Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10

CHAPTER 1 FOUNDATION OF GLOBAL STRATEGY
THE IMPORTANCE OF GLOBAL STRATEGY FOR
INTERNATIONAL FIRMS
1. Many companies started to globalize their business
strategies to gain competitive advantage and due to more
barriersto trade beganto collapse.
2. When your companyoperatesinternationally,itwill engage
in form of business such as exporting and importing that
differfromthose inwhichit engagesdomestically.
3. Physical, social, and competitive conditions differ between
countries and influence the optimum ways to perform
business.
GLOBAL STRATEGY AND ITS DEFINITION
- The business strategies engaged by the businesses,
companies, or firms operating in a global business
surroundingandservingconsumersthroughoutthe world.
- Encompassthe variousdisciplinesof marketing,organization
theory, business strategy, and international management
and centersonmaximizingcompanyperformance.
FUNDAMENTAL ISSUES IN GLOBAL STRATEGY AND THE
EFFECTS OF GLOBALIZATION
1. The absence of an organizing framework
- To integrate the different perspectives in GS, overall
framework must consider the costs and benefit present in
the differentstrategicalternatives.
- Identify the resources to achieve those goals and then
proceed to analyze it, integrating both and come up with
content-richGS.
2. Achieving competitive advantage
- Developedbytakingstrategicmeasurestoreachthe diverse
and often, conflicting goals of the organization in the
optimum way, the organization must achieve efficiency and
be able to innovate and adapt to change by developing
internal capabilities.
- The strategicmissionof managinggloballyistouseeveryone
of the three sources of competitive advantage to optimize
effectiveness, risk and learning all together in a global
business.
3. World Trade Organization (WTO), Foreign Direct
Investment (FDI) andIntellectualPropertyRights(IPR).
- Weaknesses in the way that WTO has been structured by
inefficiently commanding the economy of the weaker
nations by working in a shrouded way in the name of trade
liberalization.
SOURCES OF COMPETITIVE ADVANTAGE FROM A GLOBAL
STRATEGY
1. Economiesofscale fromadmittance tomore customersand
markets. Exploit another country’s resources – labor, raw
materials.
2. Extendthe product of life cycle – olderproductscanbe sold
inlesserdevelopedcountries.
3. Operational flexibility – shift production as costs, exchange
rates,etc. change overtime.

SUMANTRA GHOSHAL OFINSEADproposeda framework:
1. Achieving efficiency in current operations
Sources of competitive advantage
National differences Benefitingfromdifferencesin
factor costs – wages and cost
of capital.
Scale Economies Expanding and exploiting
potential scale economies in
each activity.
Scope Economies Sharing of costs and
investments across products,
marketsand businesses.
2. Managing risks
National differences Managing different kinds
arisingfrommarket or policy-
induced changes in
comparative advantages of
differentcountries.
Scale Economies Balancing scale with strategic
and operational flexibility.
Scope Economies Portfolio diversification of
risks and creation of options
and side-bets.
3. Innovation and learning
National differences Learning from societal
differences in organizational
andmanagerial processesand
systems.
Scale Economies Benefiting from experience-
cost reduction and
innovation.
Scope Economies Shared learning across
organizational componentsin
different products, markets
or businesses.
SCALE ECONOMIES
- Has beenknownforlongtime asa major factorin increasing
profitability and contributing to a firm’s other financial and
operational ratios.
- Is about the benefits gained by the production of large
volume of a product.
- May benefit international firms in gaining competitive
advantage from the perspective of internal and external
economiesof scale.
SCOPE ECONOMIES
- Is relatively a new approach to business strategy, and is
heavilybasedonthe developmentof hightechnology.
- Is linked to benefits gained by producing a wide variety of
productsby efficientlyutilizingthe same operations.

COUNTRIES COMPARATIVE ADVANTAGES STRATEGIES
1. CCA would normally depend on factor endowments (land,
natural resources, labor, size of populations) and created
contributionsthatanationis fortunate enoughtoinherit.
MICHAEL E. PORTER – PORTER’S DIAMOND MODEL
1. FACTOR ENDOWMENT / CONDITIONS
- A situation in the country relating to the tangible and
intangible resources such as knowledge, info structure,
infrastructure,natural resources.
2. RELATING AND SUPPORTING INDUSTRY
- Relatedtothe presence andabsence of supplierandrelated
industriesthatare internationallycompetitive.
- Competitive suppliers and related organizations may
strengthenresearchandinnovationthatleadtocompetitive
advantage.
3. HOME DEMAND CONDITION
- HD is particularly critical in shaping the attributes of the
companies’products.
- The more demanding the home-based customers, the more
pressure will be createdforproductinnovation.
4. STRATEGY, STRUCTURE AND RIVALRY
- The selectionof appropriate strategyplaysimportantrole in
determiningcompetitive advantage inaglobal marketplace.
- The presence of domestic competitors as well as local
competitors forces firms to become more efficient and
innovative and to adopt new technologies and hence can
helpfirmsachieve competitiveadvantage onaglobal scale.
4 ELEMENTS THAT LEAD TO A NATIONAL COMPARATIVE
ADVANTAGES UNDER DIAMOND MODEL:
1. The availabilityof resourcesandskills
2. Informationthatfirmsuse todecidewhichopportunities
to pursue withthose resourcesandskills.
3. The goals of individualsincompanies.
4. The pressure oncompaniestoinnovate andinvest.
GLOBAL STRATEGY AND GLOBAL BUSINESS ENVIRONMENT
- All organizations blend together with their environments,
and this interaction is particularly decisive to crafting
strategiesforthe global firm.
- Global strategy should incorporate all global and regional
issuesastheyeffectstrategyandstrategicmanagement.
STRATEGY AND LOCATION
- Concerns about cultural, institutional, geographical,
economic, technological and developmental distance affect
decisions about where and how to sell products, source
inputsandresourcesandestablishoperations.
- Avoiding hazards and exploiting the benefits of differences
betweenlocationsisthe essenceof global strategy.
GLOBAL STRATEGY AND EMERGING ECONOMIES
- Multinational enterprises from emerging economies are
absorbing established firms in industrial nations and may
well dominateinternationalmergerandacquisitionactivities
inthe near future,whereastraditional globalenterprisesare
facingfundamental changesintheirnonmarketstrategies.

TYPES OF INTERNATIONAL STRATEGY
1. INTERNATIONAL STRATEGY
2. MULTIDOMESTIC STRATEGY
3. GLOBAL STRATEGY
4. TRANSNATIONAL STRATEGY
Pressure for global integration – standardization (use same
strategy). Ex: Coca-Cola (marketing - same around the world) but
differentintaste.
Pressure for national responsiveness – localization (responding
to the national needs).Take considerationstolocal needs.Costmore
but benefitgreater.
1. INTERNATIONAL STRATEGY
- Adoptedwhentheyaimtoleverage theircore competencies
by expandingintoforeignmarket.
- Relyonlocal subsidiariestoadministervaluechainsetbythe
HQs. Ex: McDonalds, Kellogg’s, Google, Haier, Walmart,
Huawei andMicrosoft.
A. BENEFITS
i. Create value by transferring core competencies
and unique productstoforeign businesssectors,
where opponentsare unable tocontend.
ii. Aids the transfer of skills and ideas from the
parentcompanyto subsidiaries.
iii. Works well when an organization has core
competencies that foreign competitors do not
have and when industry conditions do not
demand.
iv. High degree of global integration or local
responsiveness incurs moderate operation
expensesyetearnshighprofits.
B. LIMITATIONS
i. Applying the parent company’s ethnocentric
direction across the board to all foreign nations
can prove to be setback in dealing with foreign
markets. Ex: Google in South Korea and China
facingthreatsfromNaverand Baidu.
2. MULTIDOMESTIC STRATEGY
- Let the local managersto run the organization.
- Unique physical and metaphysical features differentiate
national markets.
- MultidomesticstrategycallsforHQstodelegate authorityto
its foreign subsidiaries. Ex: Johnson & Johnson, Procter &
Gamble (P&G).
A. BENEFITS
i. Delegate authoritytoitsforeignsubsidiaries
ii. Highneedforlocal responsivenessandlowneed
to reduce costsvia global integration.
iii. Minimized political risk given the local position
of the company.
iv. Lower exchange rate and risk givenreducedthe
needtorepatriate fundstothe home office.
v. Greaterprestige givenitsnational prominence.
vi. Higher potential for innovative products from
local R & D.
vii. Higher growth potential due to entrepreneurial
pursuits.

B. LIMITATIONS
i. Customizing products and processes to local
marketinevitabilityincreasescosts.
ii. Decentralizes control to local managers can
collapse the business due to different
managementstyle andvalue chaindesigns.
3. GLOBAL STRATEGY
- Emphasizes on improving worldwide performance through
the sales and marketing of common goals and services with
minimumproductvariation.
A. BENEFITS
i. Emphasize efficient operations and where local
responsivenessneedseitherare non-existentor
can be neutralized by offering a higher quality
product for a lower price than the local
substitute.
ii. Companiestranslateintocompetitiveadvantage
by basingoperationsinthe superiorlocation.
iii. The global strategy directs managers’ attention
to two absolute production and marketing
standards.
B. LIMITATIONS
i. Countries whose markets demand local
responsiveness reduce the attractiveness of the
global strategy.
ii. The cost sensitivity and standardization bias of
global strategy gives MNCs little latitude to
adapt value activitiestolocal conditions.
iii. Disruptive market changes or product
breakthrough can turn a fine-tuned value chain
intoa badlyaimedtarget.
4. TRANSNATIONAL STRATEGY
- Interconnected consumers, industriesand markets requires
an MNC to configure a value chain that can exploit location
economiesandcoordinationvalue activities.
- Focusonestablishingunique experiencesinlocalmarketand
diffuse themthroughoutglobal operation.
A. BENEFITS
i. Spurs the MNE to differentiate its capabilities
from country to country according to prevailing
economic,political,legalandculturalconditions.
ii. Callsuponmanagersto perfectmethodthatcan
take the insightsgainedfromuniqueexperience
in local markets and diffuse them throughout
global operations.
iii. Fine-tuned global integration and local
responsiveness.
iv. Develop the learning capacity to leverage
efficiencies of global integration without
ignoringrisingcallsforlocal responsiveness.
B. LIMITATIONS
i. Difficult to configure, tough to coordinate and
prone to performance shortfalls.
ii. Difficult to reconcile integration and
responsiveness.
iii. Developing a network mindset among
employees, installing the requisite information

systems and navigating the ambiguity of multi-
criteriadecisionsmakingitsexpansive.
DRAWBACKS OF GLOBAL STRATEGY
1. Reduce managementeffectivenessinindividual countries
2. Productstandardizationcanresultinproductthatdidn’tfully
satisfyconsumer.
3. Using uniform marketing campaign may reduce local
adaptation.
4. Integrating competitive moves can further sacrifices
revenues, profits or competitive position in individual
countries.
EMERGENCE OF A NEW TYPE OF GLOBAL CORPORATION
1. Era of “micro-multinationals”– small companies thatare
born global andoperate worldwide fromdayone.
2. The emergence of the “metanational” – thrives on the
process of seeking out uniqueness that it might exploit
elsewhere or that might complement its own existing
operations and probably building competitive advantage by
uncoveringandtransferringknowledge frommanylocations
aroundthe world.
3. Another emerging “cybercorp” – a company that
operatesexclusivelyincyberspace andisnotimpactedbythe
physical geographyof linesonamap.

