Lecture Week 07

Internationalisation
MARK CROWDER
 Summary

• Ways to internationalise
• Porter’s Diamond
• Globalisation vs Localisation
• Ghemawat
Ways to internationalise
How do firms enter new markets?
Foreign Direct Investment (FDI)
the physical investments and purchases made by a company in a foreign country, typically
by opening plants and buying buildings, machines, factories and other equipment in the
foreign country. For instance
• A U.S. manufacturer might acquire an interest in a foreign company that supplies it with the raw materials it needs.
• Acquiring voting stock in a foreign company.
• Mergers and acquisitions.
• Joint ventures with foreign corporations.
• Starting a subsidiary of a domestic firm in a foreign country.

• For textile companies in particular, such as retail production, many factories are located in China and Bangladesh
despite sales being focused on North America – such as H&M or Zara – because material and labour are significantly
cheaper there; thus, outsourcing would result in higher profitability.
• In other cases, some large corporations will prefer to conduct business in countries that have lower tax rates. They
may do this by relocating their home office or parts of their business to a country that is a tax haven or has favourable
tax laws aimed at attracting foreign investors.
How do firms enter new markets?
Foreign Direct Investment (FDI) – watch this short video (7 mins)
How do firms enter new markets?
Foreign Indirect Investment (FII)
buying stakes or positions in foreign companies that trade on a foreign stock exchange.
• In general, this form of foreign investment is less favourable, as the domestic company can easily sell off their
investment very quickly, sometimes within days of the purchase. This type of investment is also sometimes
referred to as a foreign portfolio investment (FPI). Indirect investments include not only equity instruments
such as stocks, but also debt instruments such as bonds.
• Thus, direct foreign investments are often favoured by the foreign institution over indirect foreign investments
because the assets they purchase are considered long-term.
• Indirect foreign investments are typically shorter-term investments that aren’t always used for the growth and
development of another country’s economy over time.
Acronym investing
The term acronym investing refers to the idea of putting money into small groups of
markets that usually have little in common other than a broad economic concept.
Triad
EU, North America, Japan
Most international trade takes place between these trading areas, although this is changing…
BRICS - Originally BRIC (until 2010)
Brazil, Russia, India, China, South Africa
Leading developing countries with large, rapidly expanding economies. Large influences on
regional affairs. All are members of the G20
Russia (and to a lesser extent, China) are potentially destabilising forces
Acronym investing
The term acronym investing refers to the idea of putting money into small groups of
markets that usually have little in common other than a broad economic concept.
MINT
Mexico, Indonesia, Nigeria, Turkey
Government bonds increasingly attractive
CIVET
Colombia, Indonesia, Vietnam, Egypt, Turkey
Emerging countries whose economies are rapidly developing and are moving toward
industrialization. (notice that Indonesia is also in MINT)
Acronym investing
Let’s watch a short video from September 2023 about the BRICS group
Acronym investing
These acronyms were created for convenience by Goldman Sachs and others as a form of
analytical grouping
More recently, these groups of countries have begun to operate as an informal organisation
(eg BRICS) that seeks to further economic ties to each other
These markets may be attractive to investors because of their growth prospects and the
potential for big returns.
But there are also risks associated with investing in these areas, including political issues
and fluctuations in currency.
There is a similar concept but in ‘related’ companies, rather than countries:

FAANG
which represents Meta (formerly Facebook), Apple, Amazon, Netflix, and Alphabet
(formerly Google).
Quick recap of some ideas
Diversification and integration
Mergers and Acquisitions
Mergers and Acquisitions Defined (Whittington et al., 2020)
A merger A merger is the combination of two previously
separate organisations in order to form a new
company.

