Reviewer in BINT o The US economy is significantly larger

than that of its two trading partners and

is therefore a triad member on its own.
Topic 1: Regional and Global Strategy
B. European Union (EU)
International business o The EU (or EU27) is composed of the
countries in the EU15 (Austria, Belgium,
- the study of transactions taking place across
Denmark, Finland, Germany, Greece,
national borders for the purpose of satisfying
France, Ireland, Italy, Luxembourg, the
the needs of individuals and organizations.
Netherlands, Portugal, Spain, Sweden,
Multinational enterprises (MNEs) & the UK) and twelve new, mainly
Central European, countries that joined
- a company headquartered in one country but
in 2004 & 2007.
having operations in other countries.
o The collective GDP of the EU is greater
- MNE Activity
than that of the US and Japan.
a. Trade
o The EU27 is the world’s largest importer
o exports and imports
& exporter.
o More than 50% of all trade is made by
C. Japan
the world’s largest 500 MNEs.
o Japan is the largest economy in Asia.
b. Foreign direct investment (FDI)
o Japan is the 4th largest importer and
o 80% of all FDI is made by the world’s
4th largest exporter in the world
largest 500 MNEs.
International Business Environment
Trade and Investment
- The international business environment has
A. Trade
changed rapidly in recent years as a result of:
a. Exports
o an overall slowdown of triad
o goods and services produced in one
economies;
country and then sent to another
o increased trade liberalization through
country.
trade agreements;
b. Imports
o improvements in technology;
o goods and services produced in one
o the emergence of SMEs
country and bought in another country.
B. Foreign Investment Slowdown of Triad Economies
o consists of companies investing funds to
- In the late 1990s and early 2000s, the United
start or improve operations in another
States, the EU, and Japan all experienced a
country.
reduction in economic activity, which in turn
Triad decreased international business activity.
- Most global transactions take place within and International Trade Regulation
between three key regions—the United States,
- An important international business trend has
the European Union and Japan—these are
been the emergence of regional & global trade
referred to as the ‘triad.’
and investment liberalization & international
A. United States (US)
regulation.
o The US has the largest economy in the
o The World Trade Organization (WTO).
world with a GDP of over $10 trillion.
o The US is part of the North American o General Agreement on Tariffs and Trade
(GATT).
Free Trade Agreement (NAFTA) with
Canada and Mexico.
The World Trade Organization  These MNEs engage not in global competition
but in triad/regional competition; this rivalry
- Established on January 1, 1995.
effectively eliminates enduring political
- An international organization that deals with
advantage.
rules of trade among member countries.
 MNEs adapt their products for the local market
- Enforces the provisions of the General
Agreement on Tariffs and Trade (GATT).
- Acts as a dispute-settlement mechanism
Porter’s Determinants of National Competitive
The General Agreement on Tariffs and Trade (GATT) Advantage

- Established in 1947 to liberalize trade and to

negotiate trade concessions among member
countries.
- Today, the WTO is enforcing the provisions of
the GATT.

Improved Technology

- More powerful & affordable technology has

promoted fast easy worldwide communication
& improved production capabilities enabling - Each of these determinants depends on the
organizations to operate more effectively in the others as a system
international marketplace.
Comparative Differences in the Study of International
Small and Medium-sized Enterprises (SMEs) Business, 1950–2010
- The definition of SMEs varies according to the
nation. In general, it refers to companies with
between 11 and 500 employees with sales of
less than $5 million.
- MNEs often purchase from SMEs. This is
because their specialized workforces, innovation
and technology allows SMEs to provide goods
and services more efficiently than if the MNE
were to source these internally.

Misconceptions About MNEs

 MNEs have far-flung operations or earn most of

their revenues overseas.
 MNEs are globally monolithic and excessively
powerful in political terms.
 MNEs produce homogeneous products for the
world market and through their efficient
techniques can dominate local markets
everywhere.

In fact,

 MNEs earn most of their revenues in their home

regions
 The largest 500 MNEs are not spread around
the world but clustered around the triad.
Topic 2.1: The Multinational Enterprise (MNE) - Not all international business is done by MNEs.
Indeed, setting up a wholly-owned subsidiary is
Multinational Enterprise (MNE)
usually the last stage of doing business abroad.
- A company headquartered in one country but - Why do businesses wait to set up wholly-owned
with operations in one or more other countries. subsidiaries?
- MNEs often downplay the fact that they are o Foreign markets are risky
foreign-held
A Typical Internationalization Process
The World’s Largest Multinational Enterprises, 2022
- Initially, the firm might license patents,
1. Walmart (U.S) trademarks or technology to a foreign company
2. Amazon.com (U.S) in exchange for a fee or royalty.
3. State Grid (China) - The firm sees a potential for extra sales by
4. China National Petroleum (China) exporting and uses a local agent or distributor
5. Sinopec (China) to enter a foreign market. The firm may use
6. Saudi Aramco (Saudi Arabia) exporting as a “vent” for its surplus production
7. Apple (U.S) and might have no long-term commitment to
8. Volkswagen (Germany) the international market.
9. China State Construction Engineering (China) - As exports become more important, the MNE
10. CVS Health (U.S) will set up an office for its sales representative
or a sales subsidiary. The firm might set up local
Characteristics of MNES
packaging and/or assembly operations.
- Affiliates must be responsive to several - Finally, the firm will set up a wholly-owned
important environmental forces, including subsidiary (FDI).
competitors, customers, suppliers, financial
Entry into foreign markets: The internationalization
institutions, and government.
process
- Draw on a common pool of resources, including
assets, patents, trademarks, information, and
human resources.
- Affiliates and business partners are linked
together by a common strategic vision—the
strategic management process in action

The Multinational Enterprise and Its Environment

Why Do Firms Become MNEs?

- To diversify themselves against the risks and

uncertainties of the domestic business cycle;
- To tap the growing world market for goods and
services;
The Internationalization Process - In response to foreign competition;
- To reduce costs;
- Internationalization - To overcome barriers to entry into foreign
o The process by which a company enters markets;
a foreign market. - To take advantage of technological expertise by
manufacturing goods directly.
The Strategic Philosophy of MNEs
- MNEs make decisions based on what is best for
the overall company, even if this means
transferring jobs to other countries & cutting
back the local workforce.
The International Expansion of Four MNEs
Strategic Management and MNEs
- The strategic management process involves four
major functions: strategy formulation, strategy
implementation, evaluation, & the control of
operations.
The Strategic Management Process in Action
1. Identification of the firm’s basic mission
2. Analysis of the external and internal
environment
3. Formulation of objectives and overall plan
4. Implementation of the plan
5. Evaluation and control of operations
Basic Mission
- The following questions must be answered to
determine the firm’s basic mission:
o What is the firm’s business?
o What is the reason for its existence?
For example,
o Royal Dutch/Shell; BP Amoco and
Texaco are in the energy business, not
the oil business.
o AT&T, Sprint and MCI are in the
communications business, not the
telephone business.
Analysis of the External and Internal Environment
- The goal of external environmental analysis is to
identify opportunities and threats that will need
to be addressed.
- The purpose of an internal environmental
analysis is to evaluate the company’s financial
and personnel strengths and weaknesses
Formulation of Objectives and Overall Plan
- Internal and external analyses will help identify
long-term (2–5 years) and short-term (< 2 years)
goals.
- Goal – an achievable outcome that is broad and
long-term
- Objective – defines measurable actions in the
short-term to achieve overall goal.
The Implementation Process
- Once goals have been established, the plan is
then broken into major parts and each affiliate
and department is assigned goals and
responsibilities.
1. Define
o Conduct a site to determine the right
product for each location
o Evaluate the skin health baseline of
your company
2. Implement
o Install products and smart dispensers
o Educate your employees on the
importance of skin care
3. Communicate
o Establish your communication process
o Provide meaningful and actionable
feedback to your employees
4. Improve
o Integrate DebSafe into your formal
Health & Safety practices
o Repeat the Skin Condition Evaluation
every 6 months to measure
improvement
Evaluation & Control of Operations
- Progress is periodically evaluated and changes
are made in the plan to accommodate changing
circumstances and new information.
Building Blocks in Our International Business
a. Firm-specific advantages (FSAs)
o a unique capability proprietary to the
organization
o It may be built upon product or process
technology, marketing or distributional
skills.
b. Country-specific advantages (CSAs)
o country factors
o Natural resource endowments
(minerals, energy and forests), the labor
force and associated cultural factors,
etc.
The Basic Components of International Business
The FSA-CSA Matrix
The Competitive Advantage Matrix
 Quadrant 1: resource-based and/or mature,
globally-oriented firms producing a commodity-
type product – cost leadership (improving FSA
can make them move to quadrant 3)
 Quadrant 2: inefficient, floundering firms no
alternative but to exit or to restructure
 Quadrant 3: follow any of the generic strategies
– both cost leadership & differentiation
 Quadrant 4: differentiated firms with strong
FSAs in marketing and customization –
differentiation (the CSA is not relevant)
Dunning’s “Eclectic” Theory of MNEs: OLI Framework
- Ownership factors (O): FSAs Location factors (L):
CSAs Internationalization factors (I): FSAs
- O and I, in practice, are integrated features of
FSA management within the MNE that cannot
be decoupled in strategic decision making.
It’s Regional, Not Flat
- The world is flat by Thomas Friedman, the New
York Times journalist.
o Today, a large proportion of
international business takes place
through offshoring leading to
globalization.
- The world is not flat!
o There remain strong barriers as a
business attempt to cross the
boundaries of triad regions.
o The liability of inter-regional foreignness
Topic 2.2: The Triad and International Business Czech Republic and Poland are part of
its FDI cluster
 Most FDI and trade is conducted by MNEs.
 MNEs from the triad continue to dominate The Triad and Regional Business Strategy
international business.
- MNEs pursue market opportunities within their
 The triad is the basic unit of analysis in
own triad as well as that of the other members.
international business.
- International expansion does not necessarily
Foreign Direct Investment mean “global” expansion.
- The nature of international business is regional,
- ownership and control of foreign assets.
not global.
- usually involves the ownership, whole or
o For example, Wal-Mart has 94.5% of its
partially, of a company in a foreign country: a
sales in North America, and only about
foreign subsidiary.
20% of Wal-Mart’s stores are located
- different from portfolio investment, which is the
outside of North America.
purchase of financial securities in other firms for
the purpose of realizing a financial gain when Wal-Mart’s globalization: Regional distribution of
these marketable assets are sold stores
Some Reasons for FDI  United States – 61%
 Canada – 4%
 Increase sales and profits.
 Mexico – 13%
 Enter rapidly growing markets.
 Other Latin America – 11%
 Reduce costs.
 Other international – 11%
 Gain a foothold in economic blocs.
 Protect domestic markets. The World’s Regional Automotive Industry
 Protect foreign markets.
- There are 30 automotive firms in the world’s
 Acquire technological and managerial know-
largest 500 firms.
how.
o None of these are global firms!
FDI and Trade by Triad Members - Twenty-three of the 30 firms are home-region
based, with an average of 60% of their sales as
- The triad accounts for about 80% of world FDI.
intra-regional.
Two important FDI destinations are
o There are two host-region oriented and
a. Intra-regional
five bi-regional automotive firms on the
o from one triad member to another
list
b. Inter-regional
o from one triad member to the Key Reasons for the Automotive Industry’s Regional
geographic region that surrounds it. Operations
(e.g., from the US to the Americas)
- The auto industry operates in “clusters” of
Triad FDI Clusters localized activity within each major triad region.
- Auto firms are strongly embedded in
- A group of developing countries usually located
downstream activities and after-sales markets.
in the same geographic region as a triad
o Cultural barriers across regions.
member and having some form of economic link
o Fuel.
to this member.
o Different environmental regulations.
o The US tends to be a dominant investor
o Tariffs.
in Latin America, and countries such as
o Local competitors are more adept at
Mexico and Brazil are part of its FDI
meeting the demands of their regional
cluster.
markets
o The EU tends to be a dominant investor
in Eastern Europe and countries like the
Topic 3: International Culture Customs and Manners

Culture - Customs
o common or established practices.
- “the sum of the beliefs, rules, techniques,
- Manners
institutions and artifacts that characterize
o behavior regarded as appropriate in a
human populations” or “the collective
particular society
programming of the mind.”
Corporate Culture
Socialization Process
- term used to characterize, how the managers
- The process of enculturation or the adoption of
and employees of companies tend to behave.
the behavior patterns of the surrounding
- also used by human resource managers and
culture.
senior management in their attempts to
Language proactively shape the kind of behavior
(“innovative,” “open,” “dynamic,” etc.) they
- critical to culture because it is the primary
hope to nurture in their organizations.
means used to transmit information & ideas.
- Promoting a distinctive corporate culture is also
- Knowledge of local language can:
expected to enhance the sense of community &
o permit a clearer understanding of a
shared identity that underpins effective
situation;
organizations.
o provide access to local people; and
o allow the person to pick up nuances, The Importance of Culture in Different Business
implied meanings, & other information Contexts
that is not stated outright.

Religion

- influence lifestyles, beliefs, values and attitudes

and can have a dramatic effect on the way
people in a society act toward each other and Influences of Culture on International Management
towards those in other societies.
a. Work attitudes
- Religion also influences:
o for example, work ethics, organization
o the work habits of people;
commitment, etc.
o the work and social customs (from the
b. Achievement motivation
days of the week on which people work
o the desire to accomplish objectives and
to their dietary habits); and
achieve success.
o politics and business.
c. Time and future
Values and Attitudes o for example: punctuality, decision-
making time constraints, time
- Values
expectations on implementation of
o basic convictions that people have
plans, etc.
regarding what is right and wrong, good d. Ethics
and bad, important and unimportant. o standards of conduct and morality
- Attitude
o a persistent tendency to feel and Culture and Strategic Management
behave in a particular way toward some
- Cross-cultural management issues arise in
object
several situations, including:
a. Within a firm: Work attitudes, achievement
motivation, time and future and ethics, etc.
 b. Between firms: M&As, joint ventures,
alliances and buyer-supplier relationships.
c. Between a firm and customers: Dealing
with customers.
d. Dealing with national institutions
Cross-cultural Business Contexts
Fons Trompenaars’ Seven Cultural Dimensions
National Stereotypes and Key Dimensions of Culture
Two Approaches to Culture
1. Psychic or psychological level
o focuses on the “internalized” norms,
attitudes, and behavior of individuals
from a particular culture;
2. Institutional level
o looks at national (or group) culture
embodied in institutions (government,
education, economic institutions, as
well as in business organizations
Geert Hofstede’s Four Cultural Dimensions
1. Power distance
o measures the degree to which less
powerful members of organizations and
institutions accept the fact that power is
not distributed equally.
2. Uncertainty avoidance
o measures the extent to which people
feel threatened by ambiguous situations
and have created institutions and
beliefs for minimizing or avoiding those
uncertainties.
3. Individualism vs. Collectivism
a. Individualism
o the tendency of people to look after
themselves and their immediate family
only.
b. Collectivism
o the tendency of people to belong to
groups who look after each other in
exchange for loyalty.
4. Masculinity vs. Femininity
a. Masculinity
o the degree to which the dominant
values of a society are success, money
and material goods.
b. Femininity
o the degree to which the dominant
values of a society are caring for others
and the quality of life.
1. Universalism vs. particularism
a. Universalism
o the belief that ideas and practices can
be applied everywhere in the world
without modification.
b. Particularism
o the belief that circumstances dictate
how ideas and practices should be
applied and somethings cannot be done
the same everywhere
2. Individualism vs. collectivism
o centers on whether individual rights
and values are dominant or subordinate
to those of the collective society.
3. Neutral culture vs. emotional culture
a. Neutral culture
o A culture in which emotions are held in
check.
b. Emotional culture
o A culture in which emotions are
expressed openly and naturally.
4. Specific vs. Diffuse
o measures whether work relationships
(e.g., the hierarchical relationship
between a senior manager and a
subordinate) are workplace ‘specific’ or
extend (diffuse) into the social context
outside the workplace.
5. Achievement vs. Ascription
o measures whether one’s status within
organizations is based on merit
(“achieved”) or on class, gender,
education or age (“ascribed”).
 6. Attitudes toward time
a. Sequential
o cultures that view time in a sequential
or linear fashion; order comes from
separating activities and commitments.
b. Synchronic
o cultures that view events in parallel
over time; order comes from
coordinating multiple activities and
commitments.
7. Attitudes toward the environment
o measures the emphasis, a particular
culture places on people’s relationship
with nature and the natural
environment.
The GLOBE Project’s Nine Dimensions of Culture
1. Assertiveness.
2. Future orientation
o A propensity for planning, investing,
and delayed gratification.
3. Gender differentiation
o The degree to which gender role
differences are maximized.
4. Uncertainty avoidance
o A reliance on societal norms and
procedures to improve predictability, a
preference for order, structure and
formality.
5. Power distance.
6. Institutional collectivism
o individualism vs. collectivism.
7. In-group/family collectivism
o A pride in small group membership,
family, close friends etc.
8. Performance orientation
o (Much like achievement orientation).
9. Humane orientation
o An emphasis on fairness, altruism and
generosity.
Management Dimensions of Culture
Useful Strategies for Managing Cultural Diversity
 Build diversity issues into recruitment, HRM
planning, strategy, location decisions, alliances
and partnerships.
 Identify where and to what degree local
divisions should be encouraged or empowered
to take the lead in expressing and managing
diversity.
 Encourage cross-border discussion and
interaction as well as focused training.
 Aim for a cultural balance in particular areas of
strategic and tactical decision-making.
 Lead from the top
Multinational Organizational Structures: Imperialist or
Independent?
a. Ethnocentric
o top management is dominated by
home-country nationals and procedures
and management styles are
“transferred” from head office and
“imposed” on regional subsidiaries in
place of local “ways of doing things.”
b. Polycentric
o firms tend to act like a federation of
semi-autonomous organizations with
financial controls or strict reporting
structures holding them together.
c. Geocentric
o An equal sharing of power and
responsibility between headquarters
and subsidiary.
Organization Types Reflecting Cultural Predispositions

Culture Embodied in National Institutions

a. Western Pluralism
o emphasizes individual competitiveness,
commonly represented by separate
ventures competing in price-defined
markets for success.
b. Command Economies
o are centrally planned hierarchies with
less individualism and less individual
incentive.
c. Organic Ordering
o refers to the family-centered hierarchies
of Asia, Southern Europe and Latin
America.
d. Structured Networks
o reflect the more equal, structured
relationships between companies and
with public sector organizations that
exist in some countries