CHAPTER 2 MANAGING INDUSTRY COMPETITION
INDUSTRY COMPETITION DEFINITION AND OVERVIEW
1. Industry – a group companies that are related in their
primarybusinessactivities,i.e.producinggoodsandservices
that are similartoone another.
2. Adam Smith(1776), model of “perfectcompetition” – price
is set by the “market”, all firms are price takers, and entries
and existsare relativelyeasy.
3. Late 1930s, amore practical branchof economics,“industrial
organization (IO) economics” – emerged whereby its main
feature wasa structure -conduct-performance (SCP)model.
4. Structure – structural qualities of an industry (for example,
the cost of entry/exit)
5. Conduct – the company’saction(ex,productdifferentiation)
6. Performance – the result of firm conducts in response to
industrystructure,whichcanbe classifiedasaverage,below
average and above-average. The model infers that industry
structure confirms firm conduct (or strategy), which in turn,
determinesfirmperformance.
7. The initial objective of IO economics was not to help firms
compete, rather, it was to help policymakers better
understandhowfirmscompete in order to fittinglyregulate
them.
FIVE FORCES FRAMEWORK BY MICHAEL PORTER
1. RIVALRY AMONG EXISTING COMPETITORS
2. THREATS OF NEW ENTRANTS
3. BARGAINING POWEROF SUPPLIERS
4. BARGAINING POWEROF BUYERS
5. THREATS OF SUBSTITUTE PRODUCTS
1. RIVALRY AMONG EXISTING COMPETITORS
- The larger the numberof firms,the more rivalrywill exist.
- Competitors that have similar size, market influence and
productoftenvigorouslycompete witheachother,especially
if there isno productdifferentiation.
- Happens in commercial enterprisesthat produce high value
andluxurygoodsthatare acquiredrarelylike mattressesand
motorcycle.
- The level of capacity utilization, as new capacity has to be
added in large percentages in certain industries, and this
bringsaboutintense rivalrye.g.shippingcompanies
- Slow industry growth or decline makes competition more
desperate,oftenusingnewcompetitive idease.g.fastfood.
2. THREATS OF NEW ENTRANTS
- Reputable firmsin industry (incumbents) alsohave a vested
interestinkeepingpotential brandnewentrantsout.
- Due to the lucrative, above average returns some
incumbents gain, new entrants are inspired to enter an
industry.
- 5 elementslinkedtohighentry barriers:
i. Incumbents enjoy scale-based low cost advantages
(economiesof scale)
ii. Proprietary knowledge – patents, maybe too costly
for entrantstoinvestnewthings.
iii. Know-how – knowledge and expertise of how to
make products and serve customers. New entrants
typically are not privy to such knowledge and
understandsthe customers.
iv. Good access to raw material and distribution
channels– supplierswillgivegoodoffers/discounts

to incumbents but not to the new entrants due to
newtrack records.
v. Real-estate locations – incumbents able to choose
and occupy good locations but new entrants maybe
forcedto pay higherrentforsimilarlocations.
vi. Product differentiation – incumbent manage to
build brand equity through advertising and
promotionwhichleadtocustomerloyalty.
3. BARGAINING POWER OF SUPPLIERS (BPS)
- Is their capability to raise price and/or decrease value of
goodsand services.
- 4 conditionssupportand leadtostrong bargainingpowerof
suppliers:
i. If a fewfirmsrule the supplyindustry,theycouldbe
the upperhand.
ii. BPS increase tremendously if they provide unique,
differentiatedproductswithfewornosubstitutes.
iii. Suppliers can exercise strong bargaining power if
the local firmsare notimportantcustomers.
iv. Forwardintegration –as supplierscanincrease their
bargainingpowerif theyare willingandabletoenter
the focal industry.
v. Powerful suppliers can affect the profits of firms in
the focal industry.Firmswill havetostrengthentheir
own BP by reducing their dependence of certain
suppliers.
4. BARGAINING POWER OF BUYERS (BPB)
i. Firms in the main industry are essentially suppliers
e.g.automobile componentsuppliers.
ii. Buyers can expand their bargaining power if
products of an industrydo not produce cost savings
or add value forbuyer.
iii. Buyerscanhave strongBPif theypurchase standard,
undifferentiatedproductsfromsuppliers.
iv. Economic constraints allow buyers to increase their
BP.
v. Backwardintegration –buyersmayenhancetheirBP
by enteringthe mainindustry.
5. THREATS OF SUBSTITUTES
- Substitutesare normallyderivedfromdistinctive businesses
that manage to fulfillconsumers’necessitiesandneeds.
- If substitutes have better-quality,function and value when
contrasted to existing products, they may swiftly come out
to draw a hefty size of customers. E.g. E*trade, Ameritrade,
and Scottrade vsMerrill Lynch.
- Substitutes can also cause critical threats if switching costs
are low. E.g. consumers practically do not have to pay
additional cost when switching from sugar to artificial
sweeteners such as NutraSweet or Equal. Both are readily
available atanyretailer.
GENERIC STRATEGIES BY PORTER
1. COST LEADERSHIP
2. DIFFERENTIATION
3. FOCUS
4. SPEED

1. COST LEADERSHIP
- Many companieswilladopt.Configureandcoordinate supply
chain.
- Primarily shows that a firm’s value proposition of how to
battle successfullyonminimizingcostsandmaximizingprices.
- Offering the same product value at a lower price has a
propensity to draw many more customers into buying the
products.
- A cost leader frequently positions its product to target
customersfor the mass-marketwithmodestdifferentiation.
E.g. Walmart
A. STRENGTH
i. Low-cost advantages lessen the possibility of
pricingpressure frompowerfulbuyers.
ii. A low cost producer must find ways to reduce
the attractive lookof a substitute product.
iii. Cost disparityregularlydescendsovertime.
B. WEAKNESSES
i. The threat of being outcompeted on costs
constantlypresents.
ii. Costleadersmayinadvertentlycreate trade-offs
that compromise the value that customers
perceive in a product when they persistently go
all out to cut prices.
2. DIFFERENTIATION
- Centersonthe mostproficientmethodtotransferitemsthat
clientsobserve asvaluableandspecial.
- Differentiators’ would normally target customers in well-
definedandsmallersegmentswhoare eagertopaypremium
costs.
- Customers are willing to pay more if the differentiated
products are perceived off having unique features, such as
prestige or status symbol,quality,sophistication,andluxury
e.g.BMW/AUDI cars, Ritz CarltonHotel andetc.
- Different clients = different expectation = different
perceptionsondifferentquality.
A. STRENGTH
i. Competition will be diminished each time a
company reinventedanddifferentiateditself.Ex.
Mercedes-Benz is not going to compete with
Proton.
ii. Buyers tend to be not too sensitive to prices
especiallyforunique products.
iii. It is difficult for new entrants to compete with
loyal customersthatgo forspecificbrands.
iv. Imitation narrows perceived differentiation,
renderingdifferentiationmeaningless.
B. WEAKNESSES
i. The differentiator may not be able to maintain
itsleadershipindifferentiationinthe longterm.
ii. The differentiator has to deal with persistent
effortsof aggressive imitation.
3. FOCUS STRATEGY
- Was drivenbythe needsof a specificsegmentorniche of an
industry. The segment or niche by type of customer,
geographical marketorby productline.
- This segment is so unique and usually is served by a much
focusedcompany.Mostcompetitorschoosetostayoutfrom
thissegment.
- A focused firm is either a specialized differentiator or a
specializedcostleadere.g.Ferrari,AirAsia,etc.

4. SPEED
- Has started to be noticed by many businesses particularly
those that wanted to foray into a foreign market and
compete ata global scale.
- Explainsthe time lineneededforafirmtomarketitsproduct
or servicesandreachthe customers.
- Ex. MP3 players andiPod
- Speed-BasedStrategies:
- Rapid responses to customer request or market and
technological changes are important strategy for a firm to
gaincompetitive advantage.
i. Speedisa part of differentiation
ii. It involvesmore thanjustbeingunique
iii. Consistsof providingarapidresponse toa customer
demand on current products, acceleration new-
product development or enhancement, adjusting
productions processes promptly and swiftly making
decisions.
iv. Has been seen as a guaranteed promise for
companiestoedge upagainsttheircompetitors.
- Competitive advantages:
A. Customer responsiveness
i. Many consumers have encountered plenty of
delays,frustrationandhassle whendealingwith
variousbusinessesfromtime totime.
ii. Consumerswantrapidresponse andsolutionsto
mistakes or problems. Communication is
important.
B. Product development cycle
i. Japanese automakers are well known as
championsinreducingthe time takentomarket
a product and shortening the product
development cycles by focusing strongly on the
concepttime (Justintime -JIT)
ii. It normally takes quite sometime to conceive,
prototype, produce and market totally new
vehicle.
PRESSURES FOR GLOBAL INTEGRATION
1. GLOBALIZATION OF MARKET
- Due to convergence of consumers’ tastes, preferences,
lifestylesandglobal buyingpatterns,strategies,suggestthat
consumersworldwideseekglobal productswhethertheyare
Apple iPods,Samsungplasmascreens,Facebookconnections,
Starbucksespressos, Google searchersorZara blouses.
2. EFFICIENCY GAINS OF STANDARDIZATION
- Standardization is the handmaiden of globalization,
encouragingsupplyconditionsthatproduce volumesof low-
cost, highqualityproducts.
- That is standardization is the push dynamic that converge
consumerpreferences.
THE BENEFITS OF STANDARDIZATION TO THE VALUE CHAIN
1. CONFIGURING ADVANTAGES
i. Minimizes differences in operating procedures
amongvaluesactivities.
ii. Providesstandardstoimprove qualityandreliability
of value-chainperformance.
iii. Drives down the production costs of higher-quality
products.
iv. Increase competition among suppliers in providing
inputsor supportservices.

v. Simplifies agreements with join-venture partners
and alliance members.
2. COORDINATION ADVANTAGES
i. Optimizes routinescoordinationprocedures
ii. Improves communication by lowering the
transaction costs of information gathering,
negotiatingandmarketplanning.
iii. Promotes systematic dissemination of ideas and
highlightsopportunitiesforcollaborations.
iv. Facilitates cooperation among dispersed units by
settingstandardsof credible knowledge.
PRESSURES FOR LOCAL RESPONSIVENESS
1. CONSUMER DIVERGENCE
- Divergences in consumer preferences across countries
necessitate locallyresponsive value chains.
- Local responsivenesstakesinmanyforms.
- Ex. Adapting marketing practices to consumption patterns
(AUS – large package in size, JPN – smaller size, single-unit
size inpoorercountries)
- Adaptingtothese sortsof local preferencesspurscompanies
tosacrifice degreesof globalstandardization,aresponsethat
requiresfine-tuningthe configurationof valuesactivities.
2. HOST-GOVERNMENT POLICIES
- Differences in policies among host-country governments
contribute togreatvariabilityinpolitical,legal and economic
situationsinvariousmarkets.
- Policiessuchastrade protectionism,local contentrules,and
national product standards require some degree of local
responsiveness and counterbalance the policy shifts toward
privatization, economic freedom, legal uniformity, and
deregulationthatencourage standardization.