An acquisition is achieved by purchasing a

majority of shares in a target company.
An acquisition • ‘Friendly’ acquisitions are where the target’s
management recommend accepting the
acquirer’s deal.
• ‘Hostile’ acquisitions are where the target’s
management refuse the acquirer’s offer.
Joint Venture (JV)
Temporary partnership between two or more competing firms
Set up a new entity. Set up for a specific period of time. Achieve specific goals. Pool
resources.
JVs allow companies to pursue larger opportunities than they could alone, establish a
presence in a foreign country or gain a competitive advantage
Hoover Dam (6 companies)
Serco-Abellio (trains: eg Merseyrail, Northern Rail)
EE (Deutsche Telekom / Orange S.A) (telecommunications)
Manchester Life (MCC and Abu Dhabi United Group) (build 6k new houses)
Strategic Alliance
Two or more firms work together for one common objective
Pool some resources and capabilities. Remain independent organisations. No equity
involvement – may be less complex and less permanent than JV
Oil and natural gas company might ally with a research company to develop more
commercially viable recovery processes.
Clothing retailer might ally with a clothing manufacturer to ensure consistent quality and
sizing.
Starbucks / Barnes & Noble – coffee shops inside book shops
Hewlett Packard / Disney – since 1938. Egs: HP supply much of Disney’s IT infrastructure; HP helped to
develop the Epcot ride Mission: Space.
Apple / IBM – exclusivity deals
Let’s take these ideas forward
Porter’s (1990) Diamond
Research conducted between 1971-1985
Used lots of data: 100 Large firms in 10 countries
Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, UK,
USA
• Each involving between 5 and 19 industry cases.
Chance

• Summarised regional/national factors that lay behind

industry sector strengths in the ‘Diamond of Advantage’

Government
 Porter’s (1990) Diamond Explains why some
locations tend to produce
Chance firms with competitive
advantages in some
industries more than others.

Looks at clusters - industries

where the competitiveness
of one company is related to
the performance of other
companies

These four sets of national

influences operate
interdependently rather
than individually.
For the diamond to
Government positively impact upon
competitive performance,
usually all four sets of
influences are present.
 Porter’s (1990) Diamond
Related and supporting industries
Produce cost-effective inputs that are important for innovation and
internationalisation
Participate in the upgrading process, thus stimulating other
companies in the chain to innovate
http://www.youtube.com/watch?v=1xspbY7HsnM

Chance

Government
 Porter’s (1990) Diamond
Factor conditions
Human resources, physical resources, knowledge resources, capital
resources and infrastructure
Specialised resources are often specific for an industry and important
for its competitiveness
Basic Factors
natural resources, climate, location
demographics
Chance

Advanced Factors
Infrastructure, skills
research facilities

Government
 Porter’s (1990) Diamond
Demand conditions
Sophisticated and demanding local market leads to national advantage
because firms innovate faster and create more advanced products than
those of competitors

Chance

Government
 Porter’s (1990) Diamond
Firm strategy, structure, and rivalry
Structure has an effect on strategy and in which industry a nation’s
firms will excel. The way in which companies are created, set goals
and are managed is important for success
Domestic rivalry is beneficial internationally. It creates pressure to
innovate in order to upgrade competitiveness.

Chance

Government
 Porter’s (1990) Diamond
Government and chance
• Government:
Laws and regulation (eg enforcing strict product standards)
Stimulate rivalry and encourage advanced factor conditions
• Chance:
radical innovations
unexpected oil price rises
revolutions Chance

wars

Government
Globalisation or localisation…or…is there a middle ground?
 Globalisation or localisation?
Globalisation
• Levitt (1983) The globalisation of markets
• The demand for globalisation
– Global convergence - ease, low cost and frequency of international communication, transport and
travel. Technology has created a ‘global village’ in which goods, services and ideas are easily
exchanged.
– Growing similarity between countries offers opportunities for leveraging resources and sharing
activities across borders.
– Suppliers, buyers and competitors can operate as if there are no borders.
– Demands of standardisation, centralisation and coordination require a global firm with a strong
centre responsible for global strategy.
Globalisation or localisation?
 Globalisation or localisation?
Localisation
• Douglas and Wind (1986) The Myth of Globalisation
• The demand for local responsiveness
• Companies must remain attuned to the specific demands of each
national market. Many differences, eg differences in:
– culture - language, customs, religion, ethnicities, tastes
– government regulations.
– political systems, laws, trading blocks, currency.
– geography - physical distance, lack of land border, time zones, climate
– economy - income levels, wage costs, infrastructure.
• http://www.youtube.com/watch?v=kemtDbTBwpo
Globalisation or localisation?
 Bartlett and Ghoshal (1989)
MNC typology
• Multi-domestic – responsiveness to local market demands.
– Maximise local responsiveness – different product offerings for different countries. Limited international co-
ordination. Organisation is a collection of relatively independent units. Commonly found in marketing-
orientated companies (e.g. food companies).
• International – localisation
– Home country expertise. Most of the value chain is at HQ. Innovation and knowledge starts at local level and
spreads across organisation. (Google)
• Global – standardisation
– Standardised products in all markets. Central control from headquarters. Common for commodity products
(e.g. cement) but also might include IKEA.
• Transnational – maximises both responsiveness and integration
– Complex. Maximise local responsiveness and global co-ordination. Maximise learning and knowledge
exchange between dispersed units. Efficient operations but products/services adapted to local conditions. Hard
to achieve but General Electric is a possible example.
 Globalisation or localisation?
Pankaj Ghemawat – the extent of globalisation
 Globalisation or localisation?
Ghemawat (2003, 2017)
• Regional approaches
• Triple A triangle
 Globalisation or localisation?
Ghemawat (2003, 2017)
Triple A triangle
Seeks to strike a balance between
responsiveness and economies of scale
Adaptation (localisation)
Aggregation (merging and standardising)
Arbitrage (exploiting difference between
markets)
 Summary

• Ways to internationalise
• Porter’s Diamond
• Globalisation vs Localisation
• Ghemawat
 References
• Alexander, M., & Korine, H. 2008. When you shouldn’t go global. Harvard Business Review, 86(12), 70-77.
• Bartlett, C. A., & Ghoshal, S. 1999. Managing across borders: The transnational solution (Vol. 2). Boston, MA: Harvard Business School Press.
• Geppert, M. and Matten, D. 2006. 'Institutional Influences on Manufacturing Organization in Multinational Corporations: The 'Cherrypicking' Approach', Organization Studies, 27
(4), pp. 491-507.
• Ghemawat, P. 2008. Reconceptualizing international strategy and organization. Strategic Organization, 6(2), pp 195-206.
• Ghemawat, P., 2005. "Regional strategies for global leadership." Harvard business review 83, (12), pp 98-108.
• Ghemawat, P. 2003. ‘Semiglobalization and Global Strategy’, Journal of International Business Studies, 34 (2), pp. 138-152.
• Leknes, H. M. and Carr, C. 2004. 'Globalisation, international configurations and strategic implications: the case of retailing', Long Range Planning, 37 pp. 29-49.
• Maguire, S. and Hardy, C. 2006. 'The Emergence of New Global Institutions: A Discursive Perspective', Organization Studies, 27 (1), pp. 7-15.
• Rugman, A., & Hodgetts, R. 2001. The end of global strategy. European Management Journal, 19(4), pp 333-343.
• Rugman, A. M., & Verbeke, A. 2005. Towards a theory of regional multinationals: A transaction cost economics approach. MIR: Management International Review, pp 5-17.
• Rugman, A. M., & Verbeke, A. 2008. A new perspective on the regional and global strategies of multinational services firms. Management International Review, 48(4), pp 397-411.
• Svensson, G. 2001. '"Glocalization'' of business activities: a "glocal strategy'' approach', Management Decision, 39 (1), pp. 6-18.
• Schlie, E. and Yip, G. 2000. 'Regional follows global: strategy mixes in the world automotive industry', European Management Journal, 18 (4), pp. 343–354.
• Tong, T. W., Alessandri, T. M., Reuer, J. J. and Chintakananda, A. 2008. 'How much does country matter? an analysis of firms’ growth options', Journal of International Business
Studies, 39 pp. 387-405.
• Theodosiou, M. and Leonidou, L. C. 2003. 'Standardization versus adaptation of international marketing strategy: an integrative assessment of the empirical research', International
Business Review, 12 pp. 141–171.
• Vaara, E., Tienari, J. and Laurila, J. 2005. 'Pulp and paper fiction: on the discursive legitimisation of global industrial restructuring', Organization Studies, 27(6), 789-813