This document discusses factors that influence international strategy selection. It begins by outlining three perspectives on strategy - industry based, resource based, and institutional based views. The institutional based view holds that institutions and culture drive strategy. Greater institutional distance between home and host countries increases costs and difficulty of transferring competencies. When selecting host countries, firms consider sources of competitive advantage like efficiency, risk, and learning. Effective global strategies balance standardization with local adaptation. The document also examines entry strategy options like acquisition, greenfield investment, and joint ventures, noting that greater institutional distance favors lower-control options like JVs.

1. Cultures, Insti
tutions
&Internation
al Strategy
GROUP 4

2. Overview
Introduction
Institutional Distance
Host Country Selection
Entry Strategy
Conclusion

3. The Context of Strategy: Two Traditional Perspectives
Identify Industry
What Areas Yield Highest Return
Analyse Competition (strengths/weaknesses)
Assess Opportunity in the Market
Formulate Strategy
– Industry Based View (Porter 1980)
• Based on Industry Structure/ Competitive Analysis
• Strategy formulation on the premise of potential gaps in industry
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion

4. The Context of Strategy: Two Traditional Perspectives
– Resource Based View (Barney 1991)
• Focuses upon “the impact of idiosyncratic firm attributes on a firms
competitive” (Barney 1991 p100)
Strategy
(Sustained Competitive Advantage)
Valuable Rare
Imperfectly
Imitable
Substitutability
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion

5. • Institutions and culture drive International Strategy
“regulative, normative and cognitive structures” should not be considered
“background” to the formulation of International Strategy
• Strategic choices a function of the dynamic interaction of institutions and
organizations
International
Strategy
Resource
Based View
Industry
Based View
Institutional
Based View
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
“What drives firm strategy in International Business?”
(Peng et al. 2008)

6. Institutional Based View: Implications of Distance
• For example: Mexican cement company Cemex in
the US in the 1970’sREGULATIVE
• For example: India invested in educational reforms
in the 1990’sNOMATIVE
• For example: China “Guanxi”, an informal
institution that emphasizes social relationships as
the driver for business growth
CULTURAL
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
The extent of dissimilarity between host and home institutions. Affects the
MNE legitimacy in the host country, the transfer of routines & therefore:
THE FDI DECISION

7. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
GREATER
DISTANCE 
increased cost
of entry
decreased
operational
benefits
hampers
ability to
transfer core
competencies
to foreign
markets

8. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Host Country Selection
Source of Competitive Advantage
Organisational Diversity
Global Strategy

9. A well-designed global strategy can help a firm to
gain a competitive advantage. This advantage
can arise from several sources:
Host country selection: Source of
Competitive Advantage
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
1. Efficiency
2. Strategic
3. Risk
4. Learning
5. Reputation

10. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Host country selection: Source of IKEA’s
Competitive Advantage
o First furniture store to look for a
globalised strategy
o Competitive cost advantage to rivals
due to low production, transportation
and assembly costs
o Successfully expanded across Europe
due to wide acceptance of
standardized designs
BUT: US Market Strategy Failure:
o Different tastes in US meant cost
advantage was negated
o Difficult to transfer IKEA's frugal
culture to the U.S.

11. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Solution: Adaptation
• New product lines to
reflect local tastes
• Service adaptations were
made - American customers
hate standing in lines, love
next-day delivery, etc.
• Outsourced manufacturing
to US
Result:
• North America is fastest
growing market for IKEA
• Adapted business model
being used throughout Asia
and Australasia
IKEA’s Competitive AdvantageHost country selection: IKEA’s Competitive
Advantage

12. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Host country selection: Organizational Diversity
Organizational Diversity
• Inputs
• Outputs
• Internal operations
High Diversity versus Low diversity MNEs
• Association with Scott’s 3 Pillars model
• Resource sources
• Stakeholders influence
Diversity of Operational modes
• Regulative - input phase
• Cognitive - output phase
• Normative - transformational phase

13. – UAE is a country where the
level of employment of
nationals is an indicator of
conformity to the local
institutional environment and
an important source of external
legitimacy
– General Electric is a MNE
acknowledged for
implementing employee
diversification practices in
hiring, developing and
retaining Emirati talent
– Successful employee
diversification helped
achieving leading business
positions in power, water
, health and aviation in the UAE
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Host country selection: Organizational diversity:
GE in the UAE Case Study

14. • Being highly heterogeneous
the market presents cultural
and institutional issues
• Kraft responded by diversifying
its business platforms and
initiatives
• Successful product
diversification led to re-
configuring the flavor of Oreo
biscuits in accordance with
local tastes. Kraft Foods is
currently the biggest biscuit
producer in China.
• Adjustments to shopping
behavior in Indonesia led to a
huge increase in sales
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Host country selection: Organizational Diversity:
Kraft Foods in the Asia-Pacific market

15. Host country selection: Global Strategy
• Global strategy is the guiding principle for MNEs' global operations
• To analyse if a MNE adopts a global strategy, the level of strategy integration can
be ranked from high integration to low integration
Low Integration High Integration
Multi domestic Strategy Global Strategy
High influence of host country cultures and
institutions on the strategy
Low influence of host country cultures and
institutions on the strategy
High Autonomy Low autonomy
Dependency on local resources Dependency on other MNE units
Investment available in institutionally distant
markets
Invest in host countries only when the
institutional distance is small
Products and services adapted in countries Standardised products and services
Local marketing Uniform worldwide marketing
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
The extent cultures and institutions influence the strategy will be dependent upon how
integrated the MNE’s strategy is.