CHAPTER 3 LEVERAGING RESOURCES AND
CAPABILITIES
UNDERSTANDING RESOURCES AND CAPABILITIES
1. Most firms have a bundle of productive resources and
capabilities.
2. Resources can be defined as tangible and intangible assets
that a firmcan utilize tostrategize itsbusiness.
3. The best way to measure them is through organizing them
into 4 categories:
i. Financial resources and capabilities – the company
financial reliability for example generating internal
fundsor raisingexternal capital.
ii. Physical resources and capabilities – location of
plants, offices, and equipment and access to raw
materialsanddistributionchannels.
iii. Technological resourcesand capabilities– abilityto
invent and create patterns, trademarks and
copyrights.
iv. Organizational resourcesandcapabilities–planning,
command, control, and structure systems in an
organization.
EXAMPLE OF INTANGIBLE RESOURCES AND CAPABILITIES
1. Human – typically are able to generate knowledge, trust be
able toobserve talentandunderstandorganizational culture.
2. Innovation– skillsandassetsforacompanytogenerate new
ideasthroughresearchand developmentandinventingnew
waysof doingthings.
3. Reputational resourcesandcapabilities –companyabilityto
develop and leverage its reputation and image as the best
place to work or the best socially responsible company.
Reputations is important indicator that signal a company
workculture and competitivenessprocess.
WHAT IS THE VALUE CHAIN?
- The set of linked value-creating activities the company
performstodesign,produce,market,distribute andsupport
a product.
- Value-chain analysis helps managers understand the
behavior of costs and existing and potential sources of
differentiation.
- Separates a firm into:
i. Primary activitiesthatcreate anddelivertheproduct.
ii. Support activitiesthataidthe individualsandgroups
engagedinprimaryactivities.
A. PRIMARY ACTIVITIES OF THE VALUE CHAIN
i. Product design – the basis of the firm’s advantage
that sets the function,characteristicsandaesthetics
of the productor process.
ii. Operations – activities that transform inputs into
finished products, issues of concern include raw
material procurement,sourcingcomponents,supply
chains, plant location, manufacturing process, parts
productionandassembly.
iii. Marketing – informing buyers and consumers
about products and services. Encouraging
consumption by applying the marketing mix,
developing sales force, devising packaging scheme,
definingthe brandandadvertising.

iv. Outbound logistics – the task of moving the
finished products from operations to wholesalers,
retailers or the final consumers. Issues of concern
include demand chains, channels, inventory,
warehousingandtransportation.
v. Service – customer support in term of installation,
after-salesservice,complaintshandling,andtraining.
Key activities include warranty, captive or
independent services networks, market coverage
and speedof response.
B. SUPPORT ACTIVITIES OF THE VALUE CHAIN
i. Material and equipment – management of the
procurement, transportation, storage, and
distributionof materialsandequipmentnecessaryto
conduct primaryactivities.
ii. Human resources management – recruiting,
developing,motivatingandrewardingtheworkforce
of the company.Supervisinglabor-relationsactivities.
iii. System and solutions – managing information
processing and the development of specialized
knowledge of primary activities. Issues involve
management information system and process
automation, along with integration of relevant
technologies such as telecom, wireless and cloud
systems.
iv. Infrastructure – general management functions
that enable day-to-day operation in the company.
Activities include accounting and finance, legal and
regulatoryaffairs,safetyandsecurity,qualitycontrol,
and otheroverheadfunctions.
CONFIGURATION: USING THE VALUE CHAIN
- The way in which managers arrange the activities of the
serviceslikecall centers,applicationprocessingandfinancial
consolidation, can be digitizedand hence, located virtually
anywhere.
- Value chains identifythe format and interactions between
differentactivitiesof the company.
A. MACRO COST FACTORS
i. Differences in wage rates, worker productivity,
inflation rates, and government regulations –
among the host factors that shape
macroeconomics – means costs conducting
activitiesvaryfromcountryto country.
B. CLUSTER EFFECTS
i. Industry cluster – a system of businesses and
institutionsengagedwithoneanotheratvarious
levels.
ii. A particularindustrygraduallyclustersmore and
more related value creation activities in a
specificlocation.
iii. Are geographic concentration of competing,
complementary or interdependent firm and
industries that do business with each other and
share overlapping needs for talent, technology
and infrastructure.
C. LOGISTICS
i. Entails how companies obtain, produce and
exchange material and services in the proper
place and in proper quantities for the proper
value activity.

ii. Conductingbusinessacrossthe worldopensthe
potential forhightransactioncosts.
iii. Minimizing exchange expense by efficiently
configuring the location of the value activities is
a source of competitiveadvantage.
D. DIGITIZATION
i. Involves converting an analog product into a
stringof zerosandones.
ii. Productslike software,music,andbooksas well
as services can be digitized and hence, located
virtuallyanywhere.
iii. Equipped with networked computers, workers
can move goods and services anywhere in the
worldat a negligible costandcomplication.
E. ECONOMIES OF SCALE
i. A situationwhereinafirmdoublesitscumulative
output yet total cost less than doubles due to
efficiencygains.
ii. Reductions in the unit cost of a product result
from the increasing efficiency that comes with
largeroperations.
F. BUSINESS ENVIRONMENT
i. Companies normally try to configure value
chains whether to access or avoid particular
countrybasedon itsbusinessenvironment.
ii. Companies would weigh various opportunities
to streamline value activitiesand improve cost
competitiveness.
COORDINATION: USING THE VALUE CHAIN
- Itisthe waythatmanagersconnectthe activitiesof thevalue
chain.
- In a global context: the specification of how pieces move
aboutthe global game board.
- The essence of management and is implicit and inherent in
all functionsof management.
- Several factor influence value chaincoordination:
1. NATIONAL CULTURES
2. LEARNING CURVE
3. OPERATIONAL OBSTACLES
4. SUBSIDIARY NETWORKS
1. NATIONAL CULTURES
i. The globalizationof acompany’svaluechain –design,
Finland, inputs sourced, Brazil, production, China,
distribution,USA,services,Mexicopressesmanagers
to understand how foreign cultures influence
coordination.
ii. Also impose hurdles in coordinating a transaction
fromone stage of the value chainto another.
iii. Units anchored in individual versus collectivist
cultures may disagree over information sharing or
collaborationresponsibilities.
2. LEARNING CURVE
i. Asmanagersuse andimprove coordinationpractices,
their increasing proficiency improves the
performance of the value chain.
ii. Managers learn by recurring experiences how to
transfer best practice from country to country,

therebygaininginsightsofthe valuechainasawhole
insteadof a collectionof parts.
iii. Ex.AnMNEmayhave factoriesindifferentcountries,
such as Japan,Mexico whichmanufacture the same
productapplydifferentproductionphilosophies.
3. OPERATIONAL OBSTACLE
i. Operating internationally inevitably runs into
communication challenges because of time zones,
differinglanguagesandambiguousmeanings.
ii. Companies rely on browser-basedcommunications
methodstocoordinate thehandoffsfromlinktolink.
iii. The thinking goes that electronically linked
producersandretailerscanlowercoordination costs
throughoutthe value chain.
iv. Electronic transactions boost efficiency by reducing
intermediary transactions and the associated
unneededcoordination.
4. SUBSIDIARY NETWORKS
i. The growing prevalence of social networks provides
perspectivesformanagers to betterunderstandthe
dynamicsof theirsubsidiarynetwork.
ii. Managers coordinate the value chain so that it
enables efficient transactions and ideally fortifies
core competenciesthroughoutthe global network.
iii. The advent of social networks, such as LinkedIn,
Facebook.
iv. Network dynamics show that workers are more
inclined to communicate and collaborate with
simultaneously contributing and participating in
coordinatingthe value chain.
THE VRIO FRAMEWORK
- Barneyand Hesterly (2006),describe the VRIOframeworkas
a good tool to examine the internal environmentof afirm.
- VRIO stands for 4 questionsone must ask about a resource
or capability to determine itscompetitive potential:
1. THE QUESTION OF VALUE
- Does a resource facilitate a firm to develop environmental
opportunity,and/orneutralizeanenvironmentalthreat?
2. THE QUESTION OF RARITY
- Is a resource presently ruled by only few competing firms
creating dominant power of suppliers? Are the resources
used to make the products/servicesor the product/services
themselvesexceptionallyuncommonandirreplaceable?
3. THE QUESTION OF IMITABILITY
- Do firms without a resource stumble upon difficulty on a
coast in obtaining or developing it? Will companies find it
difficulttoimitate the products/services?
4. THE QUESTION OF ORGANIZATION
- Are a firm’s other policies and procedures organized to
maintain the utilizationof its valuable, rare, and costly-to-
imitate resources?

CHAPTER 4 EMPHASIZING INSTITUTIONS, CULTURES
AND ETHICS
UNDERSTAND THE CONCEPT OF INSTITUTIONS, THEIR
FUNCTIONS AND ABILITIES TO REDUCE UNCERTAINTY
1. Defined as regulatory, normative, and cognitive structures
and activities that provide stability and meaning to social
behavior.
2. Institutions = a platform to set the ground rules to govern
the interactioninanorganization.
3. Organization = people (employees) who are pursuing
commondeterminationinbusinessorgovernment.
4. An institutional framework that governs individual and firm
behavior is made up of formal institutions and informal
institutions.
A. FORMAL INSTITUTIONS
i. Iswhere the governmentenactandenforce laws,
regulations and rules e.g. copyright laws, IPR,
competitionpolicyandcontractlaws.
ii. Business must abide with these rules and
regulation.
iii. Any violation of government laws is subject to
actionthat leadsto prosecution.
B. INFORMAL INSTITUTIONS
i. Not a pre-establishedsetof rulesthatindividual
and firm must abode but it is more of norms,
cultures and ethics that governs how they
behave.
ii. e.g. inthe contextof culture,Japanesewhomare
known for their work culture practices e.g.
Honne and Tatemae.
iii. Honne = one’strue feeling,true desiresandtrue
opinions
iv. Tatemae = behaviors and opinions displayedin
public.
5. It can be concludedthattheykey functionof institutionisto
minimize risks associated with doing business by reducing
the uncertainties.
6. Business uncertainty can be the results of economic and
political uncertainties.
7. Economic uncertainty = relates for example the failure to
complete transactionsasinterpretedincontracts.
8. Political uncertainty =includesanychangesinthe political
environmentthatcan affectbusinesslong-termplanning.
INSTITUTION-BASED VIEW
2 Main propositions:
1. Managers and firms consciously pursue their interest
and strategies within institutional constraints.
i. E.g. firms pursue counterfeiting strategies as their
strategic choice as there are weak institutional
environment in whichthere are weakprotection on
intellectual propertyrights.

2. Combinations of formal and informal institutions are
supposed to govern firm behavior.
i. When formal institutions fail to lead firm to achieve
competitive advantage, firm will then turn to
informal institutiontoreduce uncertainty.
ii. This informal institution in commonly refers to
political resources in which firm rely on political
influencetogaincompetitiveadvantage.
THE STRATEGIC ROLE OF CULTURE
1. Culture – the collection of values, beliefs, behaviors,
customs and attitudes that differentiate one society from
another.
2. The collective programmingof the mindwhichdistinguishes
the members of one group or category of people from
another.
3. Not inherited but is learned by people and encouraged by
societiesandgovernment.
4. Not static, it changes as society undergoes change, new
tradition may be introduced and inculcated within the
society.
PROBLEMS IN DEALING WITH CULTURE DIFFERENCES
4 Cultural variables that affect company to adjust:
1. COMPANY AND MANAGEMENT ORIENTATION
- 3 cultural orientations:
A. Ethnocentrism
- A belief thatone ownwayof doingthingsisthe best,andwill
not seektoadapt to local culture practices
- They tend to project their values on others and see foreign
culturesasodd or of little ornovalue tothem.
B. Polycentric
- A belief thatfirmmustseektodothingsthe waylocalsdo.
- Followsthe local culture
C. Parochialism
- A belief that the only way to do something is the way it is
done inone’sownculture.
2. HOST SOCIETY ACCEPTANCE
- It is much easier for firm to succeed in foreign land should
the hostcountry isreceptive toforeignwaysof doingthings.
- Ex, the introduction of new product, technologies or
operatingprocedures.
3. DEGREE OF CULTURAL DIFFERENCES
- Some countries are similar to other countries and share
many common characteristics such as language, religion,
geographiclocationandlevel of economicdevelopment.
4. ABILITY TO ADJUST TO FOREIGN CULTURE
- Inabilitytoadjustto foreignculture issometimesassociated
withculture shock.
- i.e., the frustration of having to adjust to vast different
culture andexpectations.
IMPACT OF CULTURE ON BUSINESSES
1. Cultural playsa critical role for firm whenenteringa foreign
market.
2. Most common mistake done by firms is the inability to
understanddifferentculture whichmaycause a devastating
effect.
3. Cultural sensitivity training – can help to avoid culture
blunders.

4. Cultural sensitivity – a state of heightened awareness for
the valuesandframesof reference of the hostculture.
5. Managerscan use varietyof well-knownframeworksthatare
useful inunderstandingthe manydimensionsof culture.
6. E.g. Hofstede culture dimension,FonsTrompenaar’sculture
dimension,the GLOBEstudy.
THE STRATEGIC ROLE OF ETHICS
1. Ethics – the principles of what is right and wrong that
individual and firm use to make strategic choices to guide
theirbehavior.
2. Business ethics – the acceptedprinciplesof rightor wrong
governingthe conductof businesspeople.
3. Ethical strategy –a strategy,or course of action, that does
not violate these acceptedprinciples.
4. Code of ethics/conducts – outlined what can or cannot be
done withinaparticularsetting.
IMPACT OF ETHICS
3 different views:
1. Positive view – suggestthat firmsare self-motivatedtoact
and behave ethically regardlessof any social pressure to do
so.
2. Negative view –arguesthatfirmisa followerinwhichthey
jumpontothe “bandwagoneffect–followingwhatothersdo”
under social pressure to appear more legitimate without
necessarilybecomingmore ethical.
3. Instrumental view – maintains that ethical behavior is a
useful instrumentthatcanleadto firmprofitability.
ETHICS IN INTERNATIONAL BUSINESS
3 Guiding principles:
1. RESPECT FOR HUMAN DIGNITY AND BASIC RIGHTS
- Basic rightsinclude matterspertainingtohealth,safety.
- The needfor educationinsteadof workingat the youngage
and this should determine the absolute, minimal ethical
thresholdsforall operationsaroundthe world.
2. RESPECT FOR LOCAL TRADITIONS
- It suggests for cultural sensitivitywhen dealing with foreign
traditions.
- E.g. nepotism or hiring employees’ children and relatives
rather than qualified applicants is illegal according to U.S.
equal opportunitylaw.
3. RESPECT FOR INSTITUTIONAL CONTEXT
- Thiscallsfor careful understandingof local institutions.
- Establishingacode of conduct that ban briberyislessuseful
unless supplemented with specific guidelines on the scale
and scope of locallyappropriate giftgiving.

CHAPTER 5 GLOBAL COMPETITVENESS DYNAMICS
WHAT ARE COMPETITVE DYNAMICS AND COMPETITOR
ANALYSIS?
1. One of the strategic decisions a firm must pursue when
enteringaforeignmarketconcernsthe timingof entry.
2. Certain issues need to understand in discussing strategic
decision:
- Why does a firm pursue certain strategies and not the
alternatives?
- Consequently, how do other respond to the strategies
pursued?
- What are the performance outcomes of these actions and
responses?
COMPETITIVE DYNAMICS
1. Refertoactionsand responses takenbycompetingfirms.
2. In this competitive global business environment, firms
continuously seek to gain competitive advantage over the
other.
3. A firm’sstrategytoenhance theircompetitivenesswillresult
inresponse andactionsby others.
4. Firms must be able to identifyand predict how competitors
will respondtotheirinitiatives.
5. Ex: firms that want to be a “first-mover” must be prepared
with the possibility of others following and rivals being able
to become betterthanthem.
COMPETITIVE ANALYSIS
1. Givesa firma strong marketunderstanding.
2. It refers to the assessment of the strength and weaknesses
of currentand potential competitor.
3. Alsoreferstothe abilityof firmstounderstand of theirown.
4. By incorporating competitor analysis as part of a firm’s
strategyformulation,firmsare able to adapt and buildtheir
own strategies to be able to compete effectively, improve
performance,andgainmarketshare intheirbusiness.
COMPETITION LEADING TO ACTION AND RESPONSE
STRATEGIES
1. Military analogy is applied in business because the
marketplace is seen as a battlefield characterized by
aggressive competitionbetweenfirms.
2. Terms like “price war”, “attack”, “counterattack” are
commonstermsusedinmilitary.
3. Businessfirmscompete overmarket.
4. Global firm may compete in multimarket known as
multimarketcompetition.
5. Multimarket competition exists whenthe firm is competing
with the same rival in multiple markets. Ex: both Coca Cola
and Pepsi presentinalmosteverymarketinthe world.
6. Firm must recognize the capability of rivals to strike back in
multiple markets and this multiple market competition may
leadto reductionof competitionintensityamongrivals.
7. Mutual forbearance – reduction of competition intensity.
Leadingtotolerance andself-controlamongrivalswithinthe
industry.

COMPETITVE DYNAMICS MODEL
- A comprehensive model on competition from the
perspective of “action”and“response”asstrategy.
- This model is basedon 3 perspectiveswhich are:
- 1. Industry-basedconsiderations
- 2. Resource-basedconsiderations
- 3. Institutional-basedconsiderations
1. INDUSTRY-BASED PERSPECTIVE
- The basis of IBP using Porter’s 5 Forces is the rivalry among
existingfirmsinthe industry.
- Competition may eventually lead to devastating effect for
the entire industry,firmsmayresorttocollusion(agreement)
to reduce the effectof competitiononfirms.
- IBP focuses on – nature of collision (tacit and explicit),
industry characteristics that lead to collusion and prisoner’s
dilemma.
- A. Collusion
- Referstocollective attemptstoreduce competition.
- i. Tacit collusion
- referstoanindirectinitiativebyfirmstoreduce competition.
- Occurswhenthe firmssignaltheirintentiontootherindustry
players to reduce output in order to maintain pricing above
competitivelevel.
- Ex: mutual forbearance
- ii.Explicit collusion
- Referstoa directmove byfirmsto reduce competition.
- Occurs where industryplayersdirectlynegotiate onmatters
to pertaining output, pricing and divide market to reduce
competition.
- Formation of cartel = an entity consists of existing industry
players who agree to fix output and pricing to safeguard
market.
- Also known as trust = members have to trust each other to
honortheiragreement.
- B. Prisoner’sDilemma
- Industry players may agree to set pricing in an attempt to
reduce competition.
- Although industry players have prior agreementto fix price,
theystill have strongincentivestocheat.
- The ultimate effect is both parties will suffer from weak
performance.
- BASIS FOR COLLUSION – INDUSTRYCHARACTERISTICS
- Industrybasedconsideration
- Collusionhappenswhenindustryplayersforeseethatfurther
competitionisnotgoodforthe firmsandthe entire industry.
- Hence, they resort to collective agreement to preserve
marketthroughcollusion.
- Industry characteristics and possibilityof collusion vis-à-vis
competition
COLLUSION POSSIBLE (UNLIKELY COMPETITION)
- Few firms (high
concentration)
- High frequency,
lowvalue orders
- Existence of an
industryprice leader
- Friendly social
relationships among rival
managers
- Homogenous
product(similar)
- Highentrybarriers
- Stability of demand,
supply andtechnology
- High market
commonality (mutual
forbearance)

COLLUSION POSSIBLE (UNLIKELY COMPETITION)
- Many firms (low
concentration)
- Low frequency,
highvalue orders
- No industry price
leader
- Distant social
relationships among rival
managers
- Heterogenous
products(various)
- Low entrybarriers
- Rapidly growing
demand, supply and
technology
- Lack of market
commonality (no mutual
forbearance)
- Factors that enable possible collusion:
- 1. Fewfirms (highconcentration)
- The possibility of rival firms to collude depends on the
numberof firmswithinanindustry.
- Higherconcentrationreferstothe existence ofonlyfewfirms,
whereaslowconcentration referstomanyfirms.
- The higher the concentration the easier it is to organize
collusion.
- 2. Existence ofan industryprice leader
- 3. Homogenousproduct
- Has a tendency to collude as they are competing on price
rather thanproduct differentiation.
- Competingonprice will leadtoaruthlessimpact
- 4. Stabilityof demand,supplyand technology
- If there is a rapid demand, supply, technology, collusion is
lesslikelytohappenasit leadstogrowingmarketshare.
- 5. High frequency,lowvalue orders
- 6. Friendlysocial relationshipsamongrival managers
- Leads to a better chance that they will be able to reach a
collective agreement pertaining to industry output and
pricing.
- Ex: if managers among rivals were fromthe same university
or from the same social club, it is more convenient for
collusiontotake place.
- 7. High entry barriers
- Like the airlines industry is more likely to collude than low
entry barriers like restaurants as new entrants may ignore
the existingindustryorder.
- 8. High market commonality(mutual forbearance)
2. RESOURCE BASED CONSIDERATION
- Based on VRIO framework, resource familiarity that lead to
competitive advantage that enables firms to engage in
strategicactionsand compete successfully.
- A. Value = Inthe contextof competitivedynamics,the ability
to attack in multiple markets causing rivals to become
vulnerable isconsideredvalue.
- B. Rarity = firms with rare assets are generating significant
advantage.
- C. imitability= strategythat is highlyimitable posesariskto
firms. Hence, firms with inimitable, complex strategies, and
able to move quicklyoftenhave betterfinancial andmarket
performance.
- D. Organization = some firms are organized to withstand
competition while others may have to opt for collusion. A
more centrallycoordinatedfirmmayengageincollusionwith
a looselycontrolledfirm.
- E. Resource Similarity = firms with relatively similar
resources are likely to possess similar strengths and
weaknesses.

3. INSTITUTION-BASED CONSIDERATION
- Understandingthe role of institutions-basedviewleadtothe
recognitionthatfree marketsystemisnotnecessarilyfreein
that institution may govern competitive dynamics in
domesticandinternationalcompetition.
- A. Formal InstitutionGoverningDomesticCompetition
- Refers to competition policy = determines the institutional
mix of competition and cooperation that give rise to the
marketsystem.
- Commonly used, antitrust policy = this policy is designed to
fight against the issue of monopolies, cartel and trust and
usedwidelyinUSand otherdevelopednations.
- The focal point of competition/antitrust policy focus is
pertainingto the issue of pricingwhich include:
- i.Collective PricingSetting= it iswhere the collusionparties
setpricesat a level higherthanthe competitive level.
- ii.Predatory pricing = isdefinedbyUSlawsas
- a) settingpricesbelowcostsinthe shortruntodestroyrivals,
- b) intending to raise prices to cover losses in the long run
aftereliminatingrivals.
- iii. Extraterritoriality = is imposing one’s laws to other
countries.
- B. Formal InstitutionsGoverningInternational Competition
- i. Dumping
- definedassellingbelowcostinforeignmarketand planning
to raise pricesaftereliminatinglocal rivals.
- 4 possible outcomesofantidumpinginvestigation:
- 1. If foreign firm fail to provide the requested data,
authorities will use data provided by the accusing firm as
evidence,thatgive accusingfirm a betterchance to winthe
case.
- 2. If however,foreignfirmsdoprovidecostdata,the accusing
firmcanstill accuse foreignfirmof lyingandthatforeignfirm
ispracticingunfairpricing.
- 3. In the case where the cost data are verified, US
antidumping laws allowthe accusing firm to argue that the
data are misleading.
- 4. The lastoutcome isthatitispossiblethatforeignfirmwins
the case,but thisseemsveryunlikely.
- ii.Export Cartels
- Is firm alliances or collusion that collaborate in exporting.
Theiractionsinclude settingquotaandfixingprices.
- Although in a domestic setting or sometimes even
encouragedif itpromotesexportsof thatparticularcountry.
- C. Informal Norms AndBeliefs
- The behavior of individuals and firms are influenced by
certainvalues,beliefsandnorms.
- Ex: given some new norms such as investing in emerging
economieslike chinaandMexico,manywesternfirmsoften
imitate eachother withouta clear understandingonhow to
make it work.
- Ex: where Asians view trust-based relationships among
individuals or firms as normal and beneficial, whereas
Americanviewthemascollusion.

ATTACK AND COUNTERATTACK
- Attack = refersto an initial setof actionstogaincompetitive
advantage
- Counterattack = consequently refers to a set of actions in
response toattack.
- 3 main typesof attack:
- 1. Thrust = a firm launches direct attack to dominate a
particular market with the intention to oust its director
competitor.
- Must satisfy 2 conditions:
- 1. Both rivalshave relative strength,
- 2. Both rivalsrecognize the importance of the markets.
- 2. Feint = under this strategy a firm attack competitor’s
important market so that the competitor will be occupied
defendingthe market.
- Based on a military strategy in deceiving the opponent. in
fact, the attacking firm has no intention to dominate that
market.
- 3. Gambit = a firm has to surrender its low-value market in
order to capture a high-value market (similar to strategy of
scarifyingapawnin a chessgame).
- Can be viewed as an exchange of the sphere of influence
which resulted in both gain stronger position in only one
market.
- Must satisfy 2 conditions:
- 1. Rival has a significantstake inthatmarket,
- 2. Rival must perceive one party withdrawal to be genuine
and credible.
FACTORS THAT LEAD TO COUNTERATTACK
1. Awareness
- Rival is aware that one’s action is to drive away its position
fromthe market.
- If the firm being attacked is aware of the attacking firm’s
intention,mostlikelyitwill counterattack.
2. Motivation
- The firm being attacked have the motivation to
counterattack.Thismotivationcomesfromthe fact that the
marketissignificantlyimportanttothe firmbeingattacked.
3. Capability
- The firmbeingattackedhave all the resourcesandcapability
to launchcounterattack.
- Althoughthe firmbeingattacked is aware and motivatedto
counterattack, but if it does not have the capabilities and
resourcesto counterattack,thencounterattackwill nottake
place.

CREATING HEALTHY COMPETITIONS THROUGH
COOPERATION
1. Nonaggression
- Is whena firmavoidfromintimidatingothers.
- Refers to nonthreatening ways of doing business so that it
will notprovoke otherstoattack one’score business.
2. Market Entry
- Firmmayentera newmarketbutnotina waythatchallenge
the existingplayersbuttoseekmutual forbearance.
- MNEs in known for pursuing each other, entering one
countryafter another.
3. Truce Seeking
- Firmcan senda signal fora truce,
- Ex: by announcing a price increases in a middle of a “price
war”.
- By sending this signal, firm expect others to follow as a
prolongprice war hurtsthe profitsof all rivals,
4. CommunicationVia Government
- Directnegoamong rivalstofix pricingisillegal.
- Hence, firm can send signal to rivals to reduce competition
viagovernmentinvolvement.
5. Strategic Alliance
- Firms can cooperate by organizing strategic alliances with
competingfirmsforcostreduction.

CHAPTER 6 COUNTRY EVALUATION AND SELECTION
THE IMPORTANCE OF LOCATION
1. Because all companieshave limitedresources,theymustbe
careful in making the followingdecisions:
- A. in which countries to locate sales, production and
administrativeandauxiliaryservices.
- B. the sequence forenteringdifferent countries
- C. the amount of resources and efforts to allocate to each
countrywhere theyoperate
2. Acompany shouldbeginbyanalyzing3factors: a) objectives
b) its competencies c) comparative environmental fit in the
countriesunderconsiderations.
COMPARING COUNTRIES THROUGH SCANNING
STEP 1: SCANNING
- Is like seedingwidelyandthenweedingout
- It is useful insofar as a company might otherwise consider
too few ortoo many possibilities.
SCANNING VERSUSDETAILED ANALYSIS
- Withoutscanning, a company may:
- A) Overlookopportunitiesandrisks
- B) examine toomanyortoo fewpossibilities
- Scanning allow managers to examine most or all countries
broadlyandthennarrow themto the mostpromisingones.
- Managers compare country information that is readily
available, inexpensive and fairly comparable – usually
without having to incur the expense of visiting foreign
countries.
- They analyze publicly available information and
communicate with experienced people on conditions that
couldsignificantlyaffectthesuccessandfitfortheirbusiness.
4 types ofquestions:
1. Yes or no for a question like, does the country allow 100%
ownershipof FDI?
2. Direct statistics for question such as, what is the highest
marginal tax rate on corporate earnings?
3. Indirect indicators for question such as, what are the
potential salesformyproduct?
4. Qualitative assessmentforquestionsuchas,whatwillbe the
future political leaders’philosophyaboutIB?
STEP 2: DETAILED ANALYSIS
- Once narrowing the no of countries, managers need to
compare the feasibilityanddesirabilityof each.
- Unless they are satisfied to outsource all their production
and sales, they almost always need to go on location to
analyze andcollectmore specificinformation.
- The more time andmoneycompaniesinveston examiningan
alternative, the more likely they are to accept it, regardless
of its merits – a situation known as an escalation of
commitment.

OPPORTUNITY AND RISK VARIABLES
OPPORTUNITYVARIABLE
1. OPPORTUNITIES: SALES EXPANSION
2. OPPORTUNITIES: RESOURCE ACQUISITION
RISK VARIABLE
1. FACTORS TO CONSIDER IN ANALYZING RISK
2. POLITICAL RISK
3. FOREIGN-EXCHANGERISK
4. NATURAL DISASTER RISK
5. COMPETITIVE RISK
OPPORTUNITYVARIABLE
1. OPPORTUNITIES: SALES EXPANSION
- Probably companies’ most motivating factor for IB
engagementbecause managersassume thatmore saleswill
leadto more profits.
- ExaminingEconomic and DemographicVariables:
- A. OBSOLESCENE AND LEAPFROGGING OFPRODUCTS
- Consumers in developing economies do not necessarily
followthe samepatternsasthose inhigher-income countries.
- Ex: Chinese consumers have largely leapfrogged landline
telephonesbygoingfromphonelesstocell phones.
- B. PRICES
- If pricesof essentialproductsare high,consumersmayspend
more on these products than what one wouldexpect based
onpercapita GDP,thushavinglesstospendondiscretionary
purchases.
- Ex:the expendituresonfoodinjapan,forinstance,are higher
thanwouldbe predictedbyeitherpopulationorincome level
because food is expensive and work habits promote eating
out.
- C. INCOME ELASTICITY
- A common tool for predicting total market potential is to
divide the percentage of change in product demand by the
percentage of change inincome ina givencountry.
- The more that demand changes in relation to income
changes,the more elasticisthe demand.
- Demandforthe necessitiessuchasfoodisusuallylesselastic
thanisdemandfordiscretionaryproductssuchasflat-screen
TVs.
- D. SUBSTITUTION
- Consumers may substitute certain products or services
differentlyinone countrythaninothercountries.
- Ex: in Venezuela, an economic downturn caused a huge
switchfromtraditionallypopularexpensiveScotchwhiskyto
rum, whichwaslessexpensive.
- E. INCOME INEQUALITY
- Where income inequalityis high, the per capita GDP figures
are lessmeaningful.
- Many people have little spend, while many others have
substantial spendingmoney.
- Ex:highincome inequalityhasresultedinaverysmallmiddle
classin mostsub-SaharanAfricancountries.
- F. CULTURAL FACTORS AND TASTE
- Countries with similar per capita GDPs may have different
preferences for products and services because of values or
tastes.
- Ex: the large Hindu population in india reduces per capita
meat consumption there. However, there is a large niche
marketof Indianswhoare neitherhindunorvegetarian.

- G. TRADING BLOCS
- Althoughacountrymayhave asmall populationandGDP,its
presence ina regional tradingblocgivesitsoutput access to
a much largermarket.
- Ex: Uruguay has a small domesticmarket,butitsproduction
has duty-free access to 3 other countries in the Southern
CommonMarket (MERCOSUR)
2. OPPORTUNITIES: COST CONSIDERATION OF RESOURCE
ACQUISITION
- Companies undertake IB to secure resources that are either
not sufficiently available or too expensive in their home
countries.
- They may purchase these resources from another
organization, or they may establish foreign investments to
exploitthem.
- A. LABOR
- Is important factor in companies’ production location
decisions.
- Althoughcapital intensityisgrowinginmostindustries,labor
compensation remains an important cost for most
companies.
- Scanningallowscompaniestoexamine suchfactorsas labor
market size, labor compensation, min wages, education
levelsandunemploymentrates.
- Labor is nothomogeneous.
- Enteringacountrywithashortage of requiredlaborskillswill
require MNEs to train, redesign production, or add
supervision –all of whichare expensive.
- B. INFRASTRUCTURE
- Infrastructure problemsmayaddtooperatingcosts.
- Poor internal infrastructure may easily negate cost
differencesinlaborrates.
- Inmanydevelopingcountries,infrastructureisbothpoorand
unreliable,whichaddstocompanies’costsof operating.
- C. EXTERNAL CONNECTIONS
- IB requiresdiverse levelsof cross-national integration,all of
whichincurtime and costs.
- HQ personnel visit foreign locations to support control
efforts.
- Companiesneedasmoothflowof shipmentsastheyimport
and exportamongtheirfacilitiesindifferentcountries.
- D. GOVERNMENTAL INCENTIVESAND DISINCENTIVES
- Gov. promote inward foreign investment to create jobs,
enhance competitivenessandimprove trade balances.
- Through ads, investment missions and foreign consular
activities.
- Companiespreferoperatingincountrieswhereredtape and
corruption are minimal and where legal transparency and
lawenforcementare high.
RISK VARIABLE
1. FACTORS TO CONSIDER IN ANAYZING RISK
- A. Companiesandtheirmanagersdifferin theirperceptions
of what is risky, how tolerant they are of taking risk, the
returns they expect and the portion of their assets they are
willingtoputat risk.
- B. one company’s risk may be another’s opportunity.
- Companies offering security solutions (alarm, guard
services)may find their biggest sales opportunities where
othercompaniesfindonlyrisks.

- C. companies may reduce their risks by means other than
avoidinglocations, such as by insuring.Butall these options
incurcosts.
- D. there are trade-offs among risks. Avoiding a country
where, say political risk is high may leave a company more
vulnerable to competitive risk if another company earns
goodprofitsthere.
- E. risksmay occur for suppliersand within suppliers’ supply
chains, thus companies need to examine the complex
external dependenciesandvulnerabilitiesof itssuppliers.
2. POLITICAL RISKS
- A. ANALYZING PAST PATTERNS
- Predictingpolitical riskbasedon past patternis problematic
because situationsmaychange.
- A country’s overall political situation masks differences
withincountriesandfordifferentfirms.
- B. EVALUATIING OPINIONS
- Because influential people mayswayfuture political events,
managers should evaluate statements by political
spearheads to determine the philosophies on private
business, foreign business relations, means of effecting
economic changes, and feelings toward given foreign
countries.
- C. EXAMINING SOCIAL AND ECONOMICCONDITIONS
- Frustrated groups may disrupt business by calling general
strikes,destroyingpropertyandsupplylinesandcausingthe
downfall of governmentleaders.
3. FOREIGNEXCHANGE RISK
- A. Exchange Rate Changes
- The change in foreign currency value is a 2-edged sword,
dependingonwhetheryouare goingabroadto seeksalesor
resources.
- B. ImmobilityOf Funds
- When a company exports to or invests in a foreign country,
itprefers international mobilityof itssalesreceipts,earnings
and capital there.
- Withoutthe mobility,manyfirmseitherforgooperationsor
expectahigherrate of returnthere than elsewhere.
4. NATURAL DISASTER RISK
- A. MOTHER NATURE CATASTROPHES
- Each year,hundredsofmillionsof people are exposedtorisks
from earthquakes, cyclones, flooding, drought, volcanic
eruptions,risingoceanlevel,mudslidesandtornados.
- These disastersupsetmarkets,infrastructureandproduction
while damaging companies’ property, injuring their
personnel andincreasingtheirinsurancecosts.
- B. DEBILITATING DISEASES
- The incapacitating effects of disease have an impact on
several facetsof businessoperations.
- Ex: because of both Ebola and Zika, companies decreased
business travel to distressed areas, thus hindering their
buyingprogramsand oversightof subsidiariesthere.

5. COMPETITIVE RISK
- A. COMPATIBILITY FOR COMPANIES’OPERATIONS
- Companies encounter less familiar environments abroad
than at home, their operating risks are normally higher
abroad.
- Managers initially prefer to operate where they perceive
conditionstobe more similartotheirhome country.
- Liability of foreignness = MNEs have a lower survival rate
than local companies for many years after they begin
operations.
- B. DIVERSIFICATION OF LOCATIONS
- Operatingineconomicallydiverse countrieswhose business
cycles are not highly interrelated may enable companies to
smooththeirsalesandprofits, whichinturnis an advantage
inraisingfunds.
- Giventhe growthinproductcomplexity,technologycontent,
andcompanies’productspecialization,there isaneedtotap
knowledge emanatingfrommultiple companies.
- C. FOLLOWING COMPETITORS OR CUSTOMERS
- Oligopolistic reaction = managers may purposely crowd a
market to prevent competitors from gaining advantages
there thattheycanuse toimprove theirpositionselsewhere.
- Location decision is made on the basis of a competitor’s
action rather than on location-based characteristics such as
the cost of laboror marketsize andgrowth.
- Agglomerationby nationality = occurs whenfirmsfrom the
same home country, regardless of industry, cluster in a
location.
- D. HEADING OFF OR AVOIDING COMPETITION
- Companies mayseekcompetitive advantage by:2
- 1) beingfirstintoa foreigncountry
- 2) avoidingacountry entrywhere competitionsisstrong
- 3) movingquicklybywhateveroperatingmode intoasmany
marketspossible.
COUNTRY COMPARISON TOOLS
There are 2 most common tools in scanning:
1. Grids
- May depictacceptable orunacceptable conditions
- Rank countriesbyimportantvariables
2. Matrices allowcompaniesto:
- Decide onindicatorsandweightthem
- Evaluate eachcountryon the weightedindicators
SOURCES AND SHORTCOMINGS OF COMPARATIVE COUNTRY
INFORMATION
1. INACCURACY
2. NONCOMPARABILITY
6 REASONS MAY BE INACCURATE:
1. Governmental resourcesmay limitaccurate data collection
- Countries resources may limit budgets for data collection,
the latest computer hardware, software, and training
programs.
2. Governmentsmustdependon estimatesand revisions
- There istrade-off betweenaccuracyandtimelinessof data.
3. Governments may omit or purposely publish misleading
information
- Gov researchers sometimes publish false or purposely
deceptive information designedto mislead their superiors,
the country’s rank and file or companies and institutions
abroad.

4. Respondentsmay give false informationto data collectors.
- Mistrust of data usage may lead respondents to answer
questions falsely, particularly if questions probe financial
details or anything else that respondents either consider
private or to be usedbygov authoritiesagainstthem.
5. Official data may include only legal and reported market
activities
- Nationally reported income figures seldom include illegal
income from such activities as the drug trade or cash
transactionstoavoidtax payments.
6. Questionable methodologymaybe used
- Inaccuracies may occur because of methods use to collect
and analyze information.
Noncomparability:
- Countries do not necessarily publish reports for the same
lengthof time periodsorat the same time as eachother.
- Countriesalsodifferinaccountingrulesandhowtheydefine
items,suchas familyincome,literacyandFDI.
EXTERNAL SOURCES OF INFORMATION
1. Service companies – banks, transportation agencies,
accountingfirms
2. Government agencies – the US department of commerce,
CIA
3. International organizations – the UN, the WTO, IMF, OECD,
EU
4. Trade associations
ALTERNATIVES FOR ALLOCATING RESOURCES AMONG
LOCATIONS
1. ALTERNATIVE GRADUALCOMMITMENTS
2. GEOGRAPHICDIVERSIFICATIONVERSUS CONCENTRATION
3. REINVESTMENT AND HARVESTING
1.ALTERNATIVE GRADUAL COMMITMENTS
Companiesmay reduce risks from the liabilityofforeignnessby:
1. Going first to countries with characteristics similar to those
of theirhome countries
2. Having experienced intermediaries handle operations for
them
3. Operating in formats requiring commitment of fewer
resourcesabroad
4. Moving initially to one or a few, rather than many, foreign
countries
2.GEOGRAPHICDIVERSIFICATION VS CONCENTRATION
Strategies for ultimately reaching a high level of commitment in
many countries are:
- Diversification– go to manyfast and thenbuildupslowlyin
each
- Concentration – go to one or a fewand buildup fast before
goingto others.
- A hybrid of the two.

Reason company should considerwhen decidingwhich strategy to
use:
1. Needfor rapid growth in country
- If country markets are all growing rapidly, companies may
need to invest heavily in each to build and maintain a
threshold market share, thus straining resources if
simultaneouslyenteringalarge noof countries.
2. Competitive leadtime
- Where technology obsolesces rapidly, companies need to
enter many markets quickly before competitors usurp their
advantages, thus being in situations that favor a
diversificationstrategy.
3. Need for product, communication and distribution
adaptation
- When companies must tailor their products and operating
methods for each country they enter, they incur additional
costs.
4. Program control requirement
- The more company wants to control its operations in a
foreign country, such as because of fear that a partner will
become a competitor, the more favorable a concentration
strategyis.
REINVESTMENT AND HARVESTING
1. REINVESTMENT DECISIONS
- Companies treat decisions to replace depreciated assets or
to add to the existingstockof capital fromretainedearnings
in a foreign country somewhat differently from original
investmentdecisions.
- This is because companies may have to make new
commitmentstomaintaincompetitivenessabroad.
2. HARVESTING
- Companies commonly reduce commitments in some
countriesbecause those countrieshave poorerperformance
prospectsthandoothers –a processknownasharvesting(or
divesting)
- Companiesmustdecide howtogetoutof operationsif:
- Theyno longerfitthe overall strategy
- There are betteralternativeopportunities
- Companies may divest by selling or closing facilities. They
usually prefer selling because they receive some
compensation.
- A company that considers divesting because of a country’s
political oreconomicsituationmayfindfewpotential buyers
exceptatverylowprices.
NON-COMPARATIVE DECISION MAKING
- Most companiesexamineproposalsoneatatime andaccept
themif theymeetminthresholdcriteria.
- Managers make go-no-go decisions by examining one
opportunity at a time and pursuing it if it meets some
thresholdcriteria.
- To begin with, companies sometimes need to respond
quicklytoprospectstheyhadnot anticipated.

CHAPTER 7 ENTRY MODESTRATEGY
1. Most commontrade-relatedentrymode strategy?International
marketentrystrategies.(through exporting)
2. Exporting = where an MNE maintains its presence at home
countryand sellsitsproductinternationally.
3. Firm pursuesexportingas entry mode strategy because:
– involved fewer as risks as compared to other entry mode
strategy.
- No substantial investment to establish production facilities
abroad.
- Doesnothave todeal withdifferentbusinessenvironmentin
differentcountriesunlikegreenfield(FDI)
- Can gain specific knowledge about a particular foreign
market that lead to further business expansion in that
country.
4. Disadvantages of usingexporting:
- Tariffbarrier orimporttax imposedbylocal government.Tax
may increase the price of the productsinforeignmarketand
reduce productcompetitiveness.
- Transportation cost may also reduce product
competitivenessasitincreasesthe price of the products.
- Firm may be unable to sell the productdirectlyto consumer
as it needs to hire third party or intermediaries who act as
distributortosell the productinforeigncountrymarket.The
3rd
party may not be able to perform the task efficiently as
the firmdoesat a home country.
WHY EXPORTING MAY NOT BE FEASIBLE
1. It may not be feasible option for firm to pursue if it
compromises firm’s competitiveness in global marketplace.
In this case, exporting is inappropriate strategy when it
increasesthe costof doingbusiness.
2. Tariff barriers, transportation cost and 3rd
party distributors
may all increase the cost and hence reduce the
competitivenessof the product.
- In this case, FDI may be more appropriate strategy pursue
when firm can identify low-cost location to manufacture its
product.
UNDERSTANDING EXPORT PROCESS
A. DIRECT EXPORT
- Can be done directly by the firm or through the 3rd
party or
known as export intermediaries or export management
company(EMC)
- The person in charged of the exporting process must
familiarize with the export terms which is also known as
terms of sale as defined by international chamber of
commerce (ICC)
- The termsspecifywhichparty eitherbuyerorsellerpaysfor
which shipmentand loadingcost:
1. FREE ALONGSIDESHIP (FAS)
- Alsoknownas Free House delivery=atermof price whereby
the sellercoversall costsand risks up to the side of the ship
ina designatedshipmentexportport.
- The BUYER bearsall costs andrisksthereafter.
2. FREE ON BOARD (FOB)
- The SELLER covers all costs and risks up to the point where
the goodsare deliveredonboardof the ship.

- The BUYER bears all costs and risks once goods delivered
which means the buyer is responsible for the insurance and
freight expenses in transporting the goods from shipment
port to the destinationport.
3. COST, INSURANCEAND FREIGHT (CIF)
- The SELLER covers costs of the goods, insurance and all
transportation and miscellaneous charges to the name of
foreignportinthe country of final destination.
4. EX WORKS/ EX FACTORY
- The BUYER bears all costs of the goods, transportation and
miscellaneous charges to the name of foreign port in the
countryof final destination.
- The BUYER purchasesandbearsthe insurance.
- Ex factory is considered the most cheapest arrangement as
the buyer can make their own arrangement and choose the
cheapestcostof transportationandinsurance.
Frequentlyuseddocuments:
1. A letterof credit (L/C)
- A documentissuedbymostlyfinancial institution.
- Serves as a contract between importer and a bank that
transfers liability for paying the exporter from the importer
to the importer’sbank.
2. A bill of lading (B/L)
- The documentissuedbyshippingcompanyoritsagent.
- Serves as evidence of a contract for shipping the
merchandise andasa claimof ownershipof the goods.
Otherimportantdocumentsused:bankdraft(servesasaguaranteed
fund), commercial invoice, insurance certificate and certificates of
origin.
B. EXPORT INTERMEDIARIES
- Are a company,alsoknownasexportmanagementcompany
(EMC) which specializes in facilitating imports and export
activities.
- Their service includes:
- handlingforeignshipments,
- preparingexportdocuments
- dealingwithcustomoffices
- insurance companies
- commodityinspectionagencies
- are commonly experts in dealing with legal, financial and
logisticsdetailsof exportingandimportingactivities.
INTERNATIONAL SUBCONTRACTING
1. The process in which a firm seek other firm or company
(typically foreign firm) to provide them with raw materials,
semi-finished products, sophisticated components or
technologyforproducingfinal goods.
2. The foreign firm does not own the property rights of the
product produced as they will receive some fees for
producingthe.
3. Rationale because:
- Otherforeignfirmsare more efficient
- Can produce the productcheaper
- Seeklowlaborcostin foreigncountry
- Seek for lower cost of production that can enhance its
competitivenessinthe global marketplace.
4. Threat – the foreignfirmmay gainknowledge andexpertise
toproduce the productandeventuallybecomeacompetitor.

COUNTERTRADE
1. A seller and a buyer from different countries exchange
merchandise with or without little cash equivalents.
2. In international trade, countertrade is viewed as a form of
flexible financingorpayment.
3. This trade arrangement can be categorized into four
differentactivitieswhichinclude:
A. BARTER
- Barter trade (i.e. exchange of goods) may be the
oldest form of trading.
- In modern barter trade, it involves direct and
simultaneous exchange of goods between two
parties without any cash transaction.
- the two parties involved can be between individuals,
and firms or between firms and governments in two
different countries.
- For example, French and Cuba barter trade involve
the exchange of wheat for sugar.
B. COUNTERPURCHASE
- Is a reciprocal buying agreement between two
parties that occurs at a different time.
- In this arrangement, one firm sells its product to
another firm at one point in time and in return, the
other firm will buy their products.
- It is more flexible than barter trade in which the
volume of trade does not have to be equal.
- The differences invalue can be settled either though
escrow account or by using cash.
- it serves as a protection contract between them.
C. OFFSET
- An offset is an agreement between two parties in
which one party agrees to purchase goods and
services with a specified percentage of its proceeds
from an original sale.
- In offset agreement, products are normally related.
- Offset arrangement is commonly popular in sales of
expensive military equipment or high-cost civilian
infrastructure hardware.
D. BUYBACK
- In this agreement, it involves two contracts which
are sales agreement and purchase agreement.
- buyback is a compensation agreement that occurs
when one firm provides another firm with inputs for
manufacturing products and agrees to take certain
percentage of the output produced by the
producing firm as partial payment.

