asset-based definition : broad protection
      Including usually:
      • Movable and immovable property
      • 582. Various types of interest in companies
      • 583. Claims to money and claims under a contract having a financial value
      • 584. Intellectual Property Rights
      • 585. Business concessions, including natural resources concessions
    • Example of asset-based definition
      BIT Ethiopia – Sudan 2000 Art. 1 Definitions
      For the purpose of this Agreement:
      a) "Investment" means every kind of asset invested by Investors of one Contracting Party in the territory of the other Contracting Party, in accordance with the laws and regulations of the latter, and in particular, though not exclusively, includes:
      (i) movable and immovable and any other rights such as mortgages, liens or pledges;
      (ii) Shares, stocks and debentures of companies or interests in the property of such companies;
      (iii) claims to money or to other assets or any performance having an economic value,
      (iv) intellectual and industrial property rights, including rights with respect to copy rights, patents, trade marks, trade names, industrial designs, trade secrets, technical processes and know-how and goodwill;
      (v) business concessions conferred by Law or under contract, including concessions to search for, cultivate, extract or exploit natural resource;
      A change in the form in which assets or capitals have been invested or reinvested shall not affect their designation as "Investments" for the purpose of this Agreement.
    • 586. Definition of “investment”
      B.     Alternative definitions:
      • Closed list definition (finite list)
      • 587. Enterprise–based definition
      Focus on the “business enterprise” or the “controlling interests in a business enterprise”. Includes the establishment or acquisition of a business enterprise, as well as a share in a business enterprise, which gives the investor control over the enterprise
      • Tautological definition
      Definition of the term "investment" in economic terms. Covering every asset that an investor owns and controls, directly or indirectly, that has the characteristics of an investment. Approach complemented by explicit exclusion of several kind of assets
    • 588. Investment - key issues
      • Claims of money: will all claims of money be covered? Even those claims of money not related to FDI? What about payments derived from commercial transactions or from the sale of goods and services?
      • 589. Debt instruments: will all debt instruments be covered? What about those debt instruments with short-term maturity? Should there be a minimum maturity term specified?
      • 590. Intellectual property rights (IPRs): should a reference to a legal framework be included? Would only those IPRs provided in accordance to domestic legislation be considered an investment? Those IPRs existing pursuant international agreements?
      • 591. State Contracts: need for special treatment in definitions or substantive parts of the agreement.
      • 592. Exclusions: Public debt? Property acquired not for an economic activity (i.e. leisure houses)? Short term debt instruments?
    • Definition of “investor”
      A. Natural persons
      • Criteria of nationality
      • 593. Criteria of domicile or residence
    • Natural persons - example
      Nationality criterion:
      BIT China - Germany, 2003,Art. 1 Definitions
      2. the term "investor" means
      (a) in respect of the Federal Republic of Germany: Germans within the meaning of the Basic Law for the Federal Republic of Germany, (…)
      (b) in respect of the People’s Republic of China: natural persons who have the nationality of the People’s Republic of China in accordance with its laws, (…)
      BIT Uganda – Mozambique, Art. 1 Definitions
      4. "investor" of a Contracting Party shall mean:
      a) any natural person who is a national of that Contracting Party in accordance with its law…
      Domicile or residence criterion:
      BIT Canada -Argentina, 1991, Article 1- Definitions
      b) The term "investor" means (i) any natural person possessing the
      citizenship of or permanently residing in a Contracting Party in accordance with its laws, (…) who makes the investment; (…).
    • 594. Definitions - investor
      B. Legal entities
      • Criteria to determine the nationality of the legal entity/investor:
      • 595. Country of organization or incorporation
      • 596. Country of seat
      • 597. Ownership and control
      • 598. Denial of benefits clause: (deny treaty protection to those companies that are controlled by investors of a non-Party (particularly with which the host country does not maintain diplomatic relations) and/or that have no substantial business activities in the territory of the party under whose laws it is constituted)
    • Legal entities – example 1
      Criterion of the “seat”:
      BIT China - Germany, 2003
      Article 1: Definition
      2. the term "investor" means (a) in respect of the Federal Republic of Germany: any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany, irrespective of whether or not its activities are directed at profit; (…).
