2022/9/16

Special Topics in Management

Young Ko

Week 3

Trends in IB
1. Trade between partners of Regional Trade Agreements
(RTAs)
2. Global production network
3. Intra-firm trade
4. E-commerce

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Global and Regional Integration

 World Trade Organization (WTO)
General Agreement on Tariffs and Trade (GATT)

 Regional Agreements
North American Free Trade Agreement (NAFTA)
European Union (EU)
Association of Southeast Asian Nations (ASEAN)

Global Production Network

 The share of manufactured goods within world merchandise
trade has grown significantly throughout the world.

 The share of parts and components exports of total

merchandise exports has greatly increased

Exported goods contain a significant portion of imported

intermediate inputs.

 In the “international segmentation of production”

intermediate inputs are exported for more processed

intermediate inputs, which are then exported to the next
stage in production.

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WTO: Principles of the trading system

 World Trade Organization (WTO)
General Agreement on Tariffs and Trade (GATT)
 Trade without discrimination
 1. Most-favoured-nation (MFN): treating other people
equally
Under the WTO agreements, countries cannot normally
discriminate between their trading partners.
 2. National treatment: Treating foreigners and locals equally
Imported and locally-produced goods should be treated
equally, giving others the same treatment as one’s own
nationals

• In May 2022, the United States launched the Indo-Pacific Economic Framework
• Australia, Brunei Darussalam, Fiji India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand,
Philippines, Singapore, Thailand, and Viet Nam.
• This framework will advance resilience, sustainability, inclusiveness, economic growth,
fairness, and competitiveness for our economies.
• https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/statement-on-indo-pacific-economic-framework-for-prosperity/

• Trade: build high-standard, inclusive, free, and fair trade

• Supply Chains: improving transparency, diversity, security, and sustainability in our
supply chains to make them more resilient and well-integrated
• Clean Energy, Decarbonization, and Infrastructure: development and deployment of
clean energy technologies to decarbonize our economies
• Tax and Anti-Corruption: promoting fair competition by enacting and enforcing effective
and robust tax, anti-money laundering, and anti-bribery regimes

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Session Objectives

 Globalization vs. deglobalization

 Three types of international strategy

 Foreign market entry modes

DOMESTIC VERSUS GLOBAL MARKETS

• Stable
DOMESTIC •
•
Predictable
Less complex
• Globalization is reducing the
MARKETS number of domestic-only
markets

• Unstable
GLOBAL •
•
Unpredictable
Complex and risky
MARKETS • Globalization is enabling global
markets

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 What are the benefits of firms when they enter

foreign market and/or operate globally?

 INCREASED MARKET SIZE

 ECONOMIES OF SCALE AND LEARNING
 LOCATION ADVANTAGES

THREE BASIC BENEFITS OF INTERNATIONAL

STRATEGY

1. INCREASED MARKET SIZE

● Domestic market may lack the size to support efficient
scale manufacturing facilities
● Generally, larger international markets offer higher
potential returns
● The international markets may facilitate efforts to more
effectively sell and/or produce products

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THREE BASIC BENEFITS OF INTERNATIONAL

STRATEGY

2. ECONOMIES OF SCALE AND LEARNING

● Working in multiple international markets also provides
firms with new learning opportunities
● Increasing the firm’s R&D ability can contribute to its
efforts to enhance innovation
● However, to take advantage of international R&D, firms
need to already have a strong internal system to absorb the
outside R&D knowledge

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Experience Curve
 Experience curve: The accumulation of experience in a
particular job can reduce the cost of inputs required
($)

Unit • Learn and become familiar

Cost • Improved manufacturing processes or
product design

Experience (Time or Volume)

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Learning curve

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THREE BASIC BENEFITS OF INTERNATIONAL

STRATEGY

3. LOCATION ADVANTAGES
Physical distances influence firms’ location choices, i.e.,
transportation costs

● Certain markets may offer superior access to critical

resources, e.g., raw materials, lower-cost labor, energy,
suppliers, key customers
● Cultural influences may be advantageous—a strong
cultural match facilitates international business

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WTO: Principles of the trading system

 World Trade Organization (WTO)
General Agreement on Tariffs and Trade (GATT)
 Trade without discrimination
 1. Most-favoured-nation (MFN): treating other people
equally
Under the WTO agreements, countries cannot normally
discriminate between their trading partners.
 2. National treatment: Treating foreigners and locals equally
Imported and locally-produced goods should be treated
equally, giving others the same treatment as one’s own
nationals