TRANSFER RELATED ENTRY MODE STRATEGY
- occurs when one firm transfer ownership or
property rights of its technology or assets in
exchange for royalty fees.
- 4 different types:
A. INTERNATIONAL FRANCHISING
1. An arrangement between 2 parties known as
franchisorandfranchisee.
2. Franchisor grants the intangible property
rights(trademark, brand name) to the franchisee in
exchange of royaltyfees.
3. Franchisee must abide by the terms and rules of
doingbusinessasspecifiedbythe franchisor.
4. ADVANTAGES:
1. Low political risksas the businessismanaged by franchisee
whichis familiarwithlocal marketcondition.
2. Low cost of doing business abroad as the cost of setting up
the businessinforeignmarketwill be borne byfranchisee.
3. Franchising is an easy way for franchisor to create revenue
by leveragingonassets.
DISADVANTAGES:
1. Franchisee jeopardize and damage the image of the firm if
theyare unable or do not followthe qualitystandardset by
the franchisor
2. Franchisingagreementlimitsthe franchisor’sprofitrevenue.
B. INTERNATIONAL LICENSING
1. International licensing is an agreement between a foreign
firm known as the licensor and local firm known as the
license.
2. In this agreement, the licensor grants specified intangible
property rights to the license for a specified period of time
and inreturnthe licensorwillreceive royaltypayment.
ADVANTAGES:
1. A firmisable to minimize the costsandrisksassociatedwith
doinginvestmentinforeignmarketsforexample,political risks.
2. No substantial investmentisrequiredtopenetrateforeign
marketsas there isno needtoestablishproductionfacilitiesabroad.
3. Licensing is an attractive strategy firms lacking capital to
venture intoforeignmarkets.
DISADVANTAGES:
1. Firmsdo nothave control overthe manufacturingand
marketingof the productsas the businessoperationsare managed
by the license.
2. Potential lossof intangiblepropertyandknow-how.
3. By granting specific property rights, the license may gain
knowledgeof the productsandeventuallymaybecome acompetitor
by setting up its own business operations. Furthermore, the local
license may benefit from the improvement of the product and uses
themto penetrate the licensorshome market.

C. INTERNATIONAL LEASING
1. Another entry mode strategy where firm known as lessor
leases its equipment or machines to foreign firm knows a
lessee foraspecifiedperiodof time
2. The machines or equipment can be new or used machines
that are normally leased to manufacturing firms in
developingcountries.
LESSOR BENEFITS:
1. The generationof revenue through leasingfees.
2. Fully utilization of the available equipment or machines as
these equipmentandmachinesare commonlynotfullyused
by the firmbut still ingoodconditiontobe leasedout.
3. Business expansion to foreign market and accumulate
experience inforeignland.
LESSEE BENEFITS:
1. Reduce financial burdentoaccessforeigntechnologies
2. Lesshassle andlittle orno maintenance cost.
3. Easier way to access to foreign technologies and facilities
that enable lessee to increase their knowledge and
experience withforeigntechnologiesandfacilities.
D.BUILD-OPERATE-TRANSFER (BOT)
1. Alsoknownas“turnkeyprojects”
2. Foreigninvestorsare paidbya clienttodesignandconstruct
newfacilitiesandtrainlocal personnel.
3. Upon completion, or over a period of time, the project will
be hand overto the client.
ADVANTAGES:
1. Firms can capitalize on BOT strategy to rapidly generate
revenue andalsoasa meanto penetrate foreignmarkets.
DRAWBACKS:
1. The client may later become competitor as the clients are
exposedand trainedto use firms’advance and state-of-the-
art technologies.
2. BOT does not allow long-term presence in international
market since firm have to eventually hand over the project
to local client.

CHAPTER 9 SMALL BUSINESS AND INTERNATIONAL
ENTREPRENEURSHIP
SMALL BUSINESS – CONCEPTS AND DEFINITION
1. Small business is categorized under small and medium
enterprise(SME). It plays an important role in Malaysian
economics.
2. Various agencies in Malaysia, adopt different definitionsof
SMEs dependingontheirbusinessinterests.
3. Small and medium industries development corporation
(SMIDEC) which defines SMEs according to 2 main factors –
annual salesturn overand numberof full time workers.
4. Medium sized business = a business establishment with an
annual sales turnover of between RM10 millionand RM25
millionandwhichemploysmore than150 full-time workers.
5. Small sized business = a business establishment with an
annual sales turnover of not more than RM10 million and
whichemploysnotmore than50 full time workers.
CHARACTERISTICS OF A SMALL BUSINESS
1. OWNERSHIP
- Privately owned by individual or partners, typically
registered as sole proprietorship, partnership or private
limited(SdnBhd) company.
2. MANAGEMENT
- The businessismanagedandoperatedbythe owners
- The entrepreneurs of founders of the business lead the
company,andmay act as bothmanagerand worker.
- The development of the business is determined by the
owners and owners is the one that do the decision
making.
3. RESOURCES
- A small businessoftenhas lackresources.
- Thisistrue for newstartsupdue toa lack of track record
on the business to convince potential investors and
bankersto invest.
- Therefore, the success of the business is highly
dependent on the ability of the owner to generate
resources.
4. ORGANIZATIONSTRUCTURE
- For a small business, the structure is often flat and
informal.
- The ownerhas to do almosteveryworkandthe workers
are normally expected to be able to function as general
workerssince there isnoclearseparationof tasks.
5. FLEXIBILITY OF CHANGE
- The business has more flexibilityto adapt to changes in
the environmentdue toitssize andinformal structure
- It is very importantto be able to adapt to changessince
any changes in technology or government policy might
have a great impacton the business.
- This is because with immediate changes, it requires
additional capital or resources. This might become
constraint to the business to compete and sustain itself
inthemmarket.

ENTREPRENURSHIP, ENTREPRENEURS AND ENTREPRENURIAL
FIRM
1. The firm size and age are not the important factors that
define ent but ent is more definedas the identification and
exploitationof previouslyunexploredopportunities.
2. Int ent is a combination of innovative, proactive and risk
seeking behavior that crosses national borders and is
intendedtocreate wealthinorganization.
3. Ent rise easily,theycanfall easily.
INTERNATIONALIZATION AND THE SMALL BUSINESS
1. Internationalization is the increasing tendency of firms to
operate acrossnational boundaries.
2. Many factors that contribute to the growth of
internationalization:
A. Rise of properinfrastructure
B. Institutionalizationof international economicrelations
C. Reductionof barrierstotrade flows
D. Internationalizationfinancialsystem
E. Cheapercostof transportand communication
F. Expansionof transnational business
INTERNATIONALIZATION STAGES OF BUSINESS
1. The UPPSALAMODEL of internationalization=introducedby
JohansonandVahlne (1997).
2. The study was based on the internationalization processof
large Swedish manufacturing firms which took place in the
1970s.
3. Main finding = firms have tendency to enter a new market
incrementally,depending on their knowledge of the market
environment.
3 MAJOR STAGES:
1. INTERNATIONALIZATION PROCESS OF TRADING GOODS
- It is in the form of international transactions or the
business/commercial operations.
- Firms will export goods, supplies and services and
combined operations with other firms to re-export or
establishtrade officesinforeigntrade
2. THE INTERNATIONALIZATION OF PRODUCTION
- This can be done throughvariousforms of alliancesand
international cooperation that aimed at the technology
transfer for the multi-production of goods abroad (by
usingmode of entrysuchaslicensing,franchising,selling
knowhow etc)
- Firmsmay locate part or the whole of productionplant.
3. INTERNATIONALIZATION OF THE FIRM
- The mainway of achievinginternationalizationisforeign
directinvestment(FDI),inwhichthe firminvestsdirectly
inphysical investment.
- At this point, firms build up plants, hired local human
resources, use local and imported resources to do
production.
THE STAGE MODEL OF INTERNATIONALIZATION FOR SMALL
BUSINESS

STAGE 1: PASSIVEEXPORTING
- The small businesses fill orders but do not seek export
business.
- At this stage, many small owners do not recognize that
theyhave an international market.
STAGE 2: EXPORT MANAGEMENT
- It is where the firm or CEO will find export sales in this
stage.
- Due to limited resources, many small business rely or
indirect channel of exporting and considered as the
majortransitionforsmall businessestoexpandbroad.
STAGE 3: EXPORT DEPARTMENT
- The small business will use significant resources to find
waysto increase salesfromexporting.
- Export is not considered as a prohibitive risk by small
businessesandit mustfindproperinternational partner
to distribute the productsorservices.
STAGE 4: SALES BRANCHES
- When there is high demand from the foreign countries
forthe productsor services,itisacceptableforthe small
businesstosetuplocal officesatthose countries.
- In this case, small businesses must choose whether to
hire local managersandworkerstomanage the business
or to sendexpatriatestothe foreigncountries.
STAGE 5: PRODUCTIONABROAD
- PA allows companies to gain local advantages, local
adaptationandproductionefficiencies.
- In orderto expandabroad,small businessesmaychoose
mode of entry such as licensing,joint ventures or direct
investment.
- Is alwaystoughbecause highcostinvolved.
STAGE 6: THE TRANSNATIONAL
- The last stage, the size of companies is irrelevant in
influencingwhethertheycangoabroad or not.
- The small business may develop a global integrated
networkthatmay be categorizedastransnational firms.
GROWING AND INTERNATIONALIZING THE
ENTREPRENEURIAL FIRMS
1. GROWTH
- Entrepreneursarisebecauseof the excitementof setting
up businessbyindividuals.
- In RBV theory, if firms have sufficient resources and
capabilities, they may venture into setting up their
business.
- Inent,agoodvision,driveandmotivationandleadership
are the core capabilitiesthat any ent must have inside
them.
2. INNOVATION
- Is important for entrepreneurs and it allows
entrepreneurtobe more sustainable.
- Is the competitive advantage of any entrepreneur. With
the spirit of innovativeness, the entrepreneur tend to
take more risksthan the largerfirms
- They will introduce new products and services, new
radical waysof doingbusiness

3. FINANCING
- People have always been afraid of venturing into
something that they are not used to especially the
processof raisingcapital.
- But the truth is that, there are many investors,bankers,
foreignentrants,banksandgovernmentagencieswilling
to helpentto start theirbusiness.
4. INTERNATIONALIZING THE ENTREPRENEURIAL FIRM
5. TRANSACTION COSTS AND ENTREPRENEURIAL
OPPORTUNITIES
INTERNATIONAL STRATEGIES FOR ENTERING FOREIGN
MARKETS
1. DIRECT EXPORT
- Involve the sale of productsmadebySMEsintheirhome
countryto customersinothercountries.
- This mode is popularamongSME since it issimpler,less
risks and entrepreneurs are able to reach foreign
customersdirectly.
- Disadvantages = SMEs may not have enough resources
to turn overseasopportunitiesintoprofits.
2. LICENSING/FRANCHISING
- Usedespeciallyinmanufacturingindustries
- Franchising = typically used n service industries such as
fast food industry since franchising involves a certain
operatingsystem
- Advantage = entrepreneur who uses licensing and
franchising can expand abroad with little capital since
foreign firms that are interested in becoming a
licensee/franchiseehave toputtheircapital upfront.
- Disadvantage = licensor/franchisor may suffer loss of
control over how theirtechnologyandbrand namesare
used.
3. FDI
- Entrepreneurs may pursue FDI by forming strategic
alliances with foreign partners, joint venture, foreign
acquisitionsandgreenfieldwhollyownedsubsidiaries.
- Advantages = entrepreneurs may be able to control the
usage of proprietaryandbrandname.
- Disadvantages = any entrepreneur who would like to
engage withFDImusthave abundantcapital asthe start-
up cost isveryhigh.
INTERNATIONALIZATION STRATEGES FOR STAYING AS A
DOMESTIC BUSINESS
1. DIRECT EXPORT
- Many entrepreneurs do not have enough resources to
handle directexport.
- They may then resort to indirect exports which become
as exportintermediariesthatdo “middleman”functions
that linkingsellersandoverseasbuyers.
- Ex: in Japan and Korea, they are entrepreneurs who
handle 50% of total exports.
2. BECOME SUPPLIERS TO FOREIGNFIRMS
- Foreign firms who expand business overseas aimed at
cuttingtheircostsoptimally.
- Therefore, they are looking for a local suppliers which
may loweredboththe costandrisk.
- Ex: subwayhad secureda contract withlocal supplierin
Irelandtosupplychilledpart-bakedbread.