    • 599. Legal entities – example 2
      Criterion of ownership or control:
      Andean Community - Decision 291 Regime for the
      Common Treatment of Foreign Capital and Trademarks,
      Patents, Licensing Agreements and Royalties
      Article 1: … Foreign Enterprise:
      an enterprise incorporated or established in the recipient country, in which national investors own less than fifty one percent of the equity capital or, if more than that, in the judgment of the competent national agency that percentage is not reflected in the technical, financial, administrative and commercial management of the enterprise.
    • 600. Legal entities – example 3
      Example of combined criteria:
      BIT China - Germany, 2003
      Article 1: Definition
      2. the term "investor" means (b) in respect of the People’s
      Republic of China:
      economic entities, including companies, corporations,
      associations, partnerships and other organizations,
      incorporated and constituted under the laws and regulations of and with their seats in the People’s Republic of China, irrespective of whether or not for profit and whether their liabilities are limited or not.
    • 601. Legal entity – example 4
      Extent of treaty protection:
      US BIT Model, 2004
      Article 17: Denial of Benefits
      2. A Party may deny the benefits of this Treaty to an investor of the other Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Party and investors of a non-Party, or of the denying Party, own or control the enterprise.
    • 602. Admission and Establishment
    • 603. Admission of foreign investment
      • Traditionally, right of States to control and limit addmission. Recent trend towards States deciding to limit this right.
      • 604. Two approaches in IIAs:
      • 605. Admission model: entry in accordance with laws and regulations of the host country: NO LIBERALIZATION
      • 606. Pre-establishment model: right of establishment. National treatment at the pre-establishment stage (approach of western hemisphere, Japan, Korea): LIBERALIZATION : removal of barriers to access
    • Admission model
      • Host country discretion: laws and regulations relating to entry may change
      • 607. Once admitted, foreign investment is granted NT and MFN
      • 608. No exceptions in the treaty: no need.
    • Examples of admission model:
      Australia – India BIT1. Each Contracting Party shall encourage and promote favourable conditions for investors of the other Contracting Party to make investments in its territory. Each Contracting Party shall admit such investments in accordance with its laws and investment policies applicable from time to time. Tanzania – Netherlands BIT (2001) Art 2 Promotion and Protection of Investments“Each Contracting Party shall within the framework of its laws and regulations, promote economic cooperation through the protection in its territory of investments of investors of the other Contracting party. Subject to its right to exercise powers conferred by its laws or regulations, each Contracting Party shall admit such investments.”
    • 609. Pre-establishment model
      • NT and MFN at all stages of the investment, including at the pre-establishment stage: ‘establishment, acquisition and expansion’.
      • 610. Lists of exceptions: all countries have closed sectors or non conforming measures.
      • 611. Mostly negative lists. Very few exceptions (TAFTA)
      • 612. The commitment is made in the Treaty, the national laws must be in conformity with Treaty obligations.
    • Pre-establishment NT and MFN modelCanada-Lebanon BIT
      Establishment of investment Each contracting Party shall permit establishment of a new business enterprise or acquisition of an existing business enterprise or a share of such enterprise by investors or prospective investors of the other Contracting Party on a basis no less favorable than that which, in like circumstances, it permits such acquisition or establishment by: (a) investors or prospective investors of any third state; (b) its own investors or prospective investors.Treatment of Established Investment  1. Each Contracting Party shall grant to investments and to returns of investors of the other Contracting Party treatment no less favourable than that which, in like circumstances, it grants to investments and returns of:  (a) investors of any third State; (b) its own investors. Each Contracting Party shall grant investors of the other Contracting Party, as regards the enjoyment, use, management, conduct, operation, expansion, and sale or other disposition of their investments or returns, treatment no less favourable than that which, in like circumstances, it grants to: (a) investors of any third State; (b) its own investors.
    • 613. Fair and Equitable Treatment
    • 614. 1. Fair and Equitable Treatment
      • Absolute standard (not relative)
      • 615. 3 approaches:
      Stand alone FET
      FET in accordance with the principles of international law
      FET combined with MFN/NT
    • 616. Fair and Equitable Treatment: examples
      Dutch model BIT“1. Each Contracting Party shall ensure fair and equitable treatment of the investments of nationals of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those nationals. Each Contracting Party shall accord to such investments full physical security and protection. …”Kenya – United Kingdom BIT (1999), Art. 2 Promotion and Protection of Investment“(2) Investments of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party. Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of nationals or companies of the other Contracting Party”  
    • 617. Fair and Equitable Treatment: examples
        
      Uganda – Eritrea BIT (2001), Article 3 Treatment of Investment
      (1). Each Contracting Party shall in its territory accord to investments made by investors of the other Contracting Party fair and equitable treatment which in no case shall be less favourable than that accorded to its own investors or to investors of any third state, whichever is the more favourable from the point of view of the investors.
      (2) Each Contracting Party shall in its territory accordinvestors of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investment, fair and equitable treatment which in no case shall be less favourable than that accorded to its own investors or to investors of any third State, whichever of these standards is the more favourable from the point of view of the investor.
    • 618. 2. International Minimum Standard of Treatment
      Content of the clause in US and Canadian treaties
      • Clarification of the standard
      • 619. Explicit reference to international customary law (ICL)
      Relationship with other standards
      • Explicit clarification that the violation of any other obligation of the agreement does not entail the violation of the minimum standard of treatment – Same issue for State Contracts.
    • Fair and Equitable Treatment US model BIT(2004)
      1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.  2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide:  (a) “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and (b) “full protection and security” requires each Party to provide the level of police protection required under customary international law. 3. A determination that there has been a breach of another provision of this Treaty, or of a separate international agreement, does not establish that there has been a breach of this Article.  
    • 620. Expropriation
    • 621. Expropriation protection
      Content of the clause
      Several categories of takings:
      expropriations,
      nationalizations,
      direct or indirect
      Regulatory takings: measures tantamount to expropriation
      Creeping expropriations
      • Conditions for the expropriation to be lawful:
      • 622. Public purpose
      • 623. Non-discrimination
      • 624. Due process of law
      • 625. Compensations
    • Expropriation - compensation
      Possible standards of compensation:
      • The Hull formula (prompt, adequate, effective)
      • 626. Appropriate compensation
      • 627. Different valuation methods: book-value method, discounted cash-flow method,..
      Expropriation and Regulatory Takings: Necessary clarification of the obligation
      • General exception: public health and safety.
      • 628. The right to regulate for public purpose.
    • Expropriation protection: Uganda – Eritrea BIT (2001)
      Article 4 Expropriation (1) Investments of each Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as ‘’expropriation’’) in the territory of the other Contracting Party except for expropriations made in the public interest, on a basis of non-discrimination, carried out under due process of law, and against prompt, adequate and effective compensation. (2) Such compensation shall amount to the fair market value of the investment expropriated immediately before the expropriation or impending expropriation became known in such a way as to affect the value of the investment. The fair market value shall include but not exclusively the net asset value thereof as certified by an independent firm of auditors.
      (3) Compensation shall be paid promptly and include interest at a commercial rate established on a market basis from the date of expropriation until the date of payment.
    • 629. Uganda – Eritrea BIT (2001) cont.
      (4) The expropriated investor shall have a right to prompt review under the law of the Contracting Party making the expropriation, by a judicial or other competent and independent authority of the Contracting Party, of its case, of the value of investment, and of the payment of compensation, in accordance with the principles set out in paragraph 1 of this Article.
      (5) When a Contracting Party expropriates the assets of a Company or an enterprise in its territory, which is incorporated or constituted under its law, and in which investors of other Contracting Party have an investment , including shareholding, the provisions of this Article shall apply to ensure prompt, adequate and effective compensation for those investors for any impairment or diminishment of the fair market value of such investment resulting from the expropriation.
    • 630. Transfers
    • 631. Free Transfer of Funds
      • Two types of transfers: inward and outward.
      • 632. Exceptions
      • 633. BOP safeguards: temporary derogations
      • 634. Transitional provisions: maintaining existing restrictions.
    • Free Transfer of Funds
      South Africa – Mauritius BIT (1998)
      1. Each Contracting Party shall allow investors of the other Contracting Party the free transfer of payment relating to their investments and returns, which shall include in particular, though not exclusively -
      (a) profits, capital gains, dividends, royalties, interest, and other current income accruing from any investment;
      (b) the proceeds of the total or partial liquidation of any investment;
      (c) repayments made pursuant to a loan agreement in connection with investments;
      (d) licence fees in connection to matters in Article 1(1)(b);
      (e) payment in respect of technical assistance, technical services and management fees;
      (f) payments in connection with contracting projects;
      (g) earnings of nationals of the other Contracting Party who work in connection with an investment in the territory of the Contracting Party;
      (h) compensation paid pursuant to the provisions of Articles 4 and 5.
      2. All transfers shall be effected without undue delay in any convertible currency at the market rate of exchange applicable on the date of transfer. In the absence of a market for foreign exchange, the rate to be used will be the most recent exchange rate applied to inward investments or the most recent exchange rate for conversion of currencies into Special Drawing Rights, whichever is the more favourable to the investor.
    • 635. Dispute Settlement
    • 636.
      • Two types of Dispute Settlement mechanisms
      State-to-State: applies only between State partiesto the Agreement.
      • (like the DSU in the WTO, the ASEAN DSB)
      Investor-to-State: allows private investors to submit claims against a host State to international arbitration
      • (eg. NAFTA and BITs)
      Most IIAs contain both types of mechanisms
    • 637. Investor-to-State mechanism
      • Consultations and negotiations (time-period)
      • 638. Most IIAs do not require exhaustion of local remedies
      • 639. In some, resort to local courts precludes subsequent submission to international arbitration: the fork in the road.
      • 640. Direct resort to international arbitration (institutional or ad hoc):
      • 641. ICSID Convention
      • 642. Ad hoc arbitration following UNCITRAL Arbitration Rules
    • Investor-to-State mechanism
      • Constitution of tribunal (as per arbitral rules)
      • 643. Applicable law: IIA’s provisions; law of the host-State; investment contract, rules of international law.
      • 644. ICSID Convention (Article 42):absent agreement between parties, the tribunal shall apply the law of the host State and the applicable rules of international law.
      • 645. Arbitral awards: final and binding, but require exequatur(except in the case of ICSID awards)
      • 646. ICSID Members shall recognize and enforce the awards in their territory as if they were final judgements of a State court
    • NT and MFN
    • 647. Non discrimination: NT and MFN
      • National treatment: grant foreign investors, in like circumstances, treatment no less favourable than the treatment of nationals.
      • 648. Most-favoured-nation treatment: treat all foreign investors alike. No discrimination among foreign investors on the basis of nationality.
    • National Treatment
      1. The application “de jure” and “de facto” of the standard
      • Most agreements do not specifically limit the scope of the national treatment standard only to a “de jure” test. Thus, jurisprudence has found that the standard applies both to “de jure” and “de facto” discrimination.
      • 649. Approach may have a positive effect in fostering discipline in the domestic application of legislation
      • 650. However, it is important to examine administrative practice and existing legislation that may have a “de facto” discriminatory impact on foreign investment.
    • National Treatment
      2. Treatment “in like circumstances”
      Comparison requires a comparator.
      3. Best “in state treatment”
      • When negotiating with countries having federal systems of government, a situation may arise when one subnational unit discriminates among other subnational units from the same country.
      • 651. Important to ensure that the National Treatment standard applies with respect to a regional level of government, treatment no less favourable than the most favorable treatment accorded, in like circumstances, by that regional level of government to investments or investors of the Party from which it forms a part. 
    • National Treatment
      4. Exceptions and reservations to national treatment
      General exceptions based on reasons of public health, order and morals, and national security. Such exceptions are present in most regional and multilateral investment agreements, and also in a number of BITs.
      Subject-specific exceptions which exempt specific issues from national treatment, such as intellectual property, taxation provisions in bilateral tax treaties, prudential measures in financial services or temporary macroeconomic safeguards.
      Country-specific exceptions whereby a contracting party reserves the right to differentiate between domestic and foreign investors under its laws and regulations – in particular, those related to specific industries or activities – for reasons of national economic and social policy. Country-specific exceptions may overlap with subject-specific exceptions.
    • 652. MFN Treatment
      Additional specific issues:
      • The Maffezzini jurisprudence and subsequent cases
      • 653. Free rider issue: is there a free-rider problem in investment policy?
      • 654. REIO and other exceptions: taxation, other investment agreements.
    • Other Issues
      Transparency
    • 655. Other issues
      • Governmental measures: home country measures, host country operational measures (limitation to operations and performance requirements), incentives
      • 656. Entry and sejourn of key foreign personel
      • 657. Transparency
      • 658. Environment and labour
      • 659. Implementation issues: ratification, entry into force, enactment/implementation of treaty obligations into national legislation, management of investment disputes
    • Competencies
    • 660. Competency
      “A bundle of skills and technologies (rather than a single discrete skill or technology) that enables a company to provide a particular benefit to customers” - Hamel and Prahalad 1994, p. 199.
    • 661. It provides consumer benefits
      It is not easy for competitors to imitate
      It can be leveraged widely to many products and markets.
    • 662. Dunning–Kruger Effect
      People reach erroneous conclusions and make unfortunate choices but their incompetence robs them of the metacognative ability to realize it
      Illusory Superiority
    • 663.
    • 664. Consumers Perceptions
    • 665.
    • 666. Innovation
    • 667. What is Zara?
    • 668. Largest Pure Play Retailer
    • 669. Ortega
      Selling
      Zara is not a style of dressing as much as a style of buying, and hence, of selling.
      Producing
      Zara-Inditex has reinvented a form of producing
      Anti-Personalization
      No cult of personality
    • 670. What is the entrepreneur?
    • 671. Groupwork
      Consider the following:
      “Everybody copies everybody, since the bottom line is that inspiration must come from the same source – society itself . . . Success emerges not so much from the ability to imagine creatively, but rather from managing to interpret trends present or observed in the community, and . . . , the ability to convert this into a physical item in just a few weeks”
      To what extend to you agree and disagree
    • 672. “To everything there is a season.”
      Most firms design a 'collection' for an entire season.
      Place a huge order for stocking at the start of the season.
      What do you suppose are their lead-times from design to manufacture to store: days, weeks, or months?
      Months
      H&M is #2, it's 3-5 months from creation to delivery.
    • 673. If you get it wrong, you're hosed
      Challenge
    • 674. Scale
      How many new items Gap & H&M produce in a season?
      2,000-4,000
    • 675.
    • 676. Jim Cramer: Fashion
      Required Clothing
      Reguiired accessory
    • 677. Culture of Permanent Testing
    • 678. Logistics
    • 679.
    • 680. La Coruna warehouse is 5 million square feet = 90 football fields.
      Nine times the size of Amazon's warehouse
      Move about 2.5 million items a week.
      Connected to 14 Zara factories through tunnels with ceiling-mounted rails.
    • 681. Self-Start Production
    • 682.
    • 683. Fast Fashion!
      • Cloth is ironed
      • 684. Products packed on hangers -- no ironing
      • 685. Price tags are affixed
      • 686. Unpack them & they're ready to be sold
    • Is Galacia Important?
    • 687. CwF + RtB
    • 688. Connect with Clients
      CwC
    • 689. Zara admits and is even proud of the fact that many of their creations are inspired by their own customers.
      Customer trends and preferences, along with their reactions to the products in the stores, are observed and communicated throughout the organization, almost in real time.
    • 690. Cool Hunter
    • 691.
    • 692. Managers
      Zara’s store managers.
      Personal digital assistants (PDAs)
      Gather customer input.
      Managers: 70 percent of salaries can come from commissions.