16. Host country selection: A Global Strategy
Mars Inc. and M&Ms
Global or Multi-
domestic?
GLOBAL
Level of Integration Fairly High
Location of Production
and Management
Production and Coordination
hubs located across the world.
Interdependency of
MNE units
High amount of
interdependency across the
business functions
The markets they invest
in
Whilst Mars Inc. is present in
over 70 countries, the country
must adhere to a detailed list
of specifications before entry.
Level of product
standardisation
High
Level of marketing
standardisation
High
M&Ms Taiwan
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion

17. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
ENTRY STRATEGY
Entry Mode:
Greenfield vs.
Acquisition
Ownership
Strategy

18. ENTRY MODES: Acquisition
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Kraft – Cadbury
Feb 2010: was one of its top competitors in
order to increase market share and global
presence and gain access to emerging
markets.
Cultural and Institutional Concerns
• Cadbury’s ethos needed taken into account
• Possibility of disregarding British heritage
• Difficulty to legitimise within the institutional environment of the MNE
Reasons for entry
• Culturally close
• Perceived brand quality and strong heritage
• Size and scope of operations
• Strong distribution channels

19. Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Hyundai
2008: Entered Noŝovicein Czech Republic.
Invested in the opening of a manufacturing
plant providing 13,000 jobs (3,000 directly).
The economic benefits in the region exceed
the costs of the foreign investment.
Cultural and Institutional Concerns
• Less awareness of culture on entry
• Profits go straight back to MNE and not to the host country - may be resistance
from local economies
Reasons for entry
• Czech Republic’s long industrial tradition
• Good existing technology base
• Highly qualified Czech workforce
ENTRY MODES: Greenfield

20. Ownership mode
(joint venture versus wholly owned subsidiary)
CONTROL MECHANISMS: Equity share in a joint venture
•Firms will refrain from investing in markets that are
institutionally distant
•Firms may choose lower levels of control and resource
commitment commonly associated with a Joint Venture
–Lowers risk of institutional conflicts
• Greater control  enhanced resource commitment
and higher risk (Delios& Beamish, 1999)
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Entry Strategy: Ownership strategy

21. “Starbucks, a Tata Alliance”
• India potentially the largest market
outside of the US for Starbucks
• US Starbucks + Tata Global
Beverages in January 2012 created
a 50:50 joint venture, TATA
Starbucks Limited
• India recently created a more open
economy allowing 100% equity
ownership of foreign firms
• However the environment does not
support this
– Weak Institutions: Lack of regulative
framework
– Cultural Values: Individualist
Entry strategy: Ownership strategy - Joint
Venture
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion

22. OWNERSHIP STRATEGY
Tesco and Ting Hsin
Industry Based View
• Local Competition
• Price Competition
• Increased Foreign
Competition
Resource Based View
• supply chain
• product development
• store operation
prowess
• Mgmt Expertise
Institutional Based View
• Institutions liberalised
the retail sector
• Protectionist society
• Cultural Distance from
UK
•2004 Tesco gained foothold in China
•50:50 JV with Ting Hsin (Hymall)
•2006 Tesco spent £180m acquiring 90%
stake
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Entry strategy: Ownership strategy - Joint
Venture

23. Yahoo and Alipay: Failed
• Yahoo’s stake in Chinese firm Alibaba
marked largest investment by foreign
firm in China’s technology market
• Yahoo 40%: Alibaba 60% merged search
engine operations
• JV included business-to-business
auction site Alipayrecognised as a key
asset for Yahoo’s access to China (key
strategic industries)
• Alibaba owner Mr Ma transferred
ownership of Alipay to Alibaba
• Yahoo’s 43% stake no longer has value
OWNERSHIP STRATEGY
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
OWNERSHIP STRATEGY- Joint Venture

24. Conclusions
Introduction
Institutional
Distance
Host Country
Selection
Entry Strategies Conclusion
Conclusion
•Institutional leg of strategy
tripod becoming increasingly
accepted within theory
•Porter – influence of cultures
and institutions dependent
upon structural
characteristics of industry
•Personal opinion –
globalization will result in
decreasing influence over
time

25. Questions?
Reflections: