Managing across borders (How firms overcome their liability of foreignness) Chapter 7

Important insights from international management (IM) Difference in focus between international business and international management International business: Study of firms crossing national borders (incl. cross-border activities of businesses, interactions with the international environment, and comparative studies of business as an organizational form in different countries). International management: Study of the process of planning, organizing, directing, and controlling the organization. Hence, the importance of firm specific advantages. Key question: How can firms organize their foreign activities in the most effective and efficient way so that there is positive reinforcement between such activities and their firm-specific advantages?

Firm specific advantages Derived from the resource-based view (RBV) of the firm which argues that ‘a firm’s competitive advantage is the result of the application of a bundle of valuable resources.’ In RBV, resources and capabilities make up the firm-specific advantages. Resource is part of a firm-specific advantages if it is valuable rare inimitable non-substitutable

Resources are necessary but not sufficient condition for firm-specific advantage. They need to be complemented by capabilities. One of the most important capabilities of firms is dynamic entrepreneurial ability. Firm-specific advantages can be derived from various sources (e.g., marketing and/or proprietary knowledge.) See Table 7.1

Multi-locational or multinational How are firm-specific advantages related to internationalizing firms? (Table 7.2)

Managing the global-local paradox Tensions between the pressure to be cost effective and standardizing within the firm (global integration) and the pressure to be locally responsive (localization). Table 7.3

Figure 7.1 Transferring subsidiary resources to the multinational (under transnational strategy) Subsidiary resources Can be transferred (not location bound) Superior to elsewhere in multinational? no yes Recognized by the multinational? no Cannot be transferred (location bound) yes Effectively used by the multinational? no Figure 7.1 yes Part of multinational’s firm-specific advantage Source: adapted from Birkinshaw et al (1998)

Three examples of the global-local challenge International marketing Corporate social and environmental responsibility Human resource management

Figure 7.2 Correlation in cultural characteristics Data source: Hofstede (2003); the 30 countries listed in Table 7.4 are depicted.

Figure 7.3 Increase in taxes if used to prevent environmental pollution

Entry modes Licensing Franchising Greenfield Acquisition Joint venture

Figure 7.4 Acquisition waves 1895-2012 Source: updated figure provided by McCarthy (2011, p.16).

Choosing optimal entry mode Main factors Degree of control Level of resource commitment Dissemination risk Internationalization patterns over time Box 7.5: IKEA’s internationalization over time

European countries (square) and other countries (circle Figure 7.5 Distance distribution of IKEA’s first stores over time, 1963-2011 European countries (square) and other countries (circle Figure 7.5a Data sources: www.ikea.com for first stores, www.distance-calculator.co.uk for distances from Almhult to first store locations, and www.cepii.fr for worldwide average distance to Sweden. Regression lines for European countries significant, for other countries not significant; overall regression significant for cultural distance, not for geographic distance. Average distance from Sweden to 224 other countries is 6826 km; average distance from Almhult to first stores is 3763 km

European countries (square) and other countries (circle Figure 7.5 Distance distribution of IKEA’s first stores over time, 1963-2011 European countries (square) and other countries (circle Figure 7.5b Data sources: www.ikea.com for first stores, www.distance-calculator.co.uk for distances from Almhult to first store locations, and www.cepii.fr for worldwide average distance to Sweden. Regression lines for European countries significant, for other countries not significant; overall regression significant for cultural distance, not for geographic distance. Average distance from Sweden to 224 other countries is 6826 km; average distance from Almhult to first stores is 3763 km