    • 693. The Store Staff
      As soon as the doors close, the staff turns into a sort of investigation unit in the forensics of trend spotting, looking for evidence in the piles of unsold items that customers tried on but didn’t buy. Are there any preferences in cloth, color, or styles offered among the products in stock?
      PDAs are also linked to the store’s point-of-sale (POS) system that captures customer purchase information.
      In less than an hour, managers can send updates that combine the hard data captured at the cash register with insights on what customers would like to see.
      All of this valuable data allows the firm to plan styles and issue rebuy orders based on feedback rather than hunches and guesswork. The goal is to improve the frequency and quality of decisions made by the design and planning teams.
    • 694. The Designers
      Data on what sells and what customers want to see goes directly to “The Cube” (central command of the Inditex Corporation outside La Coruña0), where teams of some three hundred designers crank out an astonishing thirty thousand items a year versus two to four thousand items offered up at big chains like H&M (the world’s third largest fashion retailer) and Gap
      Individual bonuses are tied to the success of the team, and teams are regularly rotated to cross-pollinate experience and encourage innovation.
    • 695.
    • 696. RtB
    • 697. Mandatory feature of the Inditex management model: the replacement of stock at least twice a week
      Zara Tuesday
      New Cool products every tuesday
    • 698. ZARA
    • 699.
    • 700. Market Entry Decisions
      Foreign Market Selection
      Timing & Order of Entry
      Market Expansion Strategies
      Mode of Entry Decisions
    • 701. Choice of Entry Modes
      Exporting
      Direct vs Indirect
      Contractual Agreements
      Licensing, Franchising, etc.
      Equity Based
      Joint Ventures
      WOS
      Strategic Alliance
    • 702. Push
      Encourage your position and current national opportunities
      Pull
      Attractive conditions and host mark
    • 703. Zara Internationalization
      But in general the choice was to move into a country on the basis of the idea that there was a market opportunity, a good location, or sometimes because a foreign party opened the track, sometimes making the offer of investment.
    • 704. Zara Expansion
      Reluctance and trial (1975 to 1988)
      Started opening in Portugal
      Captious Expansion(1989 to 1986)
      one or two similar socioeconomic countries per year to market
      Aggressive expansion (1997 - 2005)
    • 705. Zara Entry Modes
      Subsidiaries
      expensive mode of entry high growth potential business risk countries IE EU
      Joint venture
      large competitive markets
      Franchise
      higher risk countries
    • 706. Strategic partnerships
      Zara is the only member of the group that’s sources all products from company plants
      Other members of the group relying on relationships outsourcing companies or individuals.
      Inditex sells the cloth and recives finished products
    • 707. Acquisition
      Dutti
      Attempt to enter a different segment.
      Different management cultures.
      Difficult transition.
    • 708. Acquisition
      Stradivarius.
      Offensive acquisition.
      Protect the Bershka.
      Similar management cultures.
      Easy integration.
    • 709. Zara International Marketing
      Ethnocentric Strategy
      Geocentric Strategy
    • 710. Franchise
    • 711. Franchise
      Motivation
      Conditions
    • 712. Internationalization
      But in general the choice was to move into a country on the basis of the idea that there was a market opportunity, a good location, or sometimes because a foreign party opened the track, sometimes making the offer of investment.
    • 713.
    • 714. HAARP
    • 715. Silicon Valley
      Silicon Valley is a nickname for the southern part of the San Francisco Bay Area centered roughly on Sunnyvale.
      coined by journalist Don C. Hoefler in 1971,
      It was named "Silicon" for the high concentration of semiconductor and computer related industry in the area, and "Valley" for the Santa Clara Valley.
      Fairchild Semiconductor really started and then fuelled it all
    • 716.
    • 717.
    • 718. One
      WWII The First Electronic War
    • 719. British and American Air War in Europe
      28,000 Active Combat Planes40,000 planes lost or damaged beyond repair:18,000 American and 22,000 British79,265 Americans and 79,281 British killed
    • 720. The German Air Defense SystemThe Kammhuber Line
      Integrated Electronic air defense network
      Covered France, the Low Countries, and into northern Germany
      Protection from British/US bomber raids
      Warn and Detect
      Target and Aim
      Destroy
    • 721. German Air Defense System
    • 722. Himmelbelt
      Local Air Defense
      Network
      • Box ~30 x 20 miles
      • Integrated network
      of radars, flak,
      fighters,
      searchlights
      Radars fed Himmelbett centers
      • Operators worked from rows of
      seats in front of a huge screen
      • Fighters would fly orbits around
      a radio beacon
      – fighter controller talked it to the
      vicinity of the target
      • Fighters would turn on its radar,
      acquire the target, and attack
    • 723. Flak Radar Controlled Anti Aircraft Guns
      15,000 Flak Guns
      400,000 soldiers in flak batteries
      Radar-directed flak to 30,000’
      Fused for time
      Fragmentation rounds
      No Proximity Fuses
      105 mm flak
    • 724. The Electronic Shield
      Electronic Warfare
      Two
    • 725. Harvard Radio Research Lab Signals Intelligence and Electronic Warfare
      Reduce losses to fighters and flak
      Find/understand German Air Defense
      Electronic and Signals Intelligence
      Jam/confuse German Air Defense
      Radar Order of Battle
      Chaff
      Jammers
      Top Secret 800 person lab
    • 726. ELINT Understand German Air Defense
      B-24J flights inside Germany to intercept German radar signals
      Fitted with receivers & displays
      Wire and strip recorders
      Frequency, pulse rate, power, etc.
      50 MHz to 3 GHz
    • 727. Window/ChaffJam Wurzburg
      Strips of aluminum foil
      1/2 Wurzburg frequency
      46,000 packets tossed out by hand
      Each packet contained 2,000 strips
      Automatic dispensers came later
      First used July 1943
      Raid on Hamburg
      Shut down German air defense
      Used 3/4’s of Aluminum Foil in the US
    • 728. Blind German Early Warning Radar
      Put Jammers on Airplanes
      Carpet” AN/APT-2 Jammer
      Confuse Wurzburg radar
      Shut down flak
      Shut down GCI
      5 Watts
    • 729.
    • 730. Fred Terman
      Who Ran this Secret Lab and became
      the Father of Electronic Warfare?
      • Harvard Radio Research Lab
      – Separate from MIT's Radiation Laboratory
      – Ran all electronic warfare in WWII
      – 800 people
      – 1941-1944
      • Director: Fredrick Terman - Stanford
    • 731.
    • 732. Fred Terman
      Stanford Professor of engineering 1926
      encouraged his students, William Hewlett and David Packard to start a company
      Dean of Engineering 1946
      Provost 1955
    • 733. Spook Entrepreneurship
    • 734. Terman Strategy
      Focus on microwaves and electronics
      Not going to be left out of gov’t $’s this time
      Recruits 11 former members of RRL as faculty
      Set up the Electronics Research Laboratory (ERL)
      “Basic” and Unclassified Research
      First Office of Naval Research (ONR) contract 1946
      By 1950 Stanford was the MIT of the West
    • 735. Korean WarSpook Work Comes to Stanford
      • Applied Electronics Laboratory (AEL)
      – “Applied” and Classified Military programs
      – Doubles the size of the electronics program
      – Separate from the unclassified Electronics
      Research Laboratory
      – Made the university, for the first time, a full
      partner in the military-industrial complex
    • 736. Cold War and Research
      The Cold War battlefield moves 500 miles east
      Fear of a “nuclear Pearl Harbor”
      Countermeasures, Elint and Sigint, become critical
      Stanford becomes a center of excellence for the NSA,CIA, Navy, Air Force
    • 737. The Cold War is an Electronic War
    • 738. Stanford Helps Understand theElectronic Order of Battle
      Where are the Soviet radars?
      Consumers; SAC, CIA.