3. LICENSING/FRANCHISING
- Entrepreneurs may consider becoming a licensee or
franchisee of anyforeignbrandsandfirms.
- This strategyenable entrepreneurstodo businessusing
the proprietaryrightsof the owner
4. BECOME ALLIANCE PARTNERS OF FDI
- True enough, most of the entrepreneurs unable to
compete withestablishedforeigndirectinvestors.
- The chancesto compete isalwaysthere butverylimited.
- The best approach would be to join forces with foreign
investors by being their partner in disturbing foreign
brandsand products.
5. HARVEST/EXIT STRATEGY
- Entrepreneursmaysellanequitystake orthe entirefirm
to foreignfirm
- Ex: Seattle coffee, originally owned by Britain’s couple
soldto Starbucksto avoidfromlosses.
WHEN TO GO GLOBAL (9 QUESTIONS)
1. Do we have global productsor service?
2. Do we have managerial, organizational and financial
resourcestointernationalize?
3. Evenif we dohave the resources,are willingtocommitthem
and face the risksof internationalization?
4. Is there a country in whichfeel comfortable doingbusiness?
5. Is there a profitable marketforourproductor service?
6. Whichcountry shouldwe enter?
7. Do we have a unique product or service that is not easily
copied by large multinational companies or local
entrepreneur?
8. Do locationadvantagesexist upstreaminthe value chain?
9. Can we affordto be a multinational?
There are 2 method that small business can choose in expanding
global:
1. Some firms may follow the stages of international
involvement, where each next stage will lead to greater
involvement.
2. Small firmsmaybeginasglobal companiesimmediatelyafter
the inception.Goingabroadfromdayone – global startup.
OVERCOMING BARRIERS TO GO INTERNATIONAL FOR SMALL
BUSINESS
Barriers: small in size means…
1. Limitedfinancialandhumanresources
2. Lack of economiesof scale toproduce goods and servicesas
largerfirms
3. Smallerbizoftenplaguedwithinexperiencedmanagerswith
limitedinternational exposure andsometimeswithnegative
attitudestowardsforeigncountries.
4. Theyare risk averse andmay viewgoingabroad isnot really
profitable forthem
5. Past success with home market may also prevent small
businessestoexpandtheirbusinessesabroad.

WAYSTO OVERCOME:
1. THE FIRST IS WAYTO DEVELOP A SMALL BUSINESSGLOBAL
CULTURE.
- Global culture occurs when an organization has
managerial and subordinatesthat view by going global
has strategicopportunities.
- Thinking global and changing into global mindset is a
mustany small businessestoexpand.
2. KEY DECISION MAKERS MUST CHANGE THEIR ATTITUDE IF
THEY WANTTO GOABROAD.
- For any companies that go abroad, each stage of going
abroad requires increasing commitment from the top
executivesof the businesses.
- Because of different perception and negative attitudes
towards internationalization, most small businesses
expand their products and services to nearby countries
that have similarvaluesandculture.
3. SMALLER SIZE WILL LEAD TO RAPID DECISION MAKING.
ADVANTAGEFOR A SMALL BUSINESS IS SPEED.
- Since they can decide faster, most of time small
businesses can be the first in the market and capture
potential salesbefore the largercorporationmayreact.
- The ability of speed is important for small businesses as
theycan adoptthe newchangesinthe marketplace and
the changesin the global demand.
SMALL BUSINESS GLOBAL START UP (BORN-GLOBAL FIRMS)
1. Global start-ups occur small businesses go abroad since the
day of inception.
- The definitionof born-global firmisanyfirmthat purses
a global visionfrominceptionandglobalize rapidly.
2. Born global firms are often very flexible and fast moving,
especially in the high-tech industry. Tend to be knowledge-
intensive intheirarea.
3. Born-global firms tend to market value added offering that
comes from the developments of science, technology or
design.
4. The offeringsare innovative,progressive,differentiatedand
unique.
5. Factors that trigger early internationalizationoffirm(born-
global firms) such as:
- Size of the firm’shome market
- New market conditions in world market (e.g the
emergence of global niche markets)
- Technological developments in communications and
products
- Emergence of global networksandalliances
- Organizational capabilities
6. 6 fundamentals sources of competitive advantage that
born-global firmsneedto attendto:
- Continuously focusing on entrepreneurial orientation
and innovation.
- Abilitytoimproveofferingandretaintechnological edge.
- Dynamic engagement of networks of customers,
suppliers,partners andexternal stakeholders.
- Managing evolution to a more complex organization
withoutlosingentrepreneurial competencies.

- Improvingthe abilitytobalance opportunityandrisk.
- Possessinganagile andexperimentingorganization.
DISTINCTIVE CHARACTERISTICS OF BORN-GLOBAL FIRMS
1. HIGH ACTIVITY IN INTERNATIONAL MARKETS FROM OR
NEAR THE FOUNDING
- Born-global firms begin exporting their products or
serviceswithinacouple of yearsaftertheirfoundingand
may exporta quarteror more of theirtotal production.
- Most of them advances through subsequent stages of
internationalization,collaborationwithforeignpartners,
or undertakingof directforeigninvestment.
2. LIMITED FINANCIALAND TANGIBLE RESOURCES
- Born-global firmstendtobe relativelysmallandhave far
fewerfinancial,human,tangible resourcesascompared
to large multinational enterprises that have been
consideredasdominantinglobal trade andinvestment.
- That is why born-global firms have limited financial and
tangible resources.
3. PRESENT ACROSS MOST INDUSTRIES
- Many born-global firmsare technologyfirms.
- Born-global phenomenon is widely spread beyond the
technologysector.
- Born-global firms are found in industries such as metal
fabrication, furniture, processed food and consumer
products.
4. EMPHASIS ON DIFFERENTIATION STRATEGY
- Born-global firmstendtoadoptdifferentiationstrategies
by developing differentiated designs and highly
distinctive products that target niche markets, which
may be too small forthe tastesof largerfirms.
5. EMPHASIS ON SUPERIOR PRODUCT QUALITY
- Born-global firms are often at the leading technologies
edge of theirindustryorproduct category.
- They are founded to exploit business opportunities
based on the development of new product or services
that are better designed and of higher quality than the
competitors’offerings.
6. MANAGERSHAVESTRONG INTERNATIONAL OUTLOOKAND
INTERNATIONAL ENTREPRENEURIAL ORIENTATION
7. LEVERAGING ADVANCED INFORMATION AND
COMMUNICATIONSTECHNOLOGY
8. USING EXTERNAL, INDEPENDENT INTERMEDIARIES FOR
DISTRIBUTION IN FOREIGN MARKETS.

CHAPTER 8 FOREIGN DIRECT INVESTMENT RELATED
ENTRY MODESTRATEGY
1. FDI is a direct investment made by a company or entity
based in one country, into a company or entity based in
anothercountry.
2. Or definedasacompanyfromone countrymakingaphysical
investmentintobuildingafactoryinanothercountry.
3. Indirect investment = portfolio investment, investing in
equitieslistedona nation’sstockexchange.
4. FDI has come to playa major role in the internationalization
of firm.
5. Factors that induce firms that adopt FDI are:
- Changesintechnology
- Growing liberalization of the national regulatory
frameworkgoverninginvestmentinenterprises
- Changesinglobal capital markets.
6. FDI made in form of direct investment, fixtures, machinery,
equipment and buildings and it can also be done through
mergersandacquisitionsaswell.
HOW HAS FDI CHANGED IN THE PAST DECADE?
1. LICENSING AND TECHNOLOGYTRANSFER
- Have beenimportantinpromotingcooperationbetween
the academicand businesscommunities.
- Since the policy allowed universities to hold title to
research and development done in their labs, licensing
agreements have helped turned raw technology into
finished products that are viable in competitive
marketplaces.
- Licensing agreements allow companies to take full
advantage of new and exciting technologies while
limiting their overall risk to royalty payments until a
particulartechnologyisfullydeveloped.
- Technologylicensing= agreementwherebyanownerof
a technological intellectualproperty(the licensor)allows
anotherparty(the licensee)touse,modify,and/orresell
that property in exchange for a compensation
(consideration).
2. RECIPROCAL DISTRIBUTION AGREEMENTS
- Usuallyoccursbetween2companies,withinthe same of
affiliatedindustries.
- Both agreed to act as a national distributor for each
other’sproducts.
- Ex: a US based manufacturer of tables signs a mutual
distribution agreement with Spanish based
manufacturerof chairs.
- Both companies gain direct access to each other
distribution network without having to pay distributor
support payments and other related expenses found
withinthe distributionchannel andneithercompanycan
hurt the other’smarketforits products.
3. JOINT VENTUREAND OTHER HYBRID STRATEGIC ALLIANCES
- Involves 2 firms who are within the same industry who
are partneringforsome strategicadvantage.
- Reasons for partnering=
- i.the needtoaccessthe proprietarytechnology
- ii.The desire togainaccess to intellectual
- iii.To accessto channelsof distributioninkeyregionsof
the world.
- JV involves3ormore partiesare usuallycalledsyndicates
- Most often formed for specific projects such as large
construction/publicworksprojectsthatmightinvolve a

wide variety of expertise and resources for successful
completion.
BASIC REQUIREMENT FOR EMBARKING USING FDI
1. THE LEVEL OF COMPETITIVENESS
- FDI may be considered as an attractive and feasible
option depending on the industry sector and type of
business.
- Fromthe competitiveview,itisimportanttobe aware of
competitors who are expanding into a foreign market
and howtheyare doingit.
- It also becomes crucial to monitor how globalization is
affecting domestic clients on their products/services
needs.
2. NEW MARKET ANALYSIS
- Firm must have realisticassessmentinaspect such as:
- Resource utilization,
- Local industryandforeigninvestmentregulations,
- Governmentincentives,
- Profitretention,
- Financing,distributionandotherfactorsbefore entering
the market.
3. MARKET EXPECTATION
- Foreign production or locationbegins to look more cost
effectivewhenproductorservice reachesacritical mass
of amountandcost.
- Anydecisiononinvestingmustcarefullyconsiderfactors:
- The feasibilitytooperate inalarge capacitythatwill lead
the firmstoacquire economiesof scale inmanufacturing
to meetdemandina large market.
- Firms must have access to supply chain channel
members
- And logistic transportation in order to produce and
distribute productstointernational market.
4. INTERNAL RESOURCES
- EX: does the firm have support from all its stakeholder
for the foreigninvestment?
- Doesthe firmhave thecapabilitiesandstrongknowledge
to go abroad?
- These questions need to be taken seriously by the
managementof the firmbefore decidingtoembarkin a
foreignlandusingFDIto minimizerisks.
MERGER AND ACQUISITION (M&A)
1. MERGER = a combination of 2 companies to form a new
company
2. ACQUISITION = is the purchase of one company by another
inwhichno newcompanyisformed.
3. Merged companies typically will operate on a cooperative
basis, while an acquisition involves absorbing part or all of
anothercompany.
3 BENEFITS OF ACQUIRING A COMPANY IN THE SAME
INDUSTRY
1. ECONOMIES OF SCALE AND INCREASED EFFICIENCY
- Acquiring a company in the same industry can result in
reducedcostsdue toeconomiesof scale foracombined,
larger entity, along with increased efficiency in
productionandotheraspectsof businessoperations.Ex:
wall-mart

Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10

Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10

Similar to Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10 (20)

More from Shadina Shah

More from Shadina Shah (20)

Recently uploaded

Recently uploaded (20)

Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10