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Buiz News
Week Date
2 9/9/2022 Young
3 9/16/2022 Kim Taeyoung
4 9/23/2022 Ficko Jernej Kwon Chae-hyun Hwang Younghu Eylül
5 9/30/2022 GRAEFE JASPER OLUF Kim Hayoung Kropp Marisa Kim Jinhyung
6 10/7/2022 LEE MEI CHIE Do Eunseo MA JIAXIANG Park Geun-ju
7 10/14/2022 Marniga Paolo Kim Jisong PAN MYAT THWIN Shim Jaemin
8 10/21/2022 Mid Pre
9 10/28/2022 TBD
10 11/4/2022 Prodinger Matthias Lee Chaewon Queuche Sarah Song Hao Cho Hyun-joon
11 11/11/2022 RINCON HERNANDEZ NICOLAS Cho Seojung Stark Christian Wolfgang Han Minju
12 11/18/2022 Zerhusen Hauke Henning Hong Jiwoo Abisheva Adiya Kim Ji-won
13 11/25/2022 BERRY ALYSSA JANE Bae Kiwan Dosmukhan Abay Kim Min Jeong
14 12/2/2022 TBD
15 12/9/2022 Final exam

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MNC and Its strategy

 Multinational corporations (MNC)

Operations in more than one country
International sales,
Nationality mix of managers and owners

 MNE’s Strategy
Multi-domestic
Global
Transnational

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Multi-domestic strategy

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Global strategy

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Transnational strategy

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INTERNATIONAL STRATEGIES

• KEY ASSUMPTION: country/cultural

MULTIDOMESTIC differences → need for local needs
• ADVANTAGE: local responsiveness

• KEY ASSUMPTION: universal demand →

GLOBAL need for global integration
• ADVANTAGE: global efficiencies

• ADVANTAGE: BOTH
TRANSNATIONAL • local responsiveness and global efficiencies

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INTERNATIONAL STRATEGIES

• EXAMPLE: Costco
MULTIDOMESTIC

• EXAMPLE: Intel: centralizes operations in

GLOBAL order to gain scale economies

• EXAMPLE: Starbucks in China standardizes

TRANSNATIONAL operations while simultaneously
decentralizes some decision-making for local
responsiveness

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Multi-domestic Strategy
 Strategy and operating decisions are decentralized to strategic
business units in each country
 Business units in each country are independent
 Products and services are tailored to local markets
 Focus on competition in each market

 Characteristics
response to different national needs
cultural
preferences
legal / political
infrastructural
broad guidelines from headquarter
most of the management is done locally
bottom-up strategies

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Global Strategy
 Firm offers standardized products across markets
 Strategic and operating decisions are centralized at the home
office
 Home office attempts to achieve integration

 Emphasizes economies of scale

 Less responsive to local market opportunities

 Characteristics
cost reduction by standardization
coordinated and economic use of resources
top-down strategy

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Transnational Strategy
 Seeks to achieve both global efficiency and local
responsiveness
 Requires both:
 Centralization - global coordination and control
 Decentralization - local flexibility

 Characteristics
focus on core competences with adjustments
two-way communication

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From Global Companies to

Transnational Companies
 Global Company
A multinational venture centrally managed from one
country.
Has global strategies for product design, financing,
purchasing, manufacturing, and marketing.
 Transnational Company
A global network of productive units with a decentralized
authority structure and no distinct national identity.
Relies on a blend of global and local strategies.
 Multidomestic company
series of domestic companies

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Question

 Which company or industry might be considered as

global or multidomestic company? Why?

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The MNE industry type continuum

An MNE performs somewhere in this range:
Multidomestic Industries Global Industries

Examples
retailing, distribution, insurance airlines, semiconductors, IT

International strategy
series of domestic strategies Must integrate activities on a
worldwide basis

Multidomestic industry: competition in each country is essentially independent

of competition in other countries

In a global industry: a firm must integrate its activities on a worldwide

basis to capture the linkages among countries

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Multi-Domestic Strategy
 Emphasizes responsiveness to local requirements
within each of its markets.

 Netflix customizes the programming that is

shown on its channels within dozens of countries.
rather than trying to force all of its American-
made shows on viewers around the globe.

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Global Strategy
 Sacrifices responsiveness to local requirements in favor
of emphasizing lower costs and better efficiency.
 Stresses the need to gain low costs and economies of
scale by offering essentially the same products or
services

 Microsoft offers the same software programs around

the world but adjusts the programs to match local
languages.
 Global strategies also can be very effective for firms
whose product or service is largely hidden from the
customer’s view, such as chip maker Intel.

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Transnational Strategy
 Seeks a middle ground between a multi-domestic
strategy and a global strategy
Such a firm tries to balance the desire for
efficiency with the need to adjust to local
preferences within various countries.

 McDonald and KFC rely on the same brand names

and the same core menu items around the world.
But make some concessions to local tastes:
In France, wine can be purchased at
McDonald’s
In China, KFC serves rice menu

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Next week

 Foreign Market Entry Modes

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