      Details of the radars
      NSA/CIA to contractors
      Periphery of Soviet Union known
    • 739. U-2 Sigint Platform (1956)Stanford and Silicon Valley
      System IV
      150 - 40,000 MHz
      Stanford Electronics Laboratories
      Ramo Woolridge
      E/F Band ELINT recorder (1956)
      A Band ELINT recorder (1959)
      E/F Band Jammer (1959)
      Granger Associates
      Watkins Johnson
      – QRC -192 Elint receiver
      – 50 -14,000 MHz
      Communications receiver
      – 100-150 MHz/3 channel tape recorder
    • 740. Stanford Joins the “Black” World
      Electronics Research Laboratory
      “Basic” and Unclassified Research
      Applied Electronics Laboratory (AEL)
      “Applied” and Classified Military programs
      Merge and become the Systems Engineering
      Lab (SEL) in 1955
      Same year Terman becomes Provost
    • 741. Terman Changes the Startup/University Rules
      Silicon Valley as We Know it Starts Here
      Graduate students encouraged to start companies
      Professors encouraged to consult for companies
      Terman and other professors take board seats
      Technology transfer/IP licensing easy
      Getting out in the real world was good for your academic career
    • 742. Stanford’s Role
      Interaction with industry (via legacy just discussed)
      Research funding and creativity
      Silicon Valley as a nearby planting ground for ideas
      Role of students as inventors, as disseminators, and as part of the workforce
      Encouraging entrepreneurship …
    • 743. Microwave Valley - Components
      Klystrons, Carcinotrons, & Traveling Wave Tubes
      Eitel-McCullough (1934)
      Varian Associates (1948)
      Litton Industries (1946)
      Huggins Laboratories (1948)
      Stewart Engineering (1952)
      Watkins-Johnson (1957)
      Microwave Electronics Co. (1959)
    • 744. 1966
      Hewlett-Packard entered the general purpose computer business with its HP-2115 for computation, offering a computational power formerly found only in much larger computers. It supported a wide variety of languages, among them BASIC, ALGOL, and FORTRAN.
      HP-2115
    • 745. Spook Innovation
    • 746. Radio Dishes Get Funded
      Attach ELINT receivers to Bell Labs
      60’ radar antenna in New Jersey
      Use “matched filter” techniques
      Developed at Stanford
      • Build steerable antenna at Sugar
      Grove Virginia
      • Pay for and build Stanford “Dish”
      Hide relationships via “cover agencies”
    • 747. Project Grab 1960-1962
      ELINT in Space
      No more overflights
      Collect radar emissions from
      Soviet air defense radars
      Built by the Naval Research Laboratory
      Used by SAC for EOB then given to the NRO
    • 748. Microwave Valley - Systems
      Some Stanford Alum’s
      Sylvania Electronics Defense Laboratory (1953)
      Countermeasures, search receivers, converters
      Hired faculty as consultants, including Terman
      GE Microwave Laboratory (1956)
      Granger Associates (1956)
      Electronic Systems Laboratories (ESL) (1964)
      Sylvania EDL director William Perry founder
      Argosystems (1969)
    • 749. Terman and the Cold WarSilicon Valley’s 1st Engine of Entrepreneurship
    • 750.
    • 751. Valley Attracts Financial Attention1st West Coast IPO’s
      1956 Varian
      1957 Hewlett Packard
      1958 Ampex
    • 752. The Rise of Risk Capital
      “The Group” 1950’s
      • First Bay Area “Angels”
      – Reid Dennis
      – William Bryan
      – William Edwards
      – William K. Bowes
      – Daniel McGanney
      ~ 10 deals $75 -$300K
    • 753. Summary
      • Terman/Stanford/Government responsible for
      entrepreneurial culture of Silicon Valley
      • Military primed the pump as a customer for key
      technologies
      – Semiconductors, computers, Internet
      – But very little technical cross pollination
      • Venture Capital turned the valley to volume corporate
      and consumer applications
    • 754.
    • 755. Hewlett Packard and Wozniack
      Steven Paul Jobs, Stephen Gary Wozniak and Ronald Gerald Wayne founded Apple Computer.
      In 1976, Ronald Wayne resigns from Apple Computer with only a one time payment of $80.
      Hewlett Packard grants Gary Wozniak the permission to create the Apple